Universal life insurance is a type of
permanent life insurance and is based on cash value. The premium payments more than the insurance cost become the cash value. In case a premium payment is missed then a cost of insurance is charged form the cash value. The cash value of the insurance is credited with certain interest which is set buy the insurer.
Since the cash value doesn't carry and only the credited interest varies the universal life insurance is a stable investment. The universal life insurance has an advantage that the premium payments as well as the death benefit are flexible. You can increase or decrease the death benefit and the premium according to IRS rules can be paid in a minimum and maximum value. There is difference between the universal life insurance and the
whole life insurance. In the whole life the death benefit is guaranteed if the premium is paid and the insured person dies. In case of universal policy the benefit will not be given if the cost of insurance becomes more than the premium payments.
Two more difference between the universal and whole life insurance policy are as follows. The cost of insurance, expenses and charges that are involved in the universal policy are disclosed to the policy holder whereas in the whole life policy all information are hidden. The exit strategies are also flexible in universal life policy.
Uses
Universal life insurance has several uses. First it provides a way to get a life insurance with tax advantage. In the early time of policy the cost of insurance charges are exceeded by the premium itself and as long as it is enforced the difference amongst these two items grows with a deferred tax. In case the policy is not withdrawn until the death of a person, the entire cash value built up becomes tax deductible.
Types of universal life insurance
Several types of universal life insurance exist that are further explained below.
Single Premium
In this universal life insurance policy there is only one premium that is paid and the policy stays current until the cost of insurance charges deplete the policy holder's account.
Fixed Premium
In this policy a fixed premium in periodic payments is given to the insurer. The payments made in this policy are usually for a smaller time frame then the time of the policy itself. Some times it happens that the policy holder's account is not enough for continuing the plan and in this case the insured is given three options, i.e. either lower death benefits associated with it, make higher premium payments to keep death benefit or leave the policy as such to expire when the cost of insurance depletes the account.
Flexible Premium
The flexible premium universal life insurance has the flexibility of premium payment size according to the wishes of consumer. Many policy holders chose to make a larger deposit at the start of the policy and after wards they are free to make irregular payments according to their monthly budget situation.
