The Advantages of Universal Life Insurance

Universal life insurance as it exists today is a form of permanent life insurance with aspects of both whole life and term life insurance. It builds cash value like whole life insurance but has adjustable premiums like term life insurance. It was devised by an insurance agent named A.L. Williams in response to his dislike for some aspects of whole life insurance. Williams believed that whole life was a bad investment and believed buying term and investing the difference was superior to buying whole life insurance. The concept of combining these goals saw commercial use in the form of universal life insurance when E.F. Hutton created a universal life product which was a one year renewable term life insurance product with a side fund invested in the money markets. Universal life insurance as a product has evolved substantially since then.

Builds Cash Value

Universal life insurance, like whole life insurance, builds cash value over time. There are several benefits to this feature. Policy holders may have the option of withdrawing or borrowing money from the cash reserve. The cash value is tax deferred and grows at a variable rate based on the insurance company's investment portfolio. Usually there is a minimum amount of growth regardless of how the company's investments do. Because many individuals fail to save the money they save with lower term life insurance premiums on their own, building cash value has substantial benefits for many people.

No Lapse Option

Universal life insurance plans will often have a no lapse option. What this means is that as long as a customer makes the minimum payments the policy will not lapse. As the policy builds cash value the policy holder can reduce or even stop making payments and the policy will not lapse. In this way a universal life policy is similar to a whole life policy. Unlike term life insurance policies which lapse after 10, 20 or 30 years, universal life insurance policies can last until an individual is aged 100 or even 120 depending on the policy.

Flexibility

Universal life insurance policies allow policy holders to adjust the amount they pay in to the policy to meet their needs. Universal life insurance is like term insurance in this way, policy holders can vary the amount of coverage and the amount of their premiums over time. If policy holders foresee a need for a large death benefit they can increase premiums to build up a high cash value. If they do not or if they have other investments they could lessen the premiums they pay in. Policy holders can also adjust the time frame in which they put money in. If they choose they can put more money in at an early age and let the policy pay for itself in old age or they can adjust their payments based on the fluctuations of their financial status throughout life.

References

• What Type of Life Insurance is "The Best"?
• Universal Life Insurnace
• Defining Universal Life- A Hybrid of a Term and a Whole Life Policy