What you need to know about universal life insurance
It's a good idea to save for retirement and have life insurance, but finding the money and the right products to invest in can be daunting. One product, universal life insurance, allows you to do both.
What is it?
Universal life coverage is a type of permanent life insurance. With a universal life policy, your monthly premium funds not only your life insurance coverage but also a investment component that builds a guaranteed cash value that grows each year. You can buy universal life policies on your own directly from an insurance company or agent, but your employer also may offer such a policy as part of a voluntary benefits package.
Who is it for?
A universal life policy can be a good idea for anyone who wants to supplement their retirement savings. It can be a good tool for estate planning because both the death benefit and the cash value are not subject to income taxes.
How does it work?
How a universal life policy works depends on what you are using it for. If the insured dies, the death benefit is paid out to the named beneficiary. However, the policyholder can access the cash value of the policy while still alive by taking a loan. The cash value also is paid out to the insured if the policy is canceled.
Types of coverage
There are a few different types of universal life coverage. You can get a policy that has fixed premiums or one that has premiums that change based on prevailing interest rates. There also are universal life policies that are tied to a stock market index that allow you to pad your cash value in years when the market does well while at the same time preventing any market-related losses.
There are two main benefits to having universal life insurance. One is the death benefit the policy carries that will pay out to beneficiaries at your death. The other is the cash value that builds up that you can tap at any time.