Universal life insurance is a type of permanent life insurance. It provides you with coverage for your entire life at a much lower price point then whole life insurance. In this article, we will go over the basics of universal life insurance to help you determine if purchasing one is right for you.
Universal life insurance is a type of permanent life insurance that offers low premiums and flexibility. You are able to adjust your premium and death benefit. Universal life policies can accumulate a cash value you can utilize.
Your universal life insurance premiums are made up of two different components: the cost of insurance and the savings. The cost of insurance component, or COI, is the minimum amount you can pay without the policy lapsing. The COI covers the fees for your mortality, policy administration, and other expenses related to your policy. The amount of your COI component will depend on your age, insurability, and insured risk amount. The savings component is any amount you pay over your COI. That amount will be added to the cash value of your policy.
An advantage of universal life insurance policies is that they can accumulate a cash value. Any premiums that you pay in excess of the cost of insurance are put into the cash value of the policy. Your cash value will earn an interest rate. This amount is based on the current market or your policy minimum, whichever is greater. You can withdraw a portion of your cash value. But it may be subject to taxation. Or you can borrow against the cash value. Any amount that you have not been paid back at the time of your passing will be taken out of your death benefit.
One of the main advantages of a ULI policy is its flexibility with premiums. How exactly does this work? If you accumulate a cash value in your life insurance policy that is large enough, you can stop paying premiums and your policy will not lapse. Instead, the premiums will be withdrawn from the cash value of your policy. Many who use ULI policies start them with the goal of having a great enough cash value, through insurance premiums and interest, that it will take over the cost of the premiums. This allows you to have insurance coverage at minimal cost to you as you age.
Purchasing a Universal Life Insurance Policy
If you are interested in purchasing a universal life insurance policy, your next step should be meeting with a qualified insurance agent. They can give you an in-depth explanation of how ULI policies work and what they can do for your situation. Once you have determined that a ULI is right for you, they can then help you find a policy from a trusted company at a price point that is right for you. Your insurance agent will also help you through the approval and the set up process.
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Annick is the Executive Researcher for Wealth Guardian Group, ensuring up-to-date compliance, as well as managing financial integrations across the Wealth Guardian Companies. Annick has been with the Wealth Guardian Group since Jan 2013.
Annick obtained her degree in Legal Studies from the Phoenix College