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Insurance
Universal Life Insurance |
Universal life is the
second variation of cash value insurance. It's similar to whole life with a few subtle
differences. Unlike whole life, you're able to see firsthand what is taking place inside
your account -- interest rate fluctuations, expenses being charged against your cash
value, the actual costs of insurance, etc.
Universal life also guarantees a minimum fixed rate of interest for your cash value
account. When your insurer's performance exceeds the minimum rate, your account is
actually credited with the excess interest rate instead of being issued a dividend like
whole life policies.
Universal life offers a flexibility for paying premiums that is not available in other
policies. Based on your needs, you can vary the amount of premium you want to pay. If
you're short of cash, you can skip a payment. If you have lots of cash, you can add to
your account. Either way, you determine how much and how long you want to pay.
Advantages:
- Policy doesn't need to be renewed.
- Flexible premiums.
Flexible death benefits.
Tax-deferred earnings.
Option to withdraw cash value.
Option to borrow against cash value.
Drawbacks:
- Interest rate risks.
- Payment flexibility can work
against you.
Next: Variable
Life
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