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How Exactly Universal Life Insurance Works?

April 13, 2012 | Comments: 0 | Views: 131

Most individuals would assert that universal life insurance is the perfect hybrid among all plans. This is because it seems to combine the advantages of both whole and term policies. This sounds thrilling. Frankly, there is a tinge of truth in this statement. There have been many articles written about this topic. But with all of that information, just exactly how on earth this plan works? This piece of writing will let you in on a secret that no insurance firm will tell you.

Since the latter part of the 1970's, it has been catering to the policyholders who are not afraid to embrace risks while staying under the protection of a policy. It is considered as a permanent insurance plan. It can provide lifetime coverage but like any other plans, of course you will have to religiously pay your premiums in order to enjoy your plan's benefits.

What makes it the best hybrid? Here are some of its advantages.

• Like whole life, it also has a cash saving facility. There is a separate account that will accrue cash over time. This will allow the plan owner to borrow money while he is still living in case of an emergency. He wouldn't have to pay it back. However, the amount borrowed will be deducted to the total proceeds that will be awarded to his beneficiaries after his demise. The money will also be exempted from the tax required by the government. The cash value will accrue interest according to the prevailing market rate

• Unlike the instant term life insurance quotes, its rates may be a bit higher but it can provide the policy owner great flexibility. You can have the power to choose whether to increase the funds to be allocated to the cash value or to increase the death benefit for your recipients.

• Adjustable payment scheme -you can design your own payment scheme as well. You have the leeway to tailor-fit it to your income flow. In addition, in the event that a financial emergency happens to you, you may have an arrangement to your carrier that will allow you to pay double next time without incurring late payment fees and interests.

As for the downsides of the policy being talked about, the certainty of the insurance protection is conditional. Meaning, although you have the flexibility and the freedom to pay the premiums on your terms, you have to make sure that you are paying sufficient premiums. Otherwise, the plan will lapse without your knowing. This should be made clear to you by your chosen carrier. Bear in mind that the insurance and cash value are counted as two separate accounts. Therefore, the administrative charges and the interests should at least even out so that the death benefit would not be affected or lost at worst.

Compared with term life insurance quotes, universal life rates are quite higher. This may be a disadvantage to others, especially to people who hardly make both ends meet. Sadly, this cannot be arranged. Being in a good physical shape may help though.

There are three options that you can choose from when it comes to premiums; the fixed, flexible and single. As their names suggest, the rates will not be changed until you die even if your health status will change over time. You can pay the premiums in your own terms in the second option. As for the third, you can pay it one time big time. You will need to have big money for this though.

In addition to its downsides, this plan is quite risky as well. You would always have to watch your back and ensure that you make right decisions. Otherwise, it may cost you all the money you have spent on it. You need to be armed with right information and strong grasp of how it works so that you will have low probability of making the wrong move.

If you are not open to risks and complexities, you would rather look for cheap term life insurance quotes. You must not be too attracted by the universal life insurance plan's flexibility feature or you may not be able to make it work favorable to your side. In addition, you ought to know how to manage risks. Jump too soon and you may make mistakes. Take too much time deciding and you will lose too.

Article by David Livingston of EQuote, who is a specialist in everything life insurance. For more information on term life, visit his site today.

Source: EzineArticles
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