What is Universal Life Insurance?
Universal life insurance can get a bit confusing, because it is basically an insurance and investment policy. Let’s break it down.
Premiums = Cost of Insurance
In regular life insurance, you pay a specific premium every month to maintain your policy. In universal life insurance, you pay what they call “cost of insurance.” You set the cost of insurance with your provider, based on your age, health, practices, long-term plans, and so forth.
The basic benefit is life insurance.
You will also pay a regular cost of insurance every month, just like a premium. This tends to go up over time. However, since there is an investment aspect to this insurance policy, anything left over from your payment can be added to the cash value of your investment fund.
The Investment Fund Side
The “cost of insurance” includes a portion of your payment which your insurer will invest for you. Those investments, when they start to earn, give you cash value. This cash value can be left in place to continue earning, which helps you save.
Unique to this set-up, if your cash value is large enough and growing fast enough, you can allow your payments to lapse. The cost of insurance will be taken from the cash value. However, this is not recommended, as cost of insurance goes up over time.
You can make “withdrawals” on your cash value. Usually the insurance provider sets the minimum that you can withdraw, but it’s still comforting to know you can draw on what you have been paying.
Should you wish to go in the other direction and add to your cash value, you can make “deposits” to it. There is also usually a minimum for this, but it is also a strong benefit of universal health insurance.
Universal Health Insurance Covers Two Bases at Once
With universal health insurance, you get to cover two bases: life insurance for your beneficiaries, and long-term saving for the future. This might be the insurance policy that works best for you.