Learning Universal Life Insurance

WHAT IS UNIVERSAL LIFE INSURANCE?

Universal Life Insurance goes by many names, Flexible Premium, Variable Whole Life, Universal Whole Life. This is not to be confused with Whole Life Insurance as it is different. Universal Life is a mix between Whole Life and Term Life. This policy is a great option for building an investment or retirement fund.

How Does Universal Life Insurance Work?

Universal Life Insurance was very common back before the stock market crash in 2008. It has aspects of Whole Life and aspects of Term Life. It accumulates cash value and grows over time while maintaining a steady premium rate. Overtime that premium increases and eventually will eat up the cash value leaving you with an unaffordable premium payment.

Premiums

The premiums are put into a cash value account that grow interest, just like whole life policies. The premiums start off just as cheap as term and increase every year, however, you as the client are paying the same premium every pay period. Starting off, you are paying a higher premium for the policy than what the company is paying to insure you. For example, your premium could be $50.00 a month, but the actual cost is more like $15.00. Over time, the cost to insure you becomes more than what you're paying. So while you're still paying that $50.00, the actual price has jumped to $75.00. That extra $15.00 is being taken from your cash value (below).

Cash Value

Universal policies accumulate cash value just like a whole life policy. Universal policies rely on the stock market values to determine how much cash value is accumulated, with most companies guarantee it never dropping below a certain percentage. Your cash value is accumulating in an individual account as you continue paying premiums.

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Eventually your premium cost will increase higher than the premium you are actually paying. All clients have access to when this point will occur, it's never hidden from the policy holder. Once this happens, the extra costs are being paid from the cash value.

If you don't follow your policy and you continue to allow the premiums to be paid from the cash value, the cash value account will eventually be depleted of all monies. You will then be forced to pay the price of the premium payment in order to keep the policy, which tends to be astronomical and unaffordable at that age and price.

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Universal Life Policies are best when utilized properly for their investment opportunities. Make sure you keep up with the policy to find the best time to pull out. Over time, you will have accumulated a nice amount of cash value to live off of during retirement, or use for whatever purpose you so desire.