Essentially, universal life insurance is based on a cash value principal. The provider of the universal life policy bases the cost of insurance on factors such as the policy administrative expense. A set death benefit is agreed to by the provider and the purchaser of the policy, which is usually paid at when a person reaches a certain predetermined age. The premium payments are agreed to in advance, but if the cost of insurance dips below the value of the premiums, the money paid to the company is then kept within a tax-deferred account, where it will accrue interest for as long as the policy holder does not cash out the value of the policy. Many people use universal life insurance policies as a form of interest banking. By purchasing a universal life insurance policy, an individual may actually grow their bank account with tax-free interest, as long as the premium payments continue over at least a fifteen year period, and the cost of insurance and policy management does not suddenly exceed the value of the premium payments. In many cases, the premium payments often exceed the total value of the life insurance policy, requiring no further premium payments to be made on the policy.
Someone considering a universal life insurance plan should take into account the following factors before they sign up with an insurance company. The first and most important thing to consider is the age of the person buying the policy. People in their later years - such as those over age 70 - frequently benefit from a universal life insurance policy. Their families or named beneficiaries will receive money after they die. Additionally, the tax-free nature of the investment means that any money placed with the insurance policy will steadily grow in value without incurring fees. The second thing to consider is anticipated monthly income. If the premium payment can be negotiated into a set figure, and it is a relatively small expense out of the monthly budget, the universal life insurance policy is probably going to be a worthwhile investment. If, however, the premium is too high, and places a burden on the household, another policy with more affordable premiums should be sought out. Although the premiums are generally set so that they will accrue cash into tax-deferred accounts, each household must be realistic about its budgetary income in order to make the best use of the money they have. The universal life insurance policy should be thought of as an investment, not as an immediate money generator.
Finally, when seeking out the right policy, using the resources of the internet - specifically comparison sites such as LifeInsuranceRates.com - will allow interested individuals to immediately compare the real time benefits and disadvantages of a variety of different plans. Finding the right combination of age, monthly income, plan benefits and total cash value can take only a few minutes using a comparison site. Additionally, the ability to quickly research how each of these plans has performed for its policy holders will allow those who are seriously considering a universal life insurance plan to get a feel for how the providers treat their members, and how much money people end up earning by using the tax-deferred accounts. The most important thing to remember about universal life insurance is that putting in effort into online research at the beginning will result in a big pay-off in the end.