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What is Universal Life Insurance?

Many people worry about the financial strain after death on their loved ones. Whether covering the costs of funeral expenses, paying off outstanding debts, or providing supplemental income to surviving family members for years after the policyholder’s death, life insurance can give a sense of security and stability to families. Life insurance is especially important for people who are the sole providers for their family, or parents of young children who will need many years of financial support before obtaining independence.

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Several types of life insurance policies exist, and individual policyholders will have different needs depending upon the needs of the family. For many people, a universal life insurance policy is the best choice. Universal life insurance policies provide for life insurance coverage in the event of the policyholder’s death, but also provide a financial investment with cash value that can be used for additional financial security. Policyholders can take out loans against the cash value of the policy, or even make cash withdrawals to cover costs.

How Universal Life Insurance Works

Each month, the insured pays a premium. Premiums may increase or decrease slightly over time, but will not surpass the agreed upon limits. From this monthly premium, an expense charge is deducted to pay the insurance company; the remainder of the payment is placed into an interest-accruing account. This account value can be used to pay monthly premiums, or can be allowed to accrue interest.

Policyholders can use the cash account as collateral for a loan, and also may be able to withdraw cash from the account. Exact amounts of cash withdrawals will vary, but a minimal withdrawal such as $500 will probably be assessed. This money is yours, and can be used for any expense you see fit. Of course, withdrawals from your life insurance account will reduce the overall value of the policy and lower your death benefit, so care should be taken not to deplete the account before the death benefit is needed.

Universal life is a lifetime policy. This means that as long as you continue to pay into the policy, you will have continuous coverage. Because of this, universal life may be an excellent way to obtain a policy when the insured is young and healthy, as money paid into the policy can be withdrawn to cover miscellaneous financial costs in addition to the death benefit.

What Makes Universal Life Insurance Unique?

  • Accounts are flexible: You determine the amount of death benefit and monthly premiums
  • Life Insurance benefits are tax-free to beneficiaries
  • You can cash in your policy for regular expenses
  • Policies last for as long as you continue to pay for coverage

In addition to individual universal life insurance, some providers also offer a survivorship life insurance policy. This way, a couple can purchase a single policy for a lower price than two separate policies. Under this type of policy, death benefits are paid out when the last person named on the policy dies. Obviously, a survivorship policy cannot be used to provide death benefits to your spouse if he or she is named on the policy. Instead, this type of life insurance can be used to provide financial protection to your children or otherwise protect your financial legacy with an interest-bearing account.

Despite the several benefits of universal life insurance, these plans are not for everyone. One problem with universal life insurance is that if you pay too little in premiums for a long period, the policy may lapse. Additionally, accounts are not FDIC insured and the cash value of your policy may fall if the company’s investments fail. The interest amounts will not drop below the minimum agreed upon in your policy, however.

Only you can decide what the best insurance policy is for you and your family. Individuals who require access to the funds in their policy and are uncomfortable with the idea of losing the death benefit at the end of a policy term would be well-suited to this type of health insurance. Universal health insurance provides an investment option that offers not only death benefits to your loved ones but also a form of financial security for you during your life.

Universal life premiums will cost more throughout the life of your policy than other types of insurance, and may be unnecessary depending upon your needs. By researching your life insurance options, obtaining quotes online, and discussing policy options with the providers before committing to a policy, you can guarantee the best choice to give benefits to your family while staying within your budgetary needs.

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