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Universal Insurance Pros and Cons

Universal life insurance, which is also called a Flexible Premium Adjustable Life Insurance policy, is a special type of insurance that is similar to whole but offers an increased amount of flexibility.


What is Universal Insurance?

Universal was introduced in the early 1980s and offers a savings component similar to that offered by whole life insurance. As with whole life insurance, these policies grow on a tax deferred schedule. The premiums that you pay are used by the insurance company to invest in mortgages, bonds, and money market funds and the return on these investments is credit to your account.

In addition to the return on the investment, these policies also have a guaranteed minimum interest payment. With most policies, this minimum interest is about 4%. Therefore, no matter how poorly the investment may perform, you are guaranteed a certain rate of return. At the same time, if the insurance company does quite well, you will enjoy a larger increase as well.

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Are There Different Types of Coverage?  

There are two types of policies that you can quote and select from. The first pays a death benefit out of the cash value of the policy. Therefore, the more cash value you have built up will actually require the company to pay less in the form of an insurance payout. Since this costs the insurance company less money, this option is less costly and cheaper.

The other option pays out the face value of the contract as well as any cash value that has been accumulated within the account. As such, this is more costly to keep in place. In either case, as long as you make your premium payments, it will stay in effect for the rest o your life (though some will only remain in effect until you turn 100 or 120 depending on the policy).


What are the Pros of a these Plans?  

With this policy, you have a greater amount of flexibility than with other coverage because you can make adjustments to the death benefits when necessary and as your needs change. You also have the flexibility of paying larger or smaller premium payments according to your current financial status. If you have fluctuations in your pay, this feature can be particularly attractive.


What are the Cons of these Policies?  

Although you have flexibility in paying larger or smaller premiums, sending small premiums for too long of a period of time can cause the policy to lapse and you will lose your insurance protection. In addition, if the insurance company does a poor job with its investments, you will not receive as high of a return on your investment as you may desire. In addition, this can cause the cash value of the account to fall and will result in you having to pay more premiums later in the life of your policy.

With so many pros and cons to consider, it is important to thoroughly explore all of your options before deciding whether or not a policy is right for you.