Universal Life Insurance Policy: Features a Savings Capability that Increases on a Tax-Deferred Basis
The universal life insurance policy was introduced in the 1980s as a flexible form of whole life insurance. Also called flexible premium life insurance, it features a savings capability that increases on a tax-deferred basis. You're probably still wondering why a universal life insurance policy is referred to as variable universal life insurance.
The main reason is that a portion of the premiums are invested in bonds, money market funds or mortgages by the insurance company. This additional income is what makes universal life insurance so attractive to some people. The ROI will be credited to the policy and is tax-deferred.
Universal Life Features
Because a universal life insurance policy accrues money in two separate ways, life insurance companies can guarantee a certain level of ROI. The guaranteed minimum interest rate is usually in the region of four percent. As long as you pay the minimum premium, most insurance companies will offer you a no-lapse guarantee for your variable life insurance.
The other feature that makes a universal life insurance policy also variable universal life insurance is the fact that you can choose from two payout modes. You can either be paid out of the policy's cash value, or opt to claim the cash value of the face amount plus the accumulated cash value over the life of the policy. Policy holders often choose universal life because they can change the benefits as their needs change throughout life. They can also opt to pay smaller or larger premiums according to their prevailing financial circumstances.
Insurance companies favor this kind of policy because the higher the cash value of your policy, the less they will have to pay out in the event of a claim. The downside of a universal life insurance policy is that there is a minimum premium below which variable life would not be viable. So if your premium payments fall below the minimum, you could find yourself without protection despite years of payments. It is critical to know exactly where you stand with universal life to ensure that you're protected against this eventuality, and Spectrum Direct can help you figure this out.
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