Universal Life Insurance
What Is Universal Life Insurance?
Universal life insurance is another permanent life insurance option, providing coverage for your entire life as long as you pay the premiums. It's sometimes called adjustable life insurance because it offers more flexibility than a whole life policy. When you make a premium payment, the insurance company takes out the cost of the insurance as well as any administrative fees. The rest is added to your policy’s cash value can grow over time based on an interest rate set by the insurance company. Universal life policies come with a guaranteed minimum interest rate.
The Perks of Universal Life Insurance
The main perk of universal life insurance is the ability to adjust your premiums. You can pay more than the minimum premium, up to a certain limit, and the additional funds — minus any administrative charges —are funneled into your cash value.
Alternatively, you can pay less than the minimum premium. If you do this, make sure you have sufficient cash value to cover the cost of insurance and other expense charges or else your coverage may lapse.
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HOw Does Universal Life Insurance Work?
As with whole life, a universal life policy has a savings component that grows and allows for borrowing. However, a universal life policy works differently than a whole life policy in two key ways:
The interest rate for a universal life policy's cash value is not fixed. You'll have a guaranteed minimum interest rate, but in general, the rate at which your cash value builds can change over time based on market conditions.
Your universal life policy's cash value can eventually grow and result in a zero-cost policy, in which all premiums are paid from the built-up value.
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