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Universal Life is a type of Life Insurance based on an account value. An account is established with the insurer. This account is credited each month with interest, and cost of insurance (COI) charge is debited. The interest credited the account is determined by the insurer; often it is pegged to a financial index.
In other words any applicable expense charges are deducted from the premium and the remainder of the premium is then credited to the policy's Cash Value or Accumulation Value. Each month the insurer deducts the mortality costs from the cash value and the remainder of the cash value is credited with an interest rate determined by the insurance company based on general economic conditions.
Universal Life Insurance is a flexible-premium policy that blends the features of term and whole life insurance. It allows the policy-owner to change the death benefit and vary the amount or timing of premium payments. It is a type of permanent life insurance that allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums.
Universal life insurance is a permanent life insurance product in which the internal policy charges and interest crediting components are specifically broken out separately in the policy. It is an unbundled Whole Life Insurance product in which the mortality, investment, and expense factors used to calculate premium rates and cash values are expressed separately in the policy.
Universal Life insurance is also considered a form of Cash Value Life Insurance. It accumulates cash value at an interest-crediting rate declared by the company. It combines the low-cost protection of term insurance with a savings component that is invested in a tax-deferred account, the cash value of which may be available for a loan to the policy-holder.
It is renewable each year and has both an insurance component and an investment component. The investment component invests excess premiums and generates returns to the policyholder. The contract is an interest-sensitive product that unbundles the protection, saving, and expense components.
It is a combination of monthly term life insurance, plus possible savings in an arrangement that provides limited flexibility as to death benefits and premium payment. Variable annuities are often used both as savings and retirement vehicles. The reasons for their popularity include the fact that their earnings grow on a tax-deferred basis, they offer a guaranteed death benefit, they benefit from professional management, and they have the added potential for income during retirement years.
In a universal life insurance policy, the amount the cash value may increase each year reflecting the interest earned on short-term investments and extra premium paid into the policy. |
