What is Universal Life Insurance
and How Does It Work?
Universal life insurance is intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the cash account at a rate specified by the company. This rate has a guaranteed minimum but is often higher than that minimum. Mortality charges and administrative costs are charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any.
The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return may be higher because it moves with the financial markets. Mortality costs and administrative charges are known. And cash value may be
considered more easily attainable because the owner can discontinue premiums if the cash value allows it. And universal life has a more flexible death benefit because the owner can select one of two death benefit options. Option A pays the face amount at death and Option B pays the face amount plus the cash value.
But universal life may have its own disadvantages which stem primarily from this flexibility. The policy lacks the fundamental guarantee that the policy will be in force unless sufficient premiums have been paid and cash values are not guaranteed.
1stQuote.com does not sell Universal Life Insurance online and this summary is only intended as a brief thumbnail sketch of this product. Universal life insurance products are more complicated than basic term life insurance and you may wish to consult a local life insurance agent if you are interested in universal life insurance products.
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