Universal life insurance (UL) is hybrid life insurance that integrates term life insurance aspects with a choice for investment savings. The insurance cost, as the name implies, is the minimum amount of a premium payment necessary to keep the policy functional. It comprises of many components that have been rolled in one full payment together. Universal life insurance provides stability with interest growth and cash value. Universal life insurance is commonly defined as a combination of term life insurance and a saving account. Policy holder gets insurance combined with fixed interest on cash value of the policy.
A portion of the monthly universal life insurance premium is placed in the life policy cost that will provide your beneficiary with the death benefit and another portion of the premium is invested so that it can be used as investment savings. The concept is similar to a savings account. UL accumulates cash and the policy helps the insurer in earning interest at the market interest rate. An insurer will pay the taxes on any cash withdrawals that they make from the universal life insurance plan’s excess cash value.
Universal life is established in such a manner that the premium payments are actually more than the expense of pure insurance. This excess premium amount goes into the policy’s cash value portion. The surplus of payments above the current insurance price is credited to the policy’s cash value under the terms of the policy. The cash value is credited with interest each month, and the policy is debited by an insurance cost (COI) charge each month, as well as any other policy charges and fees derived from the cash value, even if there is no premium payment that month. The insurer determines the interest credited to the account, but has a minimum contractual rate percentage.