For some people, flexibility is the key to financial security. If you’re one of them, you probably believe that as your needs change, your life insurance coverage should change, too.
Universal life insurance offers a combination of flexible premiums, access to cash value and the possibility of adjustable, lifelong coverage. If an increased level of control is important to your family’s financial security, then universal life may be the right choice for you.
As with every life insurance policy, the universal life policyholder pays premiums. From each premium payment, the insurer collects a stated percentage to cover expenses and the cost of insurance. The remaining amount is then applied to the policy’s cash value. This cash value is then credited with monthly interest.
This is where the possibility of a flexible premium arises. Over time, the policy develops a cash value that can be used to offset part of a premium or skip premium payments altogether, subject to policy conditions and minimums. This flexibility gives you the ability to respond to opportunities or disruptions in your financial situation without having to restructure or repurchase your life insurance policy.
Adjustable Death Benefits
Another advantage of universal life is the ability to increase or decrease the amount of coverage. This occurs in one of two ways.
Option one is designed to provide a face value death benefit, say $250,000. This benefit is the combined value of the policy's cash value and insurance components. As the cash value grows, the cost of insurance decreases until the cash value equals the death benefit. Continued premium payments will increase the policy’s cash value and eventual benefit; skipped premiums or borrowing from the cash value will reduce coverage.
In the second option, the policy’s life insurance component has a level value, such as $250,000. The death benefit, however, varies over time because it is the sum of the policy’s life insurance component plus the cash value. As the cash value grows (or shrinks), so does the policy's coverage.
Universal life offers the possibility of a lifetime benefit and a guaranteed rate of return on cash value, with the flexibility of adjustable premiums and benefits. For more information about whether universal life is right for you, discuss your needs with an insurance professional or certified financial planner.
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