Universal life insurance is a clever way of combining term life insurance with a saving plan.
The beauty of the thing is that you decide how much of your premium dollars go to saving and how much go to pay for life insurance coverage.
Universal life insurance is a very flexible type policy with certain attractive advantages and a few disadvantages.
Let us suppose you decided you wanted to buy some life insurance to protect your family. You could buy a term policy but you kind of like the idea of at least getting back some of your money years down the line if you don't die.
You decide you want to put $100 per month in the policy to start. You could apply $40 per month to the purchase of life insurance and the balance of $60 to saving.
Everything goes well for a while. You have your life insurance and your money is growing nicely.
Something happens! You have an addition to the family and you become aware that you need some more life insurance.
The problem is that with all the additional expenses you don't want to put out additional money at this time. What you can do is to reduce the amount going to saving and increase what you apply to life insurance.
Depending on your age, the life insurance company may ask for evidence of insure-ability. Incidentally, you have the choice of increasing or decreasing your saving at any time.
The amount you have saved so far will stay in tact and continue accumulating interest. There are two types of universal life policies. The second type is known as variable universal life.
Variable Universal Life This policy is also based on permanent life insurance with an investment portfolio attached. The additional money you put into your policy goes into an investment portfolio.
In other words this policy allows for your money to be invested in mutual funds, stocks, money market etc. This opens the opportunity for you to receive a greater return on your money.
Because the base policy is permanent insurance your monthly allotment applied to life insurance would need to be more.
Permanent policies cost more. They do, however, have a cash value which would be available to you in addition to the money you accumulate in your investment portfolio.
As we are now dealing with equities these policies can only be sold after you review a prospectus which the law requires that the insurance company prepares for you.
You have the opportunity to choose where you want your money invested. The agent you deal with is required to be licensed by his state to sell life insurance but, in addition, s/he is required to have what is referred to as an N.A.S.D. license. This is a license to trade equities.
Other than these differences variable universal life works in a similar way to the basic universal life policy.
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