Staying Flexible with Universal Life Insurance
Universal life insurance provides great flexibility, and presents you with the opportunity for savings. Each universal life policy has consists of two parts: life insurance and an investment account. If you pay premiums that are higher than your cost of insurance COI and associated fees, then the rest of the money goes into the investment account. You can accumulate money in this account, and this is typically on a tax-deferred basis.
Most universal life policies have a number of funds to choose from in their investment account. They may include funds that pay interest and funds that vary in value based on stocks just like mutual funds. Earnings on the investment account may or may not be guaranteed, depending on what type of investment you have chosen.
Unlike whole life policies, universal life insurance uses current interest rates. This means that if interest rates go up, you can accumulate more money than expected in your account, and you can use that money to pay premiums. However, you also share the risk that interest rates or other investment returns may go down.