Question

explain the basic characteristics of universal life policies?

Answer 1

A universal life insurance provides more flexibility to the insured than a normal life insurance policy. The policyholders have the ultimate flexibility to make adjustments in their premium payments as well as death benefits.

There are two main part of a universal life insurance premium, these are cost of insurance amount and a saving part of the premium, this saving part is also known as the cash value. The cost of insurance part is the minimum amount of premium that is needed to keep the policy in a active state. It includes various kinds of cost that a insurance company incurs in insuring an individual. The cash value part of the premium acts like a saving account, the premium gets accumulated and it earns interest based on the current market rate. As the amount gets accumulated, the policyholder can have the access to a portion of the amount, and because of this, the death benefit will not get affected under universal life insurance policy.

The flexible payment option allows a policyholder to make premium payments to company with excess amount being converted into cash value and earns a interest. In case, if the policyholder skips next ‘cost of insurance’ premium payments, it is automatically adjusted from the cash value. Therefore, policyholder have the liberty to skip some of their premiums without affecting their benefits in the longer run.