Universal life insurance is an adjustable benefit life insurance policy that offers flexible premiums and accumulates account value over time. The flexibility of this type of insurance policy enables you to change your amount of insurance with underwriting approval as your insurance needs change. As with all other types of life insurance, the main reason to purchase a universal life insurance policy is for the protection it provides your family when you die.
Identification
Universal life insurance is also referred to as adjustable life insurance. The portion of premiums that you invest accumulates a cash value that you can withdraw or claim as an asset when applying for a loan.
Function
Universal life insurance works by deducting a 5 percent charge from each of your premium payments. Your balance is added to the universal life insurance policy account value. Every month, the cost of your insurance (covering all your insurance benefits and expense charges) is deduced from your total account value. Your account value earns interest that is credited each month. Though subject to change, State Farm Insurance reports that the interest rate associated with universal life insurance is guaranteed to be at least 4 percent every year.
Features
Universal life insurance offers premiums that can be increased or decreased within specific insurance policy limits that vary from company to company. The amount of insurance you receive can be increased based on evidence of your insurability.
Benefits
Universal life insurance provides you many benefits. One benefit is flexibility: You can decide how much life insurance you want, subject to requirements and limitations specified by each insurance company. You can also adjust your death benefits and premium payments to fit your evolving needs. Tax laws as of 2009 enable life insurance proceeds to be tax free.
Considerations
You must make $500 minimum withdrawals from the cash surrender value of your particular universal life insurance provider. You are generally not allowed more than four universal life insurance withdrawals per year. Withdrawing funds from your universal life insurance account results in reduced account value and fewer death benefits. There may also be surrender charges for surrendering (closing) your account or withdrawing funds from it. Consult a tax or financial adviser if you are unsure of whether universal life insurance is the best coverage option for your individual needs.
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