Universal Life Insurance
Universal life is another kind of whole life insurance. It is basically like term insurance but with the built in feature of a savings fund. It earns interest at the going rate. However, you must pay a yearly fee for this type of insurance coverage.
The premium varies significantly on a universal policy. You can decide how much you want to pay towards the insurance part and how much towards the savings part of the policy. It is vital that your savings cover the cost of monthly premiums, or the cash value of your policy will be used up instead.
There are two separate types of universal life insurance. In the first option the death benefits stay the same each year. In the second option the death benefits fluctuate, and are equal to the original value of the policy plus the cash value at any given time.
An advantage to universal life is the savings feature of the policy. The money in savings usually grows faster than the cash value of whole life. And any interest that you earn on the savings part of the policy is tax-deferred.
A disadvantage is that initial fees and charges add up, and your policy may grow very slowly for a while. Also, if interest rates drop, you will probably have to pay more in monthly premiums than you had anticipated. There is an element of risk/reward with this policy.
Universal life may be right for you if you are ok with the idea of an insurance/savings plan. You should also be ok with the idea that your policies value and expense will fluctuate with the outside market.
