Equote - David Livingston

Universal life insurance provides a different dimension to the insurance seekers. This dimension was not looked before due to the dominance shown by whole life and term life. This is a great combination of whole life and term life insurance policies. Thus, before considering whole life or term life insurance quote, all must understand what universal life insurance policy has to offer and then take an informed decision.

During the late 1970s was the birth of a new policy type called Universal life policy. This was primarily to make inroads amongst the policyholders to retain their cash value in the policy. At that point in time, the customers would withdraw the cash value of the whole life policy and invest them in CDs as CD making business was considered to be more profitable and earning more interest than whole life policy. Universal life policy broke this and enabled the subscriber to keep the interest rate of cash value set to fluctuate depending on certain factors. The premium that is paid is split into number of small portions such as cash value, administrative charges, premium loads, Cost of Insurance Charge (COI) etc. The cash value generates interest. Insurance life rate is determined by the policy holder which can be a variable. Nonetheless, there is a minimum guaranteed rate that exists. COI increases over the age of the policy. However, the interest generated on cash value will compensate it, is the phenomena with which universal life policy was sold at that time. 

Some of the advantages of the universal life policy are as follows.

Permanent protection for life

Low risk cash value

Tax-deferred cash accumulation

Interest on cash value at market rate

Accumulated cash withdrawal or borrowing option

Flexibility in premiums 

Flexibility in sum assured.

The most attractive feature of the universal policy is its flexibility in premium payments. Based on your financial situation, you can choose to pay more or less premiums. If you wish to pay only for a shorter period of time, you can choose to make larger premiums and be done with your responsibility sooner.  If you are facing a financial crunch and would like to skip payments for a brief period, you can do that. If the interest rate rises, you can reduce your premium amount. On the other hand, when it decreases, you might have to increase your premium amount. As your needs changes, you also have the option to decrease or increase your sum assured.

Certain demerits of universal life policy are below.

Account is basically rigid.

Cash value accrual is not certain.

Policy cannot be in force, when there is not enough premiums paid.

The risks that are associated with a situation where no guarantee policy is very large for a individual to manage. The mortality and interest rate fluctuation effects are shifted from insurance company to the insured. As a result, the essence of guarantee by the carrier also gets reduced. The COI and the interest rates even out each other, until such time the policy and its benefits are realized. However, once it does not even out, the cover becomes extremely costly for the insured. At times, the family may not get the death benefit at all.

There are basically three types of universal cover which are called fixed premium, flexible premium and one time premium. As the name reads, fixed is a fixed premium payment throughout the term. Flexible and one time are to qualify for their specific band of premium payments. In order to qualify for returns, the universal policy has to be in force for at least 15 years. This plan can be an ideal plan for people who are aged 70 or above and are expecting returns from their insurance. This can be a very good option for investment. People who do not want to have insurance for that long can opt for term life and 401K as a separate vehicle of investment.

One must understand the benefits and the risks in depth with universal life policy and then has to take an informed decision. The policy might have to offer very attractive options; it is associated with great risks. With many people willing to take life insurance no medical policy over the medical exam, many carriers are okay to provide the same under universal life policy as well.