Universal life insurance is an extremely popular form of life insurance, particularly in the United States, where it is offered in a number of different policies. Under the terms of this policy, the death benefit of the insurance policy is paid out to beneficiaries, who are designated in advance by the company. The policy is designed so that the death benefit is adjusted for increases in life expectancy and other factors, such as the premium payment of the insurance company.
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Universal life policies are usually designed around a core investment vehicle. One common option is a term life policy that pays out a fixed amount of money each month, with the death benefit being equal to the balance of the investment account. Another option is to convert a variable rate permanent life policy into a universal life policy. In this case, the death benefit is simply a percentage of the total cash value of the account. If the account grows in value, so too does the death benefit.
Another option is to build up a universal life policy as an annuity. A good way to do this is to use a universal life policy as an individual investment account. When you purchase such an investment account, you generally pay a fee for setting up the account and for managing it. Over time, the account will grow to give you a steady income. The policy then converts into a permanent life policy when you reach the age of 100. At this point in time, your premium payments will be withdrawn from the accumulated cash value account.
What is Universal Life Insurance?
A number of different methods are used to provide cash values for universal life policies. One method is to use the interest earned on a CD. These can vary widely in terms of risk. For example, some certificates of deposit (CDs) come with better interest rates than other certificates of deposits. Therefore, they can potentially provide more money for the insurance company when death occurs and the insured has not yet built up a sufficient cash value in the account to cover the withdrawal.
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Other ways to create a buffer for insurance payments is to use savings accounts. Some insurance companies make CDs that are guaranteed to earn a fixed rate of interest. These accounts can be used as the entire life insurance or can be used only as part of a universal or term life policy. Insurance companies that offer savings accounts may even allow you to make withdrawals once you have reached a certain age.
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Universal policies are available with many insurance companies but there is much more flexibility associated with term life policies. You can choose between a wide range of coverage limits. You also have the choice of choosing premiums that are flexible or fixed.
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Variable universal life policies are more risky because they allow you more control over the risk of your premiums. They do this by allowing you to invest in an asset and only receive a percentage of that asset back in your death benefit each year. If the investment does not earn you anything, then the insurance company does not pay a dime. If, however, the investments do earn you money, you can then decide to invest more of your death benefit into the account. This allows you to build up a significant reserve of capital and increase your death benefit year after year.
If you are concerned that you will need a lump sum to support your living expenses after you die then you should consider having both a permanent and term policy. With a permanent insurance plan, your dependents will get the same cash value as your death benefit when you die. Because you paid regular premiums throughout your life, they will have a substantial interest in making sure that the funds your family receives will be used to eliminate debt, pay off homes, or any number of other things. Term insurance, on the other hand, will only be valuable to your survivors if you have either built up substantial savings account or if they are responsible enough to use the interest earned from your savings account to eliminate debt.
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