In 1979, Universal Life Insurance was introduced in the insurance industry as a revolutionary new product and was the first variation of whole life insurance to offer truly flexible premiums.
Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings component of the policy.
Premiums, which are variable, are broken down by the insurance company into insurance and savings components, allowing the policy owner to make adjustments based on their individual circumstances. In fact, the policy owner’s death benefit, savings element and premiums can be reviewed and altered as circumstances in his or her life change.
Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly. With universal life, the policyholder can use the interest from his or her accumulated savings to help pay premiums.
One of the main reasons why people don’t purchase universal life insurance is because they don’t understand how the policy works.
In fact, it is more correctly defined as “flexible premium adjustable life”. This means that you pay your premium dollars in a special savings account called the accumulation fund.
The best candidate for universal life insurance is someone who feels they need life insurance into their 70’s. This would give the savings portion of the policy enough time to possibly accumulate into an investment.
However, most people don’t feel they need life insurance at that stage in their life. It may be more beneficial for these individuals to purchase a term life insurance policy and have a separate retirement savings account such as an annuity or a 401K.
If a universal policy looks right for you, there are two key pointers to keep in mind.
- Ensure you have the policy in force for at least 15 years, as it generally takes this long to generate any return.
- Contact a licensed, reputable life insurance agent before purchasing anything. They may suggest a better alternative for you, such as whole life insurance.