What is Universal Life Insurance?
Universal Life Insurance is a form of permanent life insurance that combines a death benefit with a cash value account, allowing policyholders to adjust their premiums and coverage amounts over time. Unlike term life insurance, which provides coverage for a specified period, universal life insurance remains active for the lifetime of the policyholder as long as premiums are paid.
One of the unique features of universal life insurance is its flexibility. Policyholders can modify the premium payments and even use the cash value to cover premium costs, provided there is sufficient value accumulated. The cash value component grows over time, typically based on prevailing interest rates, and can be accessed by the policyholder through loans or withdrawals, though this can affect the death benefit if not repaid.
Universal life insurance offers several types, including indexed and variable universal life, each providing different investment options and risk levels. For example, in indexed universal life insurance, the cash value growth is linked to a stock market index, such as the S&P 500, providing the potential for higher returns than traditional fixed-rate policies.
This type of insurance is suitable for individuals seeking long-term coverage with an investment component. It can be used as a financial planning tool, allowing policyholders to save for future expenses or retirement while maintaining a legacy for their beneficiaries.