When many people think about buying a new life insurance policy, often they think about a policy that will provide death benefits to their family in the event they pass away while the policy is in effect. The fact is, though, that some policies offer you a more robust range of features and benefits than a simple death benefit. A universal life insurance policy offers many more benefits than a traditional term policy, and it can be used as a tool for life-long financial planning.
Life-Long Death Benefits
With a universal life insurance policy, your beneficiaries will receive death benefits. A term policy is a type of insurance that provides you with coverage for a certain number of years. For instance, if you purchase a ten year term policy, the policy will simply expire at the end of the term. Then you will be left uninsured. If you have on-going needs for life insurance, you will then have to apply for a new policy. Often rates will increase with age, and so you will be forced to pay a higher rate for the coverage you need. With a universal policy, however, you receive life-long death benefits. Provided the premiums are paid, your policy will never expire. Your premium will remain fixed, and so you don’t have to worry about being forced to purchase insurance at a higher rate in the future.
These are policies that actually accumulate value over time., and this is tax-deferred growth. The interest rate will vary according to market conditions, and so there is no guarantee as too how quickly the funds will grow. However, many policies do have minimum and maximum ranges set with regards to the interest rate applied to the policy funds. Each universal life policy will vary slightly, but many options do allow you to pull cash out of the policy. Many people will use cash-out proceeds later in life as a source of retirement funds. Others may use the proceeds to buy real estate investments or purchase other investments in the future. This is a cash asset just as a 401(k), IRA, or other similar assets are, and the value is included as an asset when calculating your net worth.
Taking cash out of your policy is one way you can use the accumulated value in a universal life insurance policy. When cash is taken out of the policy, the death benefits are reduced by that amount. However, another option available to you with this type of policy is using the funds as a loan. Loans taken on these insurance policies generally have very low interest rates compared to other sources of funds. There generally is not a stringent loan approval process, as these funds are actually yours. However, if you pass away before the loan has been repaid in full, any outstanding principal balance of the loan will be negated from the death benefits your beneficiaries receive. A loan on these funds is commonly used to help fund a child’s college education, to purchase real estate, for debt consolidation purposes, and more.
As you can see, there are some considerable benefits to purchasing a universal life insurance policy. These policies do tend to cost more than a term life policy, but the benefits of a universal policy available to you throughout your life should be considered carefully. With the life-long death benefits, the ability for the policy to accumulate in value over time, and for those funds to be cashed out or borrowed as needed in the future, the benefits of such a policy provide you with a great deal of flexibility for financial stability, investment opportunities, and more over the years.