Universal Life Insurance

Universal life insurance is one of the many types of life insurance policies. Universal life insurance has a cash value. Cash value refers to an (accumulated) amount paid to the policyholder at the end of the policy term. Insurance companies providing universal life insurance credit premium payments above the cost of insurance to the policyholder’s account. Balances in these accounts are invested in risk free and low risk investments and profits are credited to policyholders’ account at the end of each month. Premiums of universal life insurance policy may be deducted from these account balances. Universal life insurance offers a stable investment policy i.e. only interest earned on your account balance may differ. Variable universal life insurance is a type of universal life insurance. Variable universal insurance allows profits to be credited to various (operational) accounts that function like mutual funds and can be invested in bond or/and stock with greater risk and reward. The most important advantage of universal life insurance is its flexibility and potential for greater profits if interest rates offered are higher than the insurer’s general account.

Universal life insurance is more flexible than whole life insurance. Firstly death benefit offered and premiums payments are more flexible. Death benefit can be increased without canceling the current policy. Also policyholders have an option to pay varying premiums from very high to very low depending on the extent of their cover. Universal life insurance transfers risk of maintaining the death benefit to the insured. In whole life insurance policyholder is guaranteed death benefit as long as premiums are paid. However, in universal life insurance death benefit lapses if premiums paid or profit generated are not enough to cover the cost of the insurance. Universal life insurance companies usually add guarantees to make their policies more attractive. Universal life insurance also differs from whole life insurance in that charges, expenses and premiums of universal life insurance are disclosed to the policyholder(s) in contrast to whole life insurance where the insurer has no such obligation. Universal life insurance provides a tax advantage in initial years when premiums normally exceed the cost of insurance. Difference between the two increases deferred tax through out the life of the policy. This built up (amount) is tax exempt if the policy is held till death. Policyholders can utilize the built up amount through a policy loan without having to pay income taxes on it.

One advantage of universal life insurance is that that it (flexibly) adjusts death benefits in accordance to your needs. Universal life insurance also allows you to pay premiums according to your financial circumstances. Along with advantages universal life insurance also has disadvantages including the fact that if less premiums are paid for a very long period the policy could lapse leaving no cover. If the insurance company does not invest in profitable alternatives profit on account balances will fall forcing you to pay higher premiums in later years. Veteran’s universal life insurance is a special insurance policy for men and women discharged from the United States Military. Many insurance companies do not provide veteran’s universal life insurance because of its higher risk.

Companies providing veteran’s universal life insurance may also refuse to insure men and women discharged because of extreme disabilities. Only honorably discharged soldiers of the military can purchase veteran’s universal life insurance. Veteran’s universal life insurance policies are often available at discounted rates. However applicants need to furnish proof of military service before purchasing veteran’s universal life insurance policy.