Is Universal Life Coverage A Good Investment Option?

Universal life insurance products are popular life policies that offer life term coverage for its investors. These policies also accumulate in cash value over the life of the insurance and also offer death benefits to the beneficiaries assigned by the investor. Universal life insurance policies are a favorite investment option for a lot of people because they also known to be flexible.

They are usually costlier than term life policies while cheaper than whole life products. Universal life coverage can be a very good investment option for people, on the lookout for a more comprehensive insurance policy than term life, which offers investment options with cash value benefits.

Premium Payments

The policyholder here has considerable flexibility when it comes to managing payments of premiums. With universal life coverage, the premiums are invested in a savings account, which begins to accumulate interest over time. The insurance company would take a small percentage of the amount to cover for administrative costs, but the accumulating cash value can leave you with considerable sum of money, which you can even withdraw later on if you are hard pressed for cash.

Premium payments can be made on monthly, quarterly, half yearly or yearly basis. This type of policy also guarantees the investor a minimum interest rate for the insurance.

Importance of savings

Since cash value accumulates over time with whole life coverage, it opens up several options for the policyholder. In case you are going through a period of financial uncertainty; you can ask your insurer to deduct the value of your premium payments from the cash value fund. You can also take loans from these savings to cover for urgent or important expenses.

These may include a pending car loan or funding for your child’s college education. It should be noted that the insurance company would have to pay taxes for the money withdrawn as it was initially invested tax-free. The policy also offers investment options to the policyholders. This is one of the key areas where it differs from whole life policies. The investor here can choose from a list of investment options provided by the company.

Some flipsides to buying universal life coverage

Universal life coverage is costlier than traditional term life products. The rate of premiums is substantially higher because of the number of benefits involved. As a result it may not be an affordable investment for all people. Yet policyholders can make considerable returns on their premiums through the investment options. However, if the money is not wisely invested, the policyholder may end up getting only the minimum guaranteed rate of interest for the insurance.

Universal life coverage is also more technical than term life and whole policies. This can be an issue for some investors who are on the lookout for simple life policies. It is crucial for all interested parties to be familiar with their universal life insurance before signing on the dotted line. Make it a point to clarify any doubts you have with agent of the insurance company.