Universal Life Insurance

Life is uncertain and more so in today’s hectic mad rush world. Everyone should insure himself and most are prudent enough to do so. Though the tenure of insurance needs to as long as possible, the restraining aspect is the payment of premiums necessary to keep the policy alive. Insurance also forms a vital part of the savings plan of an individual, so that a lump sum payment is received when it is most needed for fulfillment of specific obligation, like a child’s graduate or post-graduate education, or marriage, or the setting up a business venture. Most of all, insurance is required to cover one’s own life as long as possible with affordable premiums. The ability to pay the premiums may diminish with the passage of time, and as the insured gets older, he may find it difficult to make timely payments, more so if there are adverse circumstances.

Ideal choice
At such times, the universal life insurance policy may be an ideal choice. This policy is flexible and covers the insured permanently for life at a very low premium. This policy offers the benefits associated with a whole life insurance policy as well as serves as a very good vehicle for savings. The predominant feature of this type of insurance policy is that the element of savings associated with the policy, as well as the accruing benefits at the time of death of the insured, and the amount of premiums payable, can all be reviewed at any time during the tenure of the policy, and modified to suit the financial ability of the insured or the person who is liable and responsible to make the payments. Another important benefit is that universal insurance policies offer the insured the opportunity to take advantage of the accrued interest to make premium payments in times of scarcity of funds.

Flexibility in premium payments
The universal version of insurance policy is more flexible than the whole life version as it enables the insured to juggle his finances between the savings component, and the insurance component of the policy. The amount of premium paid is bifurcated into savings and insurance related payments which allow the insured to decide where he wants his money to be invested given his current financial ability.

If the rate of return offered by the insurance company is low on the savings component than available in external financial market, then the insured may find it to his advantage to utilize the savings to make the premium payments instead of touching his external finances as these may be earning higher returns. Thus the universal insurance policy offers a very good platform for the insured to take advantage of opportunities for investing and saving his money. Also, the policy offers variable rates of interest that are applicable monthly, which is not the case with whole life insurance.

Dual perspective
What the universal insurance policy has on offer is the provision of benefits on death of the insured in combination with an excellent vehicle for savings. It has a dual perspective, one for the whole life term insurance; and the other, for a savings vehicle consisting of interest on which tax is actually deferred. If the accumulated interest savings are substantial, then the premiums need not be paid but can be adjusted against these accumulated savings. This is the key advantage of the universal insurance policy as it lessens the burden on the finances of the insured while ensuring that benefits will not be reduced. The accumulated savings would be a boon to the insured during his post-retirement life and may not require the insured to change or modify his lifestyle because of need for money.

Perfect timing required
Time is of essence for a universal insurance policy since the current rate prevailing in the money market determines the interest payable on the savings component of your premium amount. The policy does not have a guaranteed return regarding the amount of savings which will be paid, and these amounts vary. There will be ebb and flow related to these savings as well as to the premiums payable, in proportion to the fluctuating market interest rates. A drop in the interest rates may call for a higher amount of premium to be paid and vice versa. But the bottom line is that the cash returns from a universal insurance policy are on average more than those that can be associated with a whole life policy. In addition, the returns are also faster.

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