Articles >> What a Universal Life Insurance Policy Offers

 

Universal life insurance provides a useful variation to the whole life insurance policy for those who wish to avoid investing in the stock market and the uncertainty this brings. A flexible premium adjustable life insurance policy provides coverage for the insured's entire life, no matter whether that person passes away at 21 or 91. This objective is achieved by using some of the premium to pay for mortality protection and investing the remainder over an extensive period of time in order to build a substantial cash fund.

A flexible premium adjustable life insurance policy involves investing a percentage of each monthly premium in mortgages, bonds and other money market funds. Every financial year that the policy runs, a minimum rate of interest - typically about 4% - will be added to the value of the fund. Should the chosen money market fund perform well, a higher return will be yielded so the fund value will be a lot higher. Contrarily, if the investments don't generate sufficient income, it will be necessary to contribute a higher premium each month.

The first option is that the provider of the Universal Life Insurance Policy will pay the insured the specified cash benefit from any funds that have accumulated. The insured will be advised by letter if monthly premiums need to be increased to achieve this objective.

The alternative is that they will pay out the amount stated in the contract as well as any further money that has accumulated in the fund. This is a more expensive option and is only likely to be effective if interest rates on the money markets are high for the bulk of the period of coverage.

 

Whilst many people don't like being exposed to stock market related investments in a whole life policy, the reality is that they have historically outperformed the money markets. This is because time evens out any peaks and troughs in performance. In a low interest environment, it can be difficult to achieve a sufficient return on a flexible premium adjustable life insurance policy. Although one of the benefits is that premiums can be adjusted to meet personal circumstances, it is likely to prove essential.

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Not everyone takes out universal life insurance or a whole life insurance policy for the right reason. For example, it is often taken out as an investment because it has a cash-in value, yet the returns don't compare favorably to investing in the stock market. Flexible premium adjustable life insurance should normally only be considered by those who want to leave a loved one money when they die and/or are seeking to avoid inheritance tax. Term life insurance policies provide a more affordable alternative for those who wish to protect a young family or clear their mortgage in the event of death.