Get Affordable Life Insurance!

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Get Affordable

Life Insurance!

Male Female

What Is Universal Life Insurance?

Universal Life Insurance is the most flexible of all the types of life insurance policies that you can get because it treats each element of the policy—premium, death benefit and cash value—separately. With a universal life policy, you can skip premium payments or change the death benefit more easily than other types of policies. You can also structure the policy to operate like term insurance. Universal life works in such a way that cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for expenses and cost of insurance. Interest rates are linked to an external index such as Treasury bills. Since the cash value element of this type of policy is interest rate sensitive, predictions of future universal life costs are highly dependent upon the accuracy of interest rate projections.

People who are not fans of universal life say that this type of policy was introduced when interest rates where high and the cash value in the policy would grow based on that rate. However, once interest rates dropped, the cash value stopped growing and the policies became more expensive. Many buyers were chagrined to find out that they had to pay excessively high premiums or their policies would be worthless because there was no money in their cash accumulation funds to pay for them. As an alternative to universal life is a policy called variable universal life, which is not tied to interest rates, but rather the stock market. While some experts say the negatives about all types of universal life policies outweigh the positives, others contend that they can be viable as a long-term insurance planning tool.