Universal life insurance offers lasting protection and financial flexibility. It is a type of permanent life insurance designed to last your entire life, provided premiums are paid. What sets it apart is its unique structure, which separates the policy into two core parts. Identifying these components is a key step in evaluating if this coverage aligns with your financial goals.
Two parts in one policy:
A universal life insurance merges life insurance coverage with a cash value account. A portion of your premium pays for the insurance cost. The rest goes into the cash value, which can earn interest over time. This structure creates both a death benefit and a living financial element.
Flexible premium payments:
This policy often allows you to adjust your premium payments within certain limits. You may pay more than the required amount to build cash value faster. In some cases, you might pay less, using accumulated cash value to cover costs, as long as the policy has sufficient funds. This flexibility can help during times of changing finances.
Adjustable death benefit:
You may have the option to increase or decrease the death benefit amount, subject to a new approval process for increases. Lowering the benefit can reduce your premium costs. This feature lets you adapt the coverage as your needs change, such as after a mortgage is paid off.
Cash value growth potential:
The cash value portion earns interest based on a rate set by the insurer. This rate is often tied to a financial index but will have a minimum guaranteed rate. Over many years, this can allow the cash value to grow, creating a resource you can access.
Access to policy cash value:
You can use the accumulated cash value while you are alive. You may take a loan against it or make a withdrawal, which will reduce the death benefit and cash value if not repaid. This access provides a potential source of funds for needs like education costs or supplementing retirement income.
Clear cost transparency:
Universal life policies provide annual statements. These reports show the cost of insurance, the amount credited to your cash value, and the current policy value. This transparency helps you see how your premiums are allocated and track the growth of your cash value over time.