Universal Life Insurance is a type of insurance that is similar to whole life insurance, but consumers should not confuse the two. It’s more affordable than whole life insurance since the premiums are not fixed, but based on assumptions of future finances. In general it allows the insured to borrow against money invested either monthly or in lump sums, toward his or her insurance premium.The most popular Universal policy is the Fixed Universal Insurance that is what most financial analysts are speaking of when discussing Universal Life Insurance. There is Variable Insurance, which is technically a completely different type of life insurance, mostly used by businesses. Lastly is the Term Universal Life Insurance, which is like Term Life Insurance, but it allows the insured to remove money for investing. Most brokers suggest that Term Universal only be used for short periods of time when the entire premium of the Fixed Universal Insurance is unable to be paid and it is the last choice before letting the policy lapse. With the many facets of Universal Insurance, its success as an investment venture is directly dependent on interest rates as they rise and fall with the financial highs and lows of the world’s economy.The premiums are based on the current rates, as well as projected interest rates for the term of the insurance policy. However, when interest rates fall below projected levels, the insurance company might guarantee a minimum interest rate on the policy, despite actual interest rates falling below the projected level. Also, if interest rates climb above projected level, the insurance company invests the excess funds from the higher interest rates, and credits the insurance policy at the higher interest rates. This policy seems almost too good to be true! It’s a win/win situation, but upon closer inspection, if the insurance company is unable to meet their financial obligations, the universal insurance policy holders must be charged higher premiums if the insurance company’s prospective financial projections turn out to be wrong several times over. This makes the company unable to invest the Universal policyholders’ premiums at a rate that was originally projected, and therefore the remaining premium amount must come from the insured instead of from the Universal Life Insurance policy’s savvy investments and projections.The features attributes of both term life and whole life policies, but is nearly as secure as a whole life policy meaning that the policy will definitely provide a death benefit as long as the policy does not lapse. Some of the more attractive features of a Universal policy are:
Guaranteed cash accumulation provided the premiums are substantial and paid in a timely manner.
Insured has the ability to change both premium and face value during the term of the policy. Face value increases usually require up-to-date proof of insurability.
Optional riders are available for additional coverage.
The insured is allowed to set his or her premium and death benefit when purchasing a universal policy. Because of this option, it allows for establishment of a permanent life insurance policy with a lower premium than a whole life policy. This makes it attractive to younger consumers who realize there are ups and downs to every type of insurance.