Universal Life Insurance
Is universal life insurance a good option for you? How can you use it as a savings tool? Let’s find out.
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What Is Universal Life Insurance?
Universal life insurance is a permanent life insurance policy that combines term life insurance and investment savings. It is similar to whole life insurance, with some slight differences.
Like whole life, universal life insurance provides lifetime protection and a cash value, which gives you the ability to grow your savings. This feature makes it a useful savings tool, as you have money to use in times of need.
Why this Plan is a Great Purchase for Financial Protection
To understand how you can use it as a savings tool and financial protection for your loved ones, you need to know the basics of this type of plan. So, how do universal life insurance policies work? A part of the monthly insurance premiums you pay goes to the death benefit, and the other part serves as an investment that you can use.
These types of policies feature higher monthly premiums than term life. However, these policies provide double financial protection. The first benefit is through the death benefit that will be given to your beneficiaries. And at the same time, you are also growing your savings you can use for other things.
The Cash Value
The cash value is a part of a universal life insurance plan which you can use to build your savings. Over time, the cash value earns interest based on the current market or minimum interest rate, whichever is greater.
You can use that money in several ways – cash it out or pay off the life insurance premium.
You may also use the funds to pay for larger investments like the down payment on a new home. Essentially, you are paying for life insurance and savings with universal life insurance, which makes the higher premium more manageable.
Typically, choosing this type of insurance also offers a few extra features, such as:
Withdrawing or Borrowing Against the Cash Value– You can withdraw the cash value of your policy or borrow against it. The rules on how and when this is possible differ depending on your policy and the insurance company. Note that this can reduce the death benefit, cause the policy to lapse, and create tax implications.
Flexible Premiums — You can increase, decrease, or skip your premium payments, depending on certain factors. It’s a great feature since it means you can adjust the required fee based on changes in your financial circumstances. As long as the cash value is positive, you can maintain the life insurance benefits.
Adjustable Death Benefit — You can adjust your death benefit without purchasing a new policy if you are within the limits of the plan. It means you can increase your policy’s face amount if your financial circumstances improve. Adjusting your death benefit often means going through the initial application process.
Universal Life Helps With Life and Death
So there you have it. There are many compelling reasons to get a universal life insurance policy. Not only does it provide relief when you expire, but it also serves as a savings tool. Either way, this policy can make a big difference in both your life and your death.