How to Understand Universal Life Insurance

Buy enough life insurance so that your family won’t be stuck with your debts after you die. There are many different kinds of life insurance policies on the market to help you accomplish this. However, one of the most popular permanent life insurance policies being sold is universal life insurance. Universal life insurance offers you a combination of term life and whole life insurance. But, before you buy into this complex financial product, make sure you understand how it works.

Simplified-Issue Term Life:
Read your insurance policy. The policy contract explains the basic mechanics of the insurance policy. Premiums are paid into the policy’s cash value. The company then invests the cash value according to the terms of the contract. The company subtracts the cost of insurance from the cash value and credits the policy with interest according to what the cash value has earned for that month. This happens every month until, or unless, there is no more cash value available in the policy. When the policy cash value reaches zero, the policy terminates.
Contact the life insurance company that you purchased your policy from. Life insurance company representatives may be able to send you additional information about your particular life insurance contract. There are, generally, three types of universal life insurance. The first kind is a fixed universal life insurance policy that pays a fixed rate of return based on the the investments in the insurer’s general account. Indexed universal life pays interest based on the upward movement of a stock market index. Variable universal life insurance pays interest based on mutual fund investments.
Take out a book on life insurance from your local library. Look for books written by actuaries, that is, professional mathematicians who design life insurance policies. A book written by an actuary also gives you the benefit of a non-biased source of information, as opposed to talking to a life insurance salesman. A book can illustrate the details of how universal life insurance works. For example, a book will explain how universal life insurance is technically a combination of term life insurance and a cash value savings. It can break down the cost of insurance inside of a universal life insurance policy, how the insurer determines that cost and how it can raise or lower those costs. It will also explain how insurers invest your cash values.

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