Buying life insurance can be confusing to anyone who doesn't know the terminology. Universal life insurance is a flexible product that actually builds a cash value that is interest sensitive. Premiums and face amounts are adjustable, and the policy holder can change them as their individual needs vary. When someone decides to buy universal life insurance, they will be building a valuable asset. Over time, the value builds, and the policy holder can borrow money against it, use it for collateral, or cash it in if an emergency arises.
The best universal life insurance policies combine a term life insurance policy with a cash value policy. When the premium is paid, part of the payment goes toward paying the term policy, and the other part is invested in an interest-earning cash account, commonly known as the reserve account. As the policy holder ages, a larger percentage of the premium goes toward paying the term life portion of the policy as the risk increases, and a smaller amount is invested. The best universal life insurance policies are guaranteed. This means that the insurance provider guarantees that your policy will perform at least as good as a stated minimum interest rate. If the prevailing interest rates go higher, the reserve account will grow quickly. When interest rates drop to very low rates, your policy will still earn money at the minimum guaranteed rate. If the policy is not guaranteed, the interest rate earned on the reserve account could drop to practically nothing. When you decide to buy universal life insurance coverage, consider the following: While universal life policies have their advantages, they are more expensive than term life policies. If payments are not made, the policy can lapse and leave the policy holder without coverage. If the insurance company doesn't invest your funds wisely, the reserve account may not grow as fast as was originally anticipated. The policy may actually become under funded if the forecasted rate of return was overly optimistic. Premiums may have to be increased to cover the difference.
When you decide to buy universal life insurance, use online resources like LifeInsuranceRates.com to find the best universal life insurance policies. Instead of contacting multiple agents or brokers directly, an online site can automatically compare multiple insurance offers quickly and present the quotes in an easy-to-read format.