Universal Life Insurance

The death benefit, premiums, and cash value are perpetually adjustable in the hands of the policyholder. In capable hands, that makes universal life insurance a more useful investment vehicle.

With other types of life insurance, you pay a certain, required premium, and you never see what the insurance companies do with the money. With universal insurance, though, there is no required premium—you pay whenever you want, however much you want. How does the insurer take its fee, then? Instead of requiring periodic payments from you, it makes periodic charges against your cash value account—a charge for administration, a charge for COI, a charge for loading, etc. You see just what expenses your policy is incurring. Understanding your policy's expenses is useful because universal insurance's flexibility permits you to make changes that will change the costs of your coverage.

It's true that universal life insurance is not nearly so cheap as term life insurance, but it is much cheaper than whole life insurance. How can it be cheaper and grant the policyholder so much more freedom at the same time? In the real world, "freedom" equates to "responsibility," and it is by transferring responsibility from the insurance company to the policy owner that universal life insurance cuts costs. Whole life insurance guarantees a fixed rate of cash value growth, a fixed death benefit, and a fixed rate. By altering or discarding these guarantees, life insurance companies can reduce the cost of the life insurance product.

Universal life insurance may be used for myriad purposes. Popular uses include but are not limited to:

• A tax-advantaged investment vehicle

In addition to ordinary universal life insurance, you may seek out:

• Variable universal life insurance
• Indexed universal life insurance