Universal life insurance is a policy that offers low-cost protection for term life insurance and provides a savings element which is invested to provide more cash value. The savings element, death benefit and premiums can be altered and reviewed as the policyholders circumstances change. Additionally, unlike whole life insurance, universal life policies allows an individual to use the interest accumulated in their policy to help pay the premiums of the policy.
Understanding universal life policies doesnt have to be complicated, especially if somebody knows the basics. When the first premium payment is made, the insurer subtracts the expense and other fees and deposits the amount that remains into the policys cash value. Each month the policy is in place, any expenses and fees are deducted. One of the many reasons universal life policies are attractive is the cash value grows every month based on its current interest rate. When the premium is paid in surplus of expenses and fees, the policys cash value begins to earn interest and this growth is tax-deferred.
If the person is persistent in paying their premiums, the policies cash value over time can grow that it can be used to cover the regular premium payments. Within certain guidelines, an individual is allowed to borrow against their policys cash value at attractive interest rates. Individuals who can pay their premiums on time and occasionally pay more can take advantage of their policys tax-advantaged interest.
Overall, universal life insurance was created to provide more flexibility to individual policy holders by allowing the policy owner to shift money between the savings and insurance components of the policy. The premiums of the policy are broken down into savings and insurance aspects, allowing the policy owner to make adjustments pertaining to their individual circumstances. For example, if the savings part of the policy is earning a low interest rate, it can be used to pay the premiums of the insurance policy instead of other funds. The simple structure of a universal life policy is what gives its premium flexibility, and an individual should figure out how they can use this type of policy for their own benefit.