Universal life insurance is a flexible-premium, adjustable benefit life insurance policy that accumulates a cash value-a less formal and rigid version of whole life insurance. Universal life policies allow the policy owner to adjust the premium payment and death benefit over the life of the policy. Of course, the cash value of the policy will increase or decrease based on the premium payments.
These adjustments to the policy's premiums will have boundaries set by the life insurance company. You will have to sustain a certain amount of basic benefit and you will also be covering the cost of the policy's monthly maintenance by the insurer. A universal life policy will have its cash value tied to shorter-term interest rates than you would see with whole life policies.
The rate of return on a universal insurance policy will have the opportunity to realize a better rate of return but they also run a greater risk should the interest rates fall. Universal life policies are best for those whose financial needs might change over time. This makes it possible to adjust the variables of the plan without risking the coverage itself. You might be required to undergo additional medical scrutiny in some adjustments.
Here we list the pros and cons of a universal life policy.
Pros:
- Cash value grows faster and larger than with a whole life policy
- Able to adjust premiums, and benefits, to fit your financial needs
Cons:
- No minimum guarantees concerning the cash value of your policy
- Risks involved in tying your benefit to investments
If you choose to go with a universal insurance policy get the help of professional insurance agents to determine what plan will be best for you. Also it is wise to consider the financial strength ratings of the insurance company you are considering (New York Life, anyone?) so you are assured of the ability to pay out benefits when the situation arises.