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If you are here, you must have heard about Universal Life Insurance. It has a dual advantage of life insurance, as well as saving. However, before you start contacting insurance companies, you must conduct thorough research. Read on to understand what these plans are and how they work-
What is Universal life insurance?
It is a type of life insurance that lasts for the entire time that you are alive. It is also known as cash value life insurance because of the savings account built into the policy.
A part of the premium you pay every month goes into this savings account. Once the cash value that you have built up goes beyond a specific limit after a certain period, you can encash it.
How does Universal Life Insurance work?
The premium that you pay for maintaining the Universal Life Insurance policy is split into two parts. In essence, one goes towards your life insurance, and the other goes into your savings and investment.
A Universal Life insurance policy gives you flexibility as you can choose how much premium you pay. The minimum amount is set at the cost of insurance. Any additional amount goes to the savings account. These deposits grow at a rate that is set by the insurance company. At times this growth can be affected by the market conditions.
Experts suggest paying maximum premiums possible in the early years so that you can accumulate a significant cash value. You can then use this to pay your future premiums at a later stage in life.
What are the types of Universal Life Insurance?
Universal life insurance can be of the following types-
- Indexed Universal Life - In this type of Universal Life Insurance, your cash value is dependent on market performance. When the market is doing well, the cash value goes up. And if the market is not doing well, the value drops. This, in turn, impacts your premiums.
- Guaranteed Universal Life Insurance - In this type, the interest rate is fixed, and the premiums stay the same for the entire duration of the plans. It is significantly less risky than all the types and is valid until the premiums are being paid on time. This policy is more inclined towards providing you coverage for life and less on building cash value.
- Variable Universal Life - Apart from providing you coverage for life, this policy invests the cash value part into a mutual fund. The interest you earn is based on the condition of the market and you are charged a fee for the same.
What are the benefits of a Universal life insurance policy?
Purchasing a Universal life insurance policy has the following benefits-
- 1. You get the dual advantage of life insurance and savings.
- 2. You are saved from the hassles of handling and paying premiums for too many insurance and investment plans all at once
- 3. Universal life insurance policy comes with flexible payment options. You decide how much premium to pay above an amount that is fixed for life cover.
- 4.Most policies offer an adjustable death benefit, i.e. the amount can be reduced or increased depending on the policyholder’s needs.
- 5. Universal life insurance plans offer you a guaranteed rate of interest and hence the cash value of your policy is guaranteed to keep growing.
- 6. The plans offer adjustable coverage for changing needs. The premiums, as well as payout, can be adjusted with time to account for inflation.
Know that there are additional fees associated with such plans. The savings part of universal life insurance does carry some risks. Research carefully before purchasing any policy and remember to reach out to the insurance company in case of any doubt. Do not purchase a plan without going through the terms and conditions thoroughly.
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