Universal life insurance

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Universal life insurance is a combination insurance and investment. Your insurance premiums not only give you insurance that will pay a lump sum to your heirs should you die, but they also go toward an investment that you can cash out during retirement.

Types of universal life insurance[edit]

There are three primary types of universal life insurance based on the type of premium they require. The types are single premium, flexible premium and fixed premium.

Single Premium[edit]

Single premium universal life insurance is paid for by a single lump sum payment. These aren't as common as they use to be due to some changes in the tax law. The payment is enough that the insurance company will make money even when giving you the payout during retirement and the investment is great enough to earn interest that covers the risk of you dying ahead of time.

Fixed Premium[edit]

Fixed premium plans work in a similar way, but the payments are made over time. Often they are made for a fixed number of years but in some cases they may be made for the life of the policy.

Flexible Premium[edit]

Flexible premium plans allow variation in the amount paid but the variations change how much the policy is worth.

Universal life insurance advantages[edit]

Universal life insurance offers some tax advantages for people who are not eligible to contribute more money to other retirement accounts. The cash value during retirement can be valuable, but is generally not greater than other investment options.

Universal life insurance disadvantages[edit]

Term life insurance is much less expensive because it only insures against the risk of death for a specific period of time. Many people buy universal life insurance as an investment when a term life insurance policy coupled with a good savings or retirement plan is probably a more financially sound choice.