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Universal life insurance is like a happy medium between Term and Whole life insurance. It combines the low cost of Term
coverage with tax deffered savings of a Whole life. These policies can give the flexibility of decreasing the death benefit and
raising the cash build up with the same primium.
Even though there are cost of insurance charges attached to this
style of coverage, the benefit of tax shelter outweigh these costs. One can always say that rather than allow an insurance
company decide how to invest my money, I'll do it myself. The responsibility the insurance company takes to preserve itself
is the extra added benefit of allowing them to choose the investments. There are options a policyholder can exercise within
a framework of investments but the insurance company decides which companys will be in the pool of choices. Again, the insurance
company is not in the business of making money whether or not you lose money like an investment broker but they can make
mistakes just as you can. The big difference is that they will have people on staff that are highly trained and stand to lose
their jobs if the company loses money on investments.
The catagory of life insurance gives the policyholder of
universal life the benefit of the part of his premium dollars being diverted to the growth portion of the policy to be
tax deferred within certain guidelines. There is a limit to the amount that can be contributed to this vehicle
tax defrred. As with any tax deferred vehicle, if the owner withdraws his participation before it matures, there are
penalties involved.
The Universal life policy has several payment options such as Single premium
where the policy is paid in one large premium and remains in force as long as the cost of insurance charges don't deplete
the account. Usually a like policy paid in 5 or fewer years is treated as a single premium option. Another payment
option is a Fixed premium where a periodic payment is made for a shorter length of time than the policy agreement
which can be 10, 20, or 30 years that will pay up the policy. If the plan does not perform as predicted the owner can
exercise the option to leave the policy alone to deplete under cost of insurance charges, make more payments to keep the death
benefit level or lower the death benefit to extend the the policy period. Still another payment option is Flexible
premium where the policyholder can choose a level death benefit which opten can reduce the amount used to invest
or a level amount at risk that reduces the amount investment growth in higher return periods since the ability to change the
risk amount is not allowed at any time as this is life insurance and not the speculation market.
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