What is Universal Life Insurance?
Universal Life Insurance is a form of permanent life insurance that combines a death benefit with a savings component. This type of policy allows policyholders to adjust their premiums and death benefits to meet changing financial needs. Universal life insurance offers flexibility that is particularly appealing for those seeking life insurance coverage with investment opportunities.
With universal life insurance, part of the premium goes toward building cash value, which grows at a rate that may be based on a fixed interest rate or other factors. Policyholders can often use this cash value to help cover premium payments or take out loans against it. The ability to adjust premium payments is one of the key features that differentiate universal life from other permanent policies, such as whole life insurance, which typically has fixed premiums.
There are several types of universal life insurance policies, including indexed and variable universal life insurance. Indexed universal life links the cash value component to a specific stock index, while variable universal life allows policyholders to invest in sub-accounts, similar to mutual funds. However, these investment options come with varying degrees of risk, and the policyholder may lose some or all of their cash value depending on market performance.
Overall, universal life insurance is suited for individuals seeking long-term life insurance coverage with added flexibility and investment potential. However, understanding the fees and costs involved is essential, as these can impact the policy’s cash value over time.