Life insurance comes in a variety of kinds. One of these includes universal life insurance. Universal life insurance can get described as a form that is permanent insurance. Unlike term life insurance, which gets intended for a particular period, universal life insurance can provide lifetime coverage.
Universal life insurance offers advantages that other types of insurance policies do not. But there are some disadvantages and risks. This policy type may only be appropriate for some.
The Cash Value, Besides the Death Benefit
Life insurance is several death benefits payable to the beneficiary following the person insured dies. That is the benefit most people envision when considering life insurance. When discussing term-life insurance, this mortality benefit will be the primary reason to purchase insurance.
Universal life insurance is distinct. While the death benefit is vital to insurance for many policyholders, it’s not the only aspect.
In addition to the death reward, universal life insurance also creates an amount of cash. The cash value is a source of interest, and the increase in value is tax-free. Once the cash value has reached the desired level, the owner can access it by withdrawing funds or borrowing money from the policy. These loans are not usually taxed. If a loan gets not repaid, the death benefit will get reduced.
Universal vs. Whole Life Insurance
Another type of permanent life insurance is whole life. Universal and whole life insurance are comparable at first look. There are some significant variations, though, and many have to do with risk and flexibility.
When compared to universal life insurance, whole life insurance has fixed rates. In exchange for paying more than the premium, the policyholder accumulates an increase in cash value. Since the cash value builds interest which can cover tips in the future or be taken out or borrowed if necessary, this is beneficial.
If funds are in a tight spot or after retirement, the policyholder can reduce the cost of insurance. The policyholder may be capable of avoiding the payment of premiums. It is essential to ensure that the tips are enough to maintain the policy; however, if a substantial cash value has to get accrued, it may get used to paying the necessary recommendations. In the case of universal life insurance, the death benefit can be adjustable. This flexibility helps the policyholder to meet changing requirements.
Universal Life Insurance Policy Variations
The universal life insurance policy is a kind of life insurance. However, not all policies are the same; different types offer universal insurance. These differences can be substantial, so it’s essential to understand the kind of coverage of universal insurance you’re thinking of purchasing.
Funds get tied to stocks and bonds in variable universal life insurance policies. If the stocks and bonds perform well, it could result in substantial gains, but there is also a chance of losing money. Funds get linked to indexes through indexes in universal life insurance contracts.
Another alternative is guaranteed universal insurance. This type of insurance is like term life insurance. It is a permanent life insurance policy that provides coverage for a person’s entire lifetime. Still, it does not offer the flexibility commonly associated with other types of universal life insurance. It may not build a cash value.
The Advantages of Universal Life Insurance
A lot of people believe that universal life insurance could be a desirable option because it has the following benefits:
- The policy generates an amount of cash accessed throughout the policyholder’s life, for instance, in the process of a loan or withdrawal.
- The policyholder can adjust the premium payment so long as they are enough to maintain the policy.
- The cash value will increase with market performance if the market does well. That might result in significant gains.
- The death benefit can increase, bringing additional help to the policy’s beneficiaries.
- The increase in cash value is tax-deferred. Loans and death benefits from life insurance policies are typically tax-free.
The Disadvantages of Universal Life Insurance
While the flexibility offered by universal life insurance is attractive, there are disadvantages. Before you purchase a universal life insurance policy, consider these issues carefully because some could lead to the expiration of your policy or a decrease in your benefits.
- The policyholder might have to pay various charges. Before buying a policy, be aware of the costs that are involved.
- Market losses could decrease the value of cash. That could result in a significant loss.
- The death benefit can get reduced. That means you could leave your heirs less than you originally planned.
- The policy can get canceled if the premiums get kept up, and there needs to be more cash to pay for the non-paid premiums.
Universal Life Insurance Riders
There are many life insurance riders, and different insurance carriers have other options. Riders are clauses added to insurance policies that allow for the customization of insurance coverage. Although they can raise the cost of the life insurance policy, however, they can also give significant benefits that might not otherwise be accessible.
For instance, some life insurance policies allow you to defer payments in the event of a disability. Some riders let you avail of the death benefit earlier when you’re diagnosed with a terminal illness. Additionally, life insurance policies provide the option of a term insurance plan for children.
Is Universal Life Insurance the Right Choice for You?
Life insurance is crucial, but there’s plenty to consider before settling on the best type. Suppose you’re a fan of the flexibility and possibility of cash value growth. In that case, universal life insurance could be your right choice. It is essential to consider the risks involved with this kind of policy you choose to avoid being in a position when your insurance policy expires. It is also necessary to consider the type of coverage of universal insurance you may like index, variable, or other, and what additional features you may want to include in the policy.
Do you need help? Ottawa Life Insurance can help you choose the right policy for your needs. Contact us today at (613) 454-1424 or email us at info@ottawa-lifeinsurance.ca for further information.
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