Universal Life Insurance

Universal life insurance is a type of insurance plan designed to be flexible for its policy owner. Also known as flexible premium adjustable life insurance, this type of coverage is considered the most flexible of insurance plans. The best universal life insurance plans provide the benefits of whole life insurance, but with more flexible variations. A look at the basics of universal life insurance rates can help individuals understand how to make the most of a good plan.

Universal Life Insurance

Universal life insurance first began as a variation of whole life insurance. Traditional whole life insurance maintains fixed premiums, fixed face value amounts, and fixed cash value accumulation. Each of these strict standards also denote security in a solid plan. Universal life insurance differs considerably. While it is designed to have the major benefits of whole life, universal life lets the policy owner choose the amount and timing of the the premium payment. The policy owner can also adjust the insurance policy face value amount as needed. Universal life plans revolutionized the industry by allowing the insured more control than previously possible. In addition, the insured can make changes to their own policy without the insurance company having to issue a new policy each time.

Universal life insurance works by unbundling or separating the benefits of each policy.  The universal life insurance policy list each part separately, such as the insurance protection portion, savings or accumulation portion, and the expense or loading portion. The insured person then pays a monthly premium for the policy. In addition, the insurance company deducts a mortality charge from the cash value amount of the plan. Depending on the universal life insurance company, the mortality charge may also include an expense charge, sometimes known as a loading charge.

It is helpful to note that universal life insurance mortality charges increase along with the policy owners age. This is known as a fair exchange which keeps the flexible premium adjustable while reducing company risk. Universal life insurance is quite flexible for policy owners and insurance companies alike, and it can be seen as either a variation of whole life insurance or a type of term life insurance that has a strong policy fund value. Policy owners can also make withdrawals from the universal life policy’s cash value without taking out a policy loan or losing the policy itself.

Interest is also applied to a universal life insurance policy’s cash value as the policy owner pays the premium. The interest can reflect market conditions or remain set in a policy contract. The interest accumulated in the cash value can also coverage mortality charge or expense charge regardless of whether there is a monthly premium. For example, the insured person can adjust the face value of the policy by either increasing or decreasing it. Changing the monthly premium payment is not necessary as long as the cash value can pay the other basic charges. The insured person can also surrender a universal policy for its whole cash value at any time, usually paying the company a fee for closing costs.

Universal life insurance also maintains flexibility in its death benefits. The insured can either choose a level death benefit or a increasing death benefit. With a level death benefit, the insured person specifies the amount, and the benefit equals the cash value in addition to any pure insurance remaining. With an increasing death benefit, the insured does not choose the amount, but rather the benefit is the face value plus any cash value remaining. From start to finish, the flexibility of a universal plan makes it a viable choice for the insured.

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