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What Is a Universal Life Insurance Policy?

With the ever-increasing demand of taking out life insurance policy in our society today, life insurance companies offer a variety of life insurance policies that people can now choose from. Depending on one’s needs, future goals and health, amongst other things, a person can now choose between the available life insurance policies, like term life insurance policy, whole life, permanent life and universal life insurance policies. It is a great feeling when one knows that they will not be tied down to only one type of life insurance, but they can exercise their right to choose the one which best suits individual needs, lifestyle, pocket and future goals. This being the case, one of the most flexible types of life insurance policy is the universal life insurance policy.

What is universal life Insurance and how does it work?

A universal life insurance policy is a more flexible type of permanent life insurance which offers the policy owner a low cost protection of term life insurance, combined with a savings element that whole life insurance offers. The savings element of the policy is then invested to provide the policy owner with cash value build-up. The universal life insurance policy also allows the policy owner to use the interest from his or her cash value savings to help pay up the premiums. Therefore with universal life insurance policy, one combines a term life insurance policy with a tax-deferred interest bearing savings account.

Benefits of universal life insurance

One benefit of taking out universal life insurance policy is that the policy owner accumulates tax deferred savings from the policy, as already mentioned above. Secondly, with universal life insurance, one may be exempted from paying premiums. This will happen if the money for paying the death benefit and other related costs accumulates in the tax-deferred savings account, one may not be required to pay the premiums in order to keep the policy active. The savings money will be used for this purpose instead.

Furthermore, the universal policy was specifically created to create flexibility which other permanent life insurance policies, like whole life insurance policy do not provide. The policy owner can shift money between the insurance component and the savings component of the policy. When it comes to variable premiums, the insurance company will break down into insurance and savings and the policy owner can make adjustments on the basis of his goals and circumstances. An example would be a situation where the savings component of the policy is earning a low return. When this is the case, the savings component can be used to pay the premiums. Another benefit of universal life insurance is that unlike whole life insurance, the cash value of investments is allowed to grow at variable rate which is adjusted on a monthly basis.

Who can benefit from universal life insurance policy?

Given that a universal life insurance policy is both an investment tool and insurance; people who are of the opinion that they are in need of life insurance into their 70s and beyond stand to benefit from this type of life insurance policy. This way, the savings component of the policy would be allowed ample time to accumulate into a sizeable investment. The universal life insurance policy must be long term and one will need to keep it in force for at least 15 years, before they can be eligible for any return from the policy.

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