What is Universal Life Insurance
What is universal life insurance? Benefits of Universal Life Insurance, and why you should get them instead of other policies.
Define Universal Life Insurance
Universal Life Insurance is a variation of whole life insurance, where the insurance portion of the policy is separated from the investment portion of the policy.
The investment part of the policy would add to the insurance company’s capital, which would then be invested in mortgages, bonds and money market funds. This investment portion would be tax-deferred. Subsequently, the death benefit would be paid out of this investment fund.
Benefits of Universal Life Insurance
Benefit of Universal Life Insurance 1: Flexible Premiums
Unlike whole life insurance policies that have fixed premiums, universal life insurance policies typically have flexible premiums. Thus, if you are living from paycheck to paycheck, universal life insurance policies will help you budget your finances more easily.
Benefit of Universal Life Insurance 2: Wealth Accumulation
As with whole life insurance policies, universal life insurance policies are useful for wealth accumulation purposes, be it in terms of asset protection, estate planning or tax reduction.
Benefit of Universal Life Insurance 3: Tax-Free Death Benefits
As with all life insurance policies, the death benefits that come from universal life insurance policies are available tax-free. Thus, it is a substantial form of income replacement for the breadwinner.
Benefit of Universal Life Insurance 4: Guaranteed Return
Another important benefit of universal life insurance policies is that there is a guaranteed minimum return. Having a guaranteed minimum interest rate ensures a fixed minimum return on the cash portion of the policy regardless of how poorly the investments may have performed. Interest rates increase if the investments do fare well.
However, a little known side effect of this is that if the investment portion of the policy fares poorly, premiums may be raised subsequently to offset the losses.