A universal life insurance policy is an additional policy to the already well-known life insurance policy. It aims to seek the merits of both whole life and term life while minimizing the drawbacks of these two policies. Some of the advantages of this insurance policy over both term life insurance and whole life insurance policy are explained below;
Life Time Cover
A universal life policy is a permanent cover, unlike term life. This means that the insurance company cannot cancel the policy for your lifetime unless you are opt-out.
Depending on the type of universal life policy you go for, you may have level insurance costs throughout the coverage or you may have a guaranteed cost for a period of time after which the insurance company may increase the cost of insurance.
Life-time coverage means that once you start on the policy, you do not ever need to take any medicals for the policy or renew your policy. The beneficiaries of this kind of policy are usually guaranteed the total sum assured the moment you pass on.
This type of insurance policy usually has a well-structured method of premium payment. Furthermore, this policy has premiums that are sub-divided into the cash value, cost of insurance and administrative costs.
Adjustable Premiums that May End Up to Zero
Universal insurance has the advantage of enabling an individual to adjust the number of premiums they ought to pay because they are not fixed at all. If you are in financial hardship or have pressing cash needs, you can reduce the amount of premium that you pay.
You can even choose not to pay any premiums for a period of time and this will not terminate your policy. When you reduce or choose not to pay premiums, the cost of insurance and the administrative costs are withdrawn from your cash-value account.
You Choose Investment Option
With the universal policy, you choose the investment vehicle that you want your cash value to be placed in. The insurance companies have a range of investment accounts that you can choose from.
The Premiums You Pay Earn Interests
With this policy, the cash you contribute normally earns an interest based on the type of account you selected. The growth in the cash value enables you to have a higher payout and also enable you to get a higher value of loan against your cash value. This is unlike whole life where your cash value is equivalent to your premiums and you do not earn interest.
Cash Value Loan with no Repayment
Unlike the term life policy, the universal policy also allows you to take out a loan against your cash value. What is great about these loans is that you do not make any repayments for the loan. All you pay is the interest element of the loan. The repayment of the principle is removed from your cash-value account.
Limitations of Universal Life
Though the universal life insurance policy has such great advantages, it also comes with some limitations. For the average seeker of life coverage, universal life insurance is usually seen as being too complicated and many people shy away from the cover because of this complexity.
Furthermore, the universal life insurance policy is more expensive than the term life insurance though it is cheaper than the whole life insurance policy.
Read More: What is Voluntary Life Insurance?