Most people are aware of life insurance, but many don’t have a clear vision of the different types of plans available. It helps to know the differences between universal life, whole life, and term life plans. Here’s a brief look at these different options for life insurance that can help you plan your family’s financial future.
How Does Universal Life Insurance Work?
A universal life insurance policy falls under the category of permanent life insurance, which equates to lifelong coverage. Upon your death, the insurance provider sends death benefits to loved ones you list on your plan as beneficiaries. These benefits accumulate throughout your life as long as you continue to pay the premium. Some plans allow you to invest money in equities that grow in value over time.
How Cash Value Works?
Every time you make a premium payment for your universal life insurance plan, a certain amount will be deposited in a separate cash value account. This account will grow with interest at a gradual pace.
Once you’ve paid a certain amount into the system, your insurer may allow you to use this cash value to make premium payments. Some plans allow you to borrow against this amount as well while using the cash value as collateral. It’s possible to cash out of the policy completely before your death and use the proceeds for any purpose. But if you choose this option, your beneficiaries won’t receive the benefits.
Differences Between Whole Life, Universal Life, and Term Life Insurance
One of the most obvious differences between a term life plan versus a whole life or universal plan is that the former is for a specific time frame such as 5 to 30 years. Meanwhile, the other two plans last a lifetime. A term life plan is the least expensive of the three, but it’s also the least flexible. While whole life and universal life plans to provide cash value, a term life plan does not.
Another drawback to a term life plan is that the premium may rise at any given renewal. A whole life plan, by contrast, offers a fixed rate while a universal plan provides a degree of flexibility.
Key Benefits of a Universal Life Insurance Policy
Other than lifelong coverage and flexible premiums, a major reason why families turn to the universal life option is the cash value that grows over many years is tax-free. The plan is also handy for emergencies when you need to borrow cash.
Who Typically Chooses a Universal Life Insurance Policy?
A universal life plan is appropriate for someone who wants to build cash value throughout their lives and eventually share it with beneficiaries. It’s also helpful for people who want to be flexible in how they manage their assets.
Choose a Customized Universal Life Insurance plan with Medicare Advisors Today
Make sure when you sign up for a life insurance plan that you’re getting the coverage you seek. Contact us at Medicare Advisors for more information on securing a customized universal life insurance plan for your needs.