Universal life insurance

Universal life insurance (UL) is a type of permanent life insurance that combines a savings account with a term policy. A major benefit is that the policyholder may not have to pay premiums during the entire policy because money accumulates in the tax-deferring account. Each month the insurance generates interest and is debited by a charge drawn from the cash value, even if that month no payment is made.

The universal life insurance is flexible, therefore the premiums, death benefit and savings element can be altered or renewed. Money can be shifted between the savings account and the insurance as circumstances change. If the savings portion is earning la low return, the funds can be used to pay for the policy. The life insurance quotes are affordable, and the cash value of the investments can grow at an adjustable variable rate.

Most people use an universal life insurance as a source of profit for the policyholder, and not for the death benefits payed to a third party. Loans, pension funding, tax planning, withdrawals and collateral assignments are some of the advantages. Universal life policies can provide loans of certain values associated to the value of the insurance. Companies charge interest on the loans because they no longer receive investment funds. The loan itself doesn’t have to be replaced, but interest payment are necessary. The credit is not reported to agencies and does not affect the applicant’s ratings.

An Equity Indexed Universal Life policy can provide a tax-free income done through withdrawals that don’t exceed total premium payments. Internal policy loans also allow tax free withdrawals against additional policy cash value. If the contract is done withing IRS regulations it can provide the policyholder with an income for many years. Withdrawals are permanently lowering the death benefit of the UL, and may have additional fees. Collateral assignments are stipulated in a contract, so in case of death the loan is guaranteed.

There are three types of universal life insurance: single premium, fixed premium and flexible premium. The single premium is paid by a large initial sum and remains in force for as long as the cost of insurance (COI) don’t deplete the account. A fixed premium insurance requires periodical payments, and it must be tied to a guarantee. Sometimes the guarantee is an additional rider to the contract or part of the base policy. Usually payments for this type of coverage are for a shorter period of time. Flexible premiums allows the applicant to vary the premiums, although this can have a long term effect on the policy.