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Universal Life (UL)

30 minutes

Insurance Explained

Universal life insurance is a type of permanent life insurance that provides coverage for the entire lifetime of the policyholder, if the premiums are paid. It offers both a death benefit and a cash value component, like whole life insurance. However, universal life insurance provides more flexibility in terms of premium payments and death benefit amounts. Here are some key points to understand about universal life insurance:


1. Flexible Premiums: Universal life insurance allows the policyholder to adjust the amount and frequency of premium payments within certain limits. This flexibility can be beneficial if the policyholder's financial situation changes or if they want to increase or decrease their premium payments.


2. Death Benefit Options: Universal life insurance offers different death benefit options. The policyholder can choose a level death benefit, which remains the same throughout the policy, or an increasing death benefit, which grows over time. The death benefit can also be adjusted based on the policyholder's needs and financial goals.


3. Cash Value: Universal life insurance policies have a cash value component that grows over time. A portion of the premium payments goes towards building this cash value, which accumulates on a tax-deferred basis. The policyholder can access this cash value through policy loans or withdrawals, which can be used for various purposes such as supplementing retirement income or covering unexpected expenses.


4. Interest Rate: The cash value component of universal life insurance earns interest, which is set by the insurance company. The interest rate can be fixed or variable, depending on the policy. It's important to review the policy terms to understand how the interest rate is determined and how it affects the cash value growth.


5. Premium Flexibility: Universal life insurance policies allow the policyholder to use the cash value to pay premiums if there is enough accumulated cash value to cover the costs. This can be beneficial if the policyholder wants to reduce or eliminate premium payments in the future if the cash value is sufficient to sustain the policy.


6. Policy Loans: Universal life insurance policies allow the policyholder to borrow against the cash value component. These policy loans typically have low interest rates and do not require a credit check. However, it's important to repay the loan to avoid reducing the death benefit or potentially lapsing the policy.


7. Policy Adjustments: Universal life insurance policies offer the flexibility to adjust the coverage and premiums over time. The policyholder can increase or decrease the death benefit, change the premium payment frequency, or make other modifications to align the policy with their changing needs.


In conclusion, universal life insurance provides lifetime coverage and offers both a death benefit and a cash value component. It provides more flexibility compared to whole life insurance, allowing the policyholder to adjust premium payments and death benefit amounts. Universal life insurance premiums can vary based on the policyholder's choices and financial situation. It's important to carefully review the policy terms and options to ensure they align with the policyholder's needs and goals

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