Universal life insurance provides insurance over a specified term and accumulates savings for policyholders over this time. It is a combination term insurance and a savings plan, and because it allows policyholders to build savings, it is classified as a cash-value life insurance policy.
Universal life insurance allows policyholders to alter their payments over time. It specifies the premium needed to cover the term insurance portion. When policyholders pay more than that amount, the extra amount is invested in savings on which policyholders earn interest, unlike whole life insurance policies, where the insurance company makes the investment decisions, policyholders are given a set of alternative investments and can decide how the funds allocated toward the savings plan are to be invested. Policyholders may skip premium payments, and the amount needed to cover the term insurance portion or any administrative expenses will be withdrawn from their savings plan.
A related type of insurance is called variable life insurance, which allows policyholders to invest the residual funds, after the premium payment on the term portion is paid, in various types of investments, including mutual funds.
The advantage of universal life insurance is that it provides policyholders with some flexibility in making their payments and in deciding how the savings should be invested. However, the fees on universal life insurance can be high. You can achieve the benefits of universal life insurance by simply purchasing term insurance and investing your savings in stocks or mutual funds without combining them with an insurance scheme. This also saves you the administrative fees.
Author Steven Bartowdate added 2009-09-01 09:42:36