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What is Universal Life Insurance?

By on March 23, 2014 in Insurance, Life Insurance

What is Universal Life Insurance?Life insurance is a confusing topic because there isn’t just one type of insurance to choose from. You can’t call three insurance companies and get three identical quotes. There is term life insurance, permanent life insurance and whole life insurance; whole and permanent life insurance have several different variations, too.

So what exactly is universal life insurance and is it something you should consider to protect your family?

What is Universal Life Insurance?

Universal life insurance, also known as UL, is a type of permanent life insurance.

The easiest way to understand the different types of policies is this. Permanent life insurance is like a term insurance policy with a saving or investing portion added to it. A term life insurance policy is a simple contract on your life; you pay the premiums and if you die the insurance company gives your beneficiaries the contracted amount of coverage.

Permanent life insurance has a much higher monthly or annual premium because you not only pay the equivalent of the term portion of the life insurance, but there is an investing or cash value portion to the premium as well.

With universal life the extra amount you pay with each premium on top of the actual life insurance portion is credited to the cash value of the policy. Each month the cash value of the policy is credited with interest kind of like a savings account.

However, unlike whole life insurance, universal life is more flexible. You can change the saving element and premium depending on how circumstances change. You can also use part of the cash value to pay for your premiums if you get into a financial bind or if the returns on the cash value amount are low compared to what you can get from other investments.

Is Universal Life a Good Choice for Life Insurance Coverage?

Whether or not universal life is right for you depends on several factors.

First, you need to get a good universal life insurance quote from a reputable company. This is especially true with universal life compared to term life because not only does the company take the insurance premium but the investment portion as well. You want to make sure your investment isn’t also at risk with a company with a poor reputation.

Then you must consider your investing habits. Term life insurance is a lot more simple version of life insurance which makes doing a cost comparison between companies a lot easier.

However, with term life insurance you are forcing yourself to invest elsewhere. This can lead to potentially higher returns, but it means you have to remember to invest. With universal life insurance if you don’t pay the premium then your insurance can expire so you are more likely to continue sending in a check each month.

On the other hand, universal life insurance can have costly fine print about canceling the policy within a certain number of years of opening it and the investment options may be costly, too. Make sure you make a complete comparison before committing.

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