Universal Life Insurance
What it is and how it relates to Workplace Benefits
Universal life insurance is a type of permanent life insurance policy that individuals may purchase to provide a financial benefit for their loved ones in the event of their death.
These types of policies are usually purchased from insurance agents and are held completely separate from any workplace benefit offered by an employer.
Who it is for
Universal life insurance policies best benefit people who have a permanent need for life insurance, who may also benefit from a death benefit that can be adjusted and flexible premium payments.
How it works
The first step in obtaining a universal policy is applying to a life insurance company. Once the policy is issued, the policy owner makes periodic premium payments to the insurer. In exchange, the insurer guarantees that a cash benefit will be paid to the policy’s beneficiary in the event that the policyholder dies. After the death benefit is paid, the policy terminates.
Different types of coverage in existence
There are two basic types of universal life insurance: fixed and variable.
As the name suggests, fixed policies grow at a fixed rate of interest. The policy has a minimum interest rate that applies to the life of the policy, but the insurance company can declare a rate higher than that as well.
Variable policies grow according to the performance of the policy’s underlying investments. These are called “subaccounts”. While there is no cap on the growth these policies can experience, they can also lose money if investment results are poor.
For many people, the most important benefit of universal life insurance is the permanent nature of the product. Once the policy is issued, the owner does not have to worry about the policy expiring. Another key benefit is flexibility. Needs can change later in life, and universal policies offer the ability to adapt through flexible premiums and death benefits. The ability to borrow against the policy’s cash value is another way this type of product is appealing.