Universal Life Insurance – a more flexible version of Whole Life Insurance, also known as “Flexible Premium Adjustable Life Insurance” is a type of permanent life insurance came in insurance market in the early 80s. Like the whole life, the Universal Life (UL) comprises an element of the saving which develops on a tax-deferred basis. A part of your premiums are invested by the insurance company in the bonds, the mortgages and investment trust on the money market. The return on the investments is endorsed to your policy tax-deferred. An assured minimum interest rate, usually approx. 4% applied to the policy, that means the insurance company guarantees a certain minimum return on your money, no matter how the investments perform. If the insurance company makes well with its investments, the return of interest rate on the money will increase. The universal life enables you to choose of two options of death benefit. The option one pays the death benefit out of the policy’s “cash value”. The option two pays the face amount acknowledged in the policy contract, plus any cash values you build up over the years. Many Universal Life insurance policies offer a no-lapse guarantee that means the policy will stay in force to age 100 or even to age 120 as long as you pay the minimum designated premium. However, paying the minimum guaranteed premium is seldom enough to accumulate significant cash values.
The universal life insurance provides you the flexibility to adjust the death benefit according to your needs. Moreover, it also gives you the flexibility to pay smaller or larger premiums depending on your financial conditions. It is often an important feature for the families who may have fluctuations in their financial conditions.
Your policy may lapse and leave you without insurance protection, if your premium payments are too small for longer time. Moreover, if the insurance company does poorly with its investments, the return of interest on the cash portion of the policy will decrease but by no means below the minimum interest rate guaranteed in the policy contract.