The Basics of Universal Life Insurance

Universal life insurance sounds like a great idea, but do you know the basics? Consider the following points before you buy this type of life insurance policy.

Provisions/Benefits

Besides providing a death benefit, a universal life insurance policy serves as an investment vehicle. That is, it acts much like a combined tax-deferred, interest-accumulating savings account and a term life insurance policy. You do have to keep enough cash value to be able to cover the policy’s administrative costs and the cost for your funeral (mortality expenses). The interest-bearing portion of the policy is invested in a separate account, possibly in intermediate-term bonds. The interest you earn in these policies is low – in the 4% to 6% range – compared to other investment vehicles you could utilize, and are very sensitive to interest rate fluctuation, but they are extremely flexible.

More Flexibility Than Term or Whole Life

According to a good primer on www.insure.com, a universal life policy offers “greater flexibility than whole or term life,” but it also has a number of aspects that should be considered.

After you make your initial payment, you are able to increase or reduct your death benefit amount

As long as you don’t miss any payments, you can pay premiums in any amount and at any time (after you’ve already made your initial payment)

There may, however, be some limitation on how much you can pay ahead

If you significantly increase the amount of your death benefit, your insurer for universal life insurance may require a medical exam to determine if your health has gotten appreciably worse

Management of this type of policy is essential in order to maintain appropriate funding – especially since the insurance carrier can increase their charges

New universal life insurance policies are available that are similar to term life: you configure them at time of purchase for death level benefits and constant guaranteed-for-life premiums – as long as you make all of your scheduled payments

Who Can Most Benefit From This Type of Policy?

Individuals who feel they’ll need insurance well into their later years – 70s and beyond – and can maintain their policy in force for at least 15 years, are the best candidates for an insurance policy for universal life. Having the policy that long gives the savings portion time to grow.

Mutual of Omaha universal life insurance

Reviewing what the Mutual of Omaha website (www.mutualofomaha.com) has to say about their policy for universal life reveals the following: lower cost insurance (compared to whole life insurance); no-lapse protection; favorable loan features; flexibility to adjust premium payment and death benefits as needs change; tax-advantaged savings element (like that of whole life insurance) that provides cash value with a guaranteed minimum return rate and favorable loan features.

Like other insurance carriers offering a life insurance policy for universal life, Mutual of Omaha has different types: AccumUL Plus, Guaranteed Universal Life (GUL), and Legacy SPL.

Prudential UL insurance

Another major insurance carrier offering life insurance that is universal life is Prudential (www.prudential.com). Similar to offerings from Mutual of Omaha (and others), Prudential’s UL policies come in PruLife Universal Protector and PruLife Plus. See their website for more information on coverage.

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