How Universal Life Insurance Works
Universal life developed originally from whole life, and it is sold mostly in the United States today. It is a variety of permanent life insurance coverage, as opposed to term (temporary) policies. With “UL”, you can raise or lower your premium from month to month as needed or desired. This affects, of course, the death benefit during the relevant period.
Universal life, like whole life, develops a cash value, but its premiums naturally tend to increase over the years rather than decrease or remain stable. But, again, you can adjust premiums anyway if you wish – within set limits. Each month, you earn interest that accumulates as the cash value of the policy. The cost of maintaining the insurance is subtracted from your interest earnings as a set fee. The principal is normally protected, while a minimum interest rate (usually 2%) may apply.
The policy is annually renewable but does not automatically continue like whole life would.
Variations On Universal Life
There are some variations on universal life that are of great importance in choosing a policy. Indexed UL is tied to a financial index, perhaps a stock or bond or a particular market, as far as earnings are concerned. This type of policy will offer stable premiums that are somewhat lower than the initial premiums of many whole life policies.
Variable UL is another variation. In this case, your cash value is applied to separate accounts that may be a bit riskier but offer the chance of bigger growth. Since you are only risking the interest, not the principal or death benefit, the risk is seen as reasonable in comparison to the potential reward by many policyholders.
Guaranteed UL protects the policy against accidentally lapsing by providing that it remains in force even if the cash value drops to zero. This no-lapse rider is valuable since other universal life setups have the policy lapsing when the administrative fees can no longer prevent the cash value from going to zero or below. Thus, you basically have to sink or swim (make at least some money by interest or lose the policy) – but not with guaranteed universal life.
How To Choose A Policy That’s Right For Me
With so many options in life insurance, it may seem bewildering to the uninitiated. It takes some research to understand exactly how each type of life insurance works and what options you have as far as customizing a particular policy to your needs.
That’s where it pays to talk to an experienced insurance agent who will take the time to listen to exactly what are your goals for your policy. A good agent will assess both your needs and your resources to craft a policy that is both beneficial and affordable.
If you are searching for the right life insurance in the state of Florida, do not hesitate to contact Flagler County Insurance Agency for professional advice, step by step assistance, and a free, no-obligation quote.