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Universal Life Insurance
by: Gary Tallon
Universal life insurance is just one of several types of life insurance policy
available through life companies today. Unlike term life insurance or mortgage
(reducing) life insurance, universal life insurance gives your insurance policy
a cash-in value, allowing you to withdraw funds accumulated on your universal
policy as and when needed.
This flexible approach to life insurance is
very popular in the US and offers a real alternative to standard term & mortgage
life policies where the policyholder does not normally get to benefit directly
from the life insurance funds, unless they are diagnosed as being terminally
ill. Universal life insurance also provides policyholders with the ability to
accrue interest on their life insurance premiums - something that a standard
life insurance policy does not offer.
How universal life insurance works
Universal life insurance works in a similar way to a high interest long-notice
deposit account. When an insurance premium payment is sent to the life company
the company deposit the funds into an interest account after deducting a nominal
expenses charge per deposit. The funds then gain interest, with interest accrued
being credited to the account on a monthly basis. Each premium payment made of
course increases the fund, while compound interest is earned on the account month
upon month. The cost of maintaining the insurance product or products purchased
through the universal insurance scheme are also deducted from the universal account
on a monthly basis.
Should the insurance policyholder wish to withdraw funds from their universal
life policy then they can do so from the cash surrender value of the life policy.
Withdrawals are normally controlled / limited to a set number per year. Depending
upon the policy provider there may also be caps on the amount of money that the
universal life policyholder can withdraw and a stipulation on a minimum amount
of funds that should remain in the universal life account.
It should go without saying that withdrawals from a universal life insurance
policy will reduce the overall amount of funds available when a lump sum claim
is made upon death or terminal illness diagnosis. It is therefore important to
manage the universal life account to ensure that there is sufficient coverage
for your family and dependants in the event of your death. If you don't have
the time to carefully manage a universal life product then you may end up with
little to show for your life insurance premiums if and when a lump sum pay out
is triggered.
This article was posted on February 21, 2006
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