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Universal Life Insurance: Is it Right For You?

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Universal life insurance is a form of coverage that lasts for the duration of your life; to your 99th year and beyond. It can also be called cash-value life coverage because it has a savings component within the policy. Generally, with universal life insurance, you only pay a flat-rate fee that either goes into a savings or an investment account. It is designed to provide coverage on a "pay-as-you-go" basis, meaning that once the policy is paid out, the death benefit is paid immediately, regardless of the monthly premiums.

The way you earn interest on your universal life insurance policies is to use them as a source for investments. You can do this by either investing in a wide range of stocks and bonds or investing directly in mutual funds. To invest directly in mutual funds, you would need a certificate of deposit (CD) or a separate account that allows you to invest in multiple mutual funds.

A CD is an investment that you make on an interest-only basis that yields a fixed interest rate. A certificate of deposit will earn interest only while you are making payments to the fund. Still, when the principal is credited to the account, it starts earning interest immediately.

Suppose you prefer to use your universal life (UL) insurance policies as a source of interest. In that case, the most sensible thing to do is to put your money in a separate savings account and let your UL insurance company buy your interest. But even here, the terms of your policy could significantly affect the amount you can expect to earn from your savings. For example, suppose your policy says that you can only receive dividends twice per year.

In that case, you can't expect to earn more than twice the amount of interest from the dividends. Because of this, it's usually a good idea to diversify your investments to maximize your potential returns. Suppose you have other sources of capital such as stock market funds, commodities, or bank accounts. In that case, you will also be able to take advantage of the dividends.

As with stocks and bonds, however, the dividends are subject to change, and they do sustain reduced tax rates when they are received. One other important factor regarding your UL insurance policy, is that they won't pay out any benefits during an economic collapse.

This is because no one is investing in anything, so there is no money being made for the insurance companies. As a result, any cash value you accrue during the normal course of your policy will not be paid out, and it will be considered as having been paid in full.

Plentii knows, as with all insurance policies, universal life insurance policies also come with many features that can help you get the most benefits. First and foremost, a universal life insurance policy is "cash-value" insurance. This means that the policy's cash value is what the insurance company accumulates over the years without paying out benefits.

They do this by issuing dividends to the policyholder. Suppose you decide to cash in your cash-value before the policy matures. In that case, the premiums paid on the policy will be returned to you at a discount.

Another feature of UL insurance policies is that premiums are generally fixed. Unlike some forms of life insurance, which can vary in cost according to age, health conditions, and even family history, the premiums in a universal policy remain constant throughout your coverage period.

In a cash-value life insurance policy, the insurance company's dividends remain constant. Still, there are ways the company can increase the payout. For example, if you pass away, the insurance company may make additional payments to you as long as you didn’t cash out your cash-value before the policy expired.

The company can also issue additional payments to the survivors or beneficiaries. Most universal life insurance companies allow you to choose how much cash-value you want from the company's policy, so you may end up getting more, or less, than you would with some other types of policies.

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Finally, a common mistake people make when purchasing universal life insurance policies is thinking about the immediate interest rates, or term lengths they'll have access to. While the interest rates are important when you are determining the amount of money you'll need over time, it's not the only consideration; inflation is also something to think about. Universal policies are generally less expensive because of their flexibility. Still, in the long run, you should choose one that is based more on investment properties. The type of investment vehicle you choose will depend on how you plan to use your cash-value, but investing in a low-risk, low-exposure area like the stock market is often better for your family's long-term financial security. There are many variabilities when it comes to the type of policy based upon your particular financial situation. Contact a Plentii agent today to help you make the best decision for you and your family's future.

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Run Your Business. We Do The Math! Get a professional bookkeeper at a price you can afford, zero learning curve, & a signed financial statement by a CPA! Get Plentii Done Today. We do your Bookkeeping & file your Business Tax Returns! We don’t refer you to a Tax Professional after doing your Bookkeeping because we are the Business Tax Returns Expert!
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