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Life Insurance
Universal Life Insurance
Universal life insurance is permanent life insurance and provides protection for
an individual's entire life, similar to whole life insurance. As long as premiums
are paid, the policy's beneficiary is entitled to the death benefit upon the insured's
death. These policies differ from whole life insurance policies because they offer
the policy owner some flexibility with respect to premium payments and death benefit
amounts. The death benefit may be increased subject to insurability or decreased.
Premiums can also be adjusted. There are two different death benefit options available:
- A level death benefit.
- An increasing death benefit.
While premium payments are flexible, a universal life insurance policy will usually
have an annual target premium. The target premium for some companies is sufficient
to keep the policy in-force until the insured reaches age 100, however, this is
not guaranteed. Policies also accumulate cash values on a tax-deferred basis. These
cash values are accessible to the owner of the policy and can be used for a variety
of options:
- The policy can be surrendered at anytime for the cash surrender value.
- The policy owner can take out a loan and use the cash value as collateral.
- The policy can be changed using the cash value to purchase a reduced paid up death
benefit amount.
- The cash values may be used for a certain period of time to cover premiums still
due on the policy.
Universal life insurance policies are valuable because they provide permanent protection
and may accumulate cash values that could be used for emergencies or other objectives.
If flexibility is of concern, universal life insurance provides more options than
whole life insurance while achieving the objective of permanent protection.