Universal Life Insurance Definition

Reader’s Question:

Can you explain Universal life insurance?

Tim

Atlanta GA

When you think of life insurance, there might only be two types that would most probably come to your mind: term life and permanent life. As you deal with it, you might be surprise to come across different variations of each of these policies. Furthermore, you may also discover that there is this another kind called universal life insurance policy which is to some extent can be a perfect mix of term life and permanent life insurance policies. Although some people may consider it a perfect choice, it is still important to spend enough time understanding universal life insurance definition.

Universal life insurance definition was actually developed from whole life insurance. Similar to whole life policies, Universal life provides a combine protection against the untimely death of the insured with a type of savings account known as cash value.

But what is unique to a universal life insurance definition is it talks about flexibility specifically over premium payments and death benefits. Among the several unique features of this policy is its cash value typically earns an interest based on a certain market rate. Death benefits can also be changed during the life of the policy and is generally subject to health examination and underwriting approval. Once there will be enough funds in the cash value account, premiums can already be paid.

There are also several disadvantages to this type of policy. Universal life insurance policy has the tendency to lapse if there aren’t enough funds to cover charges like mortality (death benefits) and administrative expenses. In addition, it does not provide the flexibility of the account needed to move your money around. It also doesn’t guarantee that you can earn cash value nor that the coverage will be in effect by the time that you need it if a certain amount of premiums have not yet been totally paid.