When should I plan to buy universal life insurance coverage?
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Asked June 24, 2013
Universal life insurance is a special type of permanent life insurance. It is designed to not only provide a guaranteed death benefit, referred to as the face value, but to also provide a return on the policy known as a cash or accrued value. Universal life insurance also includes the ability to alter the face value of the policy at a later date, to give the policy owner power over how the premiums are invested, and to even give you some flexibility in when and how much your premiums will be.
The cash value of the policy represents the performance of the investments and the amount of your premiums. In the first case, choosing investment options that perform well will means a higher return on the policy's cash value. In the latter case, the cash value you build into the policy can be used to make premium payments for you automatically, or to reduce the amount of your premiums consistently over time.
Once you have held the policy for a period of time, you may have life changes that allow you to reduce the face value of the policy. For example, once your mortgage is paid off you can reduce the face value of the policy to remove the portion you had planned for paying off the mortgage if you had died.
You will need to take a medical exam when you apply for a universal life policy. Later, if you decide you would like to increase the face value of the policy, you can do so, but you will need to take the medical exam again. Decreasing the value reduces the risk for the insurer, but increasing the face value increases the risk and you will need to show medically that your health has not changed dramatically since the policy was first issued.
Whether or not you need a universal life policy is a personal decision. Universal life policies tend to have higher premiums than some other types of life insurance, such as a basic whole life policy, but they also have the potential for higher payouts after you pass away. Before you buy a universal life insurance policy, it is a good idea to talk with a financial planner or even an insurance broker to help you determine your exact needs.
Answered June 24, 2013 by Anonymous