Universal life insurance is a policy unlike most life insurance, in that it provides the ability to accrue and access tax-deferred returns. When a policyholder has this type of policy, any premiums paid above the cost accrue interest. It’s like a combination of a life insurance policy and an interest bearing savings account.
This type of policy is a useful addition to a financial portfolio. The policyholder is able to protect assets, and get a guaranteed minimum rate of return in the process. It may also be possible for the policyholder to withdraw funds. These policies serve many purposes, including income replacement for surviving family members and paying for funeral expenses and unpaid medical costs.
This is possible because with a universal life insurance policy, the cash value above the premium is invested. The insurance company decides the interest gained based on the rate of return for the invested portion. The contract should specify the minimum guaranteed return. As long as the policyholder keeps the cash value above the cost of the policy, the insurance remains active. Payment of premiums may be flexible depending on the contract.
Universal life insurance policies are not all the same. A fixed premium policy provides cash value, but the policyholder cannot make any changes to the policy once it become active. A flexible universal life policy allows the policyholder to make adjustments to the policy. Another policy is guaranteed universal life. With this one, insurance provides a secondary guarantee if the policyholder pays premiums as agreed during a set period. It the conditions are met, then the policy remains active – even if the cash value is zero.
The best thing about a universal life is its investment aspects. Not only does the policyholder get good life insurance, but extra money is earned as well. Even better, flexible policies are adjustable by changing beneficiaries, benefits, or premium payment as needed. Interest gained on the policy's cash value is tax-deferred, which is even more good news.
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