Unlike traditional life insurance, a universal life insurance policy serves as both a death benefit and an investment. Policy holders can pay the minimum premium to keep the insurance policy current or pay additional money to increase the cash accumulation. The insurance company invests the additional premium payments to add cash value to the policy.
Benefits of Universal Life Insurance
In Q3 of 2012, indexed universal life insurance policies great nearly 40 percent, according to InsureMe. The relationship between the policy and the market index creates the potential for extreme growth.
Additionally, universal life policies are tremendously versatile and flexible. Policy holders decide how much to pay in premiums and what to do with the cash value gains.
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Drawbacks of Universal Life Insurance
The cash value accumulation associated with a universal life insurance policy depends on the market's climate. Since these policies are expensive to operate, many policy holders never turn a remarkable profit on their investments, which makes other investment vehicles more attractive.
For example, most policies levy surrender charges against accounts when policy holders cancel. If the policy fails to perform and the insured party cannot maintain the premium payments, an abrupt cancellation is often necessary. Experts caution consumers to consider more traditional life insurance products, according to Forbes.
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