Also known as group universal life and group variable life, universal life insurance, is a policy that allows the holder to change the amount of coverage as the need for insurance changes. These policies also provide the owner with the opportunity to accumulate a tax-deferred cash value too.
As is the case with whole life insurance, the benefits of universal life go well beyond those of a term policy. For example, universal life provides the policyholder with the option of funding a tax-deferred accumulation account; other benefits include:
The life insurance industry has worked hard to structure a variety of policies to suit an assortment of individual needs and interests. Those that are struggling with the decision between term, whole life, and universal life insurance should consider the following:
These last two questions are important, because as we will see, one of the primary features of universal life is its tax-deferred cash balance.
A universal life plan offers benefits beyond those of term insurance, including a tax-deferred cash balance. For some, term life may be enough, but for others, the benefits of this type of account are important. For example, the following list contains some of the more common uses of the cash balance fund:
Finally, under certain conditions it may be possible to borrow money from this account. Check with the terms and conditions of the policy, but interest expense and earnings on contributions back to the fund are usually tax-deferred.
It's important to understand that not all policies are alike. This rule holds especially true when going beyond term insurance. Also keep in mind these policies can be offered as individual coverage, or many times as group coverage through an employer. With that as a backdrop, we'll finish up with a brief summary of the differences between two separate, and distinct, types of policies offered today: universal life and universal variable life.
These are generalizations, but also good indications of what to expect with a group universal life plan or simply a universal life policy:
The primary difference between universal life and universal variable life is the variable policies allow the owner to earn a rate of return beyond a fixed rate. The following is a list of additional benefits universal variable life has to offer:
Most insurance companies will allow customers to take what is termed a free-look period; usually around 45 days or less. During the free-look period, it's possible to cancel coverage without incurring a penalty.
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