Universal Life Insurance Explained

Buying life insurance can be complex because a variety of options exist. When you work with your life insurance agent, he or she can make recommendations that fit your needs. He or she might recommend universal life insurance.

Universal life insurance is a common product. It may work well for many people. It does cost a bit more than a basic term life insurance policy. However, it offers several key advantages over other products. You need to understand of how policies work, their features and how they impact your family. 

How Does Universal Life Insurance Work?

When you die, universal life insurance gives a cash payout to your policy beneficiaries. This is what all life insurance policies do. They allow you to leave money behind to your loved ones. However, this policy is a type of cash value policy.

This is a flexible and permanent form of life insurance. It remains in place as long as you continue to make premium payments on it. It is often less expensive than a whole life insurance policy, even though it may be more costly than a term policy.

The policy is also easier to build in value than a traditional savings account. The cash value component is often the most important element to understand.

What is Cash Value?

Cash value is a term that describes the current value of the policy. Universal life insurance builds cash value over the time you own the policy.

The insurer will issue the policy at an established interest rate minimum. This is the very least amount that the policy will grow in value over your lifetime. If and when the earnings grow above this level, the policy adds the excess funds to the cash value. This will grow over your lifetime.

What makes the policy unique is that you can borrow from that cash value at some point if you need to do so. There are no tax implications for borrowing against these funds.

In short, universal life insurance has the death benefit your loved ones may need at the time of your death. It also provides an opportunity for you to have a low-cost loan available to you at any time during your life.

This can be a financial safeguard to many people who do not want to turn to other methods for borrowing funds. Work with your life insurance agent to see how well this plan fits your needs.