Universal life insurance is a kind of flexible permanent life insurance that includes an interest-earning savings component. These savings can be accumulated over time and added to the cash value of the policy, or it may be used to pay the premiums later on. The terms of the policy may be changed depending on the policy owner’s situation and needs.
Universal life insurance have three types of premiums: single premiums, fixed premiums, and flexible premiums. Single premiums are exactly that: a single, large-sum payment that makes the policy paid-up for the duration of the policy’s effectivity period, for so long as the cost of insurance charges do not deplete the policy account. A fixed premium is the more familiar kind of premium, where the policy holder pays a fixed premium periodically over a span of time, after which the policy is deemed paid-up. Ordinarily the period where premiums are paid is shorter than the term of the policy, but there may be times when premiums will be paid throughout the life of the policy. The flexible premium is the normal form for universal life insurance. It entails variable premium payments depending on the situation of the policy holder, as well as the sufficiency of the cash value to answer for cost of insurance charges. Ideally, the policy holder would want to make a large initial payment, and then make smaller subsequent premium payments.
Since the accumulated savings takes a long time to become a sizable sum, a univeral life insurance is most useful for people who feel that they will need life insurance well into old age. However, universal life insurance need not be favorable only to the policy owner. Corporations may avail of universal life insurance for its key corporate personalities, to protect itself from potential loss stemming from the person’s death. This could include foregone income, as well as expenses incurred in seeking and hiring a replacement. Universal life insurance is also a very useful estate planning tool that can be used to give the insured’s estate immediate liquidity to cover settlement costs and transfer taxes.
In addition to the savings component, universal live insurance also has a loan facility, where the policy holder can borrow against the accumulated savings. This is a very handy feature for when the policy holder hits a rough patch and may need some additional funds. Although the principal loan amount need not be paid back, the policy will require that the interest on the principal loan be paid.
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