Sunday, November 2, 2008

What is Universal Life Insurance?

Another common form of life insurance is universal life. With this kind of policy:
  • You may pay premiums at any time, of virtually any amount, subject to minimums.
  • The amount of cash value the policy builds is based both on the premiums paid and on the interest earned.
  • The insurance company subtracts money from the fund each month to cover the cost of the insurance and expenses.
  • They offer standard rates that can be substantially cheaper—as much as 30 percent or more—than standard rates charged by insurance companies for comparable term coverage.
Some universal life policies feature progressive underwriting (which means it’s easier to get coverage). These policies usually are structured so that if you pay the minimum annual premiums, coverage won’t lapse for 15 or 20 years.

Another form of this insurance is variable universal life. It provides death benefits and cash values that vary according to the investment returns of stock and bond funds managed by the life insurance company. The premiums that you have to pay can also change a lot.

Target premiums are fixed in the first year—but policyholders, because of the flexible nature of the products, are not contractually entitled to those fixed payments afterward. The cost of variable universal life is too uncertain for some people because of the open-ended method of premium payment.

1 comment:

  1. Well this policy seems to me more flexible than the whole life or term insurance plan. I had planned to buy a whole life insurance scheme but after learning about this policy I think I need to revise my decision.
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