What Is Universal Life Insurance?
In Term Life insurance, a disadvantage to the policy compared to Whole Life insurance is the investment savings option that Whole Life contains. With Universal Life Insurance, it’s a hybrid of both Term and Whole Life Insurance allowing you flexibility in what you can do with the savings or investment of the premium. Universal Life (UL) insurance is generally more expensive than term life insurance.
How Does Universal Life Insurance work?
Similar to Whole Life Insurance, a portion of the monthly premium is put into the cost of the life policy which will provide the death benefit to your beneficiary and another part is invested to be used as investment savings.
The benefit maintains that the investment portion will grow over time and may eventually be able to pay for the premiums of the life portion of the policy. Therefore, you could pay into the policy for a certain amount of years and the investments would eventually start to cover the cost of the premium. You end up getting life insurance for your whole life, yet do not keep making payments.
Things To Consider about Universal Life Insurance
Because Universal Life Insurance is a permanent life insurance with an investment savings element, any withdrawals have stipulations as well. The policyholder will pay taxes on any withdrawals that are made over the cash value of the Universal Life insurance plan.
Similar to whole life, a policyholder may also borrow against the accumulated cash value without tax implications, however, will accrue interest on the loan amount. Any unpaid loans will lower the death benefit tremendously where unpaid interest on the loan is deducted from the remaining cash value.