Universal life insurance is just one of several types of life
insurance policy available through life companies today. Unlike
term life insurance or mortgage (reducing) life insurance,
universal life insurance gives your insurance policy a cash-in
value, allowing you to withdraw funds accumulated on your
universal policy as and when needed.
This flexible approach to life insurance is very popular in the
US and offers a real alternative to standard term & mortgage
life policies where the policyholder does not normally get to
benefit directly from the life insurance funds, unless they are
diagnosed as being terminally ill. Universal life insurance also
provides policyholders with the ability to accrue interest on
their life insurance premiums - something that a standard life
insurance policy does not offer.
How universal life insurance works Universal life insurance
works in a similar way to a high interest long-notice deposit
account. When an insurance premium payment is sent to the life
company the company deposit the funds into an interest account
after deducting a nominal expenses charge per deposit. The funds
then gain interest, with interest accrued being credited to the
account on a monthly basis. Each premium payment made of course
increases the fund, while compound interest is earned on the
account month upon month. The cost of maintaining the insurance
product or products purchased through the universal insurance
scheme are also deducted from the universal account on a monthly
basis.
Should the insurance policyholder wish to withdraw funds from
their universal life policy then they can do so from the cash
surrender value of the life policy. Withdrawals are normally
controlled / limited to a set number per year. Depending upon
the policy provider there may also be caps on the amount of
money that the universal life policyholder can withdraw and a
stipulation on a minimum amount of funds that should remain in
the universal life account.
It should go without saying that withdrawals from a universal
life insurance policy will reduce the overall amount of funds
available when a lump sum claim is made upon death or terminal
illness diagnosis. It is therefore important to manage the
universal life account to ensure that there is sufficient
coverage for your family and dependants in the event of your
death. If you don't have the time to carefully manage a
universal life product then you may end up with little to show
for your life insurance premiums if and when a lump sum pay out
is triggered.
About the author:
Gary Tallon has been writing in the finance industry for over 10
years and is currently working with
life insurance for
Power Insurance.com.
