Unlike term and whole life insurances, this policy blends term insurance and an investment account into one contract. Also its premiums can be increased or decreased, paid when due or at unscheduled dates, or stopped entirely and restarted at the owner's will provided the policy value is adequate to maintain the cost of the insurance.
This type of policy is adapted well to satisfy the changing insurance and investment needs of its owner.
(By Kyle J. Norton)
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Interest Rates and Universal Life Insurance
By Evan C Davis
Universal life insurance policies provide a flexible insurance solution for those seeking the protection of death benefits. The insured can flex the policy's premiums and benefits during the life of the policy while the policy creates a residual cash value. This allows one to adjust the nature of their life insurance so that it remains consistent with their actual needs.
Whole life insurance policies offer insured parties a guaranteed interest rate on the cash value of the policy. Universal life policies do this as well. For instance, a universal life policy may guarantee a minimum interest rate on the account of X percent. That percentage will be paid regardless of what happens to the insurance companies actual earnings. However, if the insurance company is able to invest premiums in a way that allows them to exceed the X percent rate of growth, they credit the policy of the insured at the higher rate.
This seems like an absolutely winning situation for holders of universal life policies. After all, they are guaranteed a minimum rate of return on the policy's cash value and may actually earn in excess of that rate, allowing them to pay less in premiums for the same level of life insurance coverage.
This feature of universal life insurance policies has contributed significantly to their popularity. However, despite the minimum guaranteed rate of return, interest rate levels can still impact universal life insurance policies detrimentally, making it necessary for consumers to consider all possibilities when evaluating universal products.
Although the insured is guaranteed a minimum rate of increase to the policy's cash value, this perk is somewhat meaningless if an insurance company's assumptions regarding interest rate behavior are proven to be wrong. All universal life policies are written with assumptions regarding the nature of interest rates in mind. If the company is unable to invest at a level producing the anticipated return, premium costs are forced upward to compensate for the shortfall.
This can result in policyholders being forced into premiums they may not be able to afford. This phenomenon is occurring today for those who bought universal life insurance when interest rates were in double digits. Insurance companies based their universal life insurance policies on the assumption that higher interest rates would continue for some time. This has not been the case, and many insured parties have found themselves paying higher and higher premiums in order to maintain their life insurance. For some, these premium increases are unmanageable, forcing them to cancel their policies completely.
Obviously, the risk of interest rate fluctuations makes universal life insurance less predictable than whole life insurance coverage. However, this unpredictability is not necessarily a reason to avoid universal life. If one is cognizant of the risk of premium price upswing if earnings fail to meet predictions and is prepared to pay the increased premiums in such situations, universal life remains very effective.
This is especially true in light of the fact that the alternative would be to simply buy a whole life insurance policy, which would likely require higher premiums payments right away and with no opportunity for relief at any point during the life of the policy.
Universal life advocates argue that the possibility for cheaper premiums when investment out performs or meets projections makes it a more sensible alternative than agreeing to higher premium payments through the entirety of a policy (whole life).
Whole life advocates maintain that the unpredictability of the markets and of interest rates makes universal life insurance products too unpredictable.
In the final analysis, universal life insurance products seem like a winning solution for those who understand and are able to handle fluctuations in the required premium. If one necessitates complete predictability and is able to overlook the possibility of a cheaper premium over the course of the policy, they may decide that a whole life package makes more sense for them than universal life insurance.
Evan C. Davis works in Medicare customer service and is the webmaster and owner of Easy Insurance Finder. Find out about universal life insurance and online universal life quotes at http://www.easy-insurance-finder.com.
Article Source: http://EzineArticles.com/?expert=Evan_C_Davis
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How Much Should You Pay For Life Insurance?
By Jane B. Reynolds
So how much should you pay for life insurance? This is a very good question because there are individuals out there paying too much and some who are actually not paying enough because they don't have enough coverage. Fortunately, there is a happy medium here, but it is important that you know what it is.
Paying too much?
How does someone pay too much for life insurance? Well, there are two ways in which this is done. The first is that they have taken too much coverage. The higher the coverage, the higher the premium.
Another reason why individuals pay too much for life insurance is that they have not compared their prices with other companies and they have simply picked an expensive company.
The types of coverage
There are a number of factors that go into what you pay for life insurance. The first is the type of life insurance you buy. You have three types: Term, Whole, and Universal. Term is the simplest and the cheapest. It is not unusual to have a 20 year term policy in excess of $300,000 of coverage for $20 or $30 per month. The reason why it is so cheap is because it is very unusual that an insurance company has to pay out on a term. They are most likely going to pay out on a Whole or Universal.
A Whole life policy is going to be more expensive. As a matter of fact, the monthly premium could be more than double a Term policy for the same amount of coverage. This is because this policy is special. There is an annual dividend that enables this policy to gain cash value. It is also a guaranteed policy that will last for the remainder of your life.
A Universal life policy is a mixture of both Term and Whole and also packs a higher price tag. This is because it is a more flexible policy that allows for changes at any time. You can increase your amount if you need to. This is great when you can only afford a certain premium in the beginning, but can afford more in the future.
Another factor is your overall health when you open the policy. If you're overweight or have a health condition, your rate may rise.
Paying the right amount
To determine what the right amount is, you have to comparison shop. This means that you will need to check with multiple companies. You will have to acquire quotes and compare those quotes. And if the policy specs are not available immediately, ask for coverage outlines from each company so that you can compare the features and the cost associated with those features. If one policy is $68 and has the same exact features as one that is $99 per month, then you know the $68 is going to be more affordable. If you find another policy with similar features for $50 per month, but the $68 has all of the features you need, you know you should be paying $68 per month.
It all comes down to being patient. That way if you're supposed to pay $30 per month, you will find that $30 per month policy.
Jane Reynolds works for life-insurance-settlement.com; a company dedicated to making it easier for you to find quality life insurance in your state. Life-insurance-settlement.com is a directory of life insurance websites and makes looking for life insurance a one stop affair.
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