How to Shop for Universal Life Insurance

Universal life insurance is a relatively new insurance product. It was developed in the 1980s to provide a flexible alternative to whole life insurance. Universal life is a hybrid product that combines the low cost protection of a term policy with the savings element of a whole life policy.

Universal life is considered flexible because each element of the policy can be altered as the circumstances of the policy holder change. Premiums are variable and are split into insurance and savings portions. The owner can shift funds between the insurance portion and the savings portion. Smaller or larger premium payments can be made as the financial circumstances of the owner change. They are also allowed to use the interest from the savings portion of the policy to help pay the premiums and lower the overall costs of the product.

How the policy actually works is that during the early years of a policy holder's life, the risk of their death is low, and a larger portion of the premiums is paid into the savings portion. During the later stages of life, the risks are higher. Therefore, the cost of the permanent insurance portion of the policy is higher, and a higher percentage of the premium is therefore funneled into this component.

With a universal life policy, the cash value grows at a variable rate that is adjusted monthly. Growth that is earned is tax deferred. The policy owner does not have to manage the individual investments making the policy simpler than a variable life one. Actually, unlike a variable policy, with universal life the owner has no say in how the premium is invested. Usually, the life insurance company will invest the premiums in bonds, money markets, or mortgages.

Death benefits that are paid to beneficiaries are tax free. In addition, no income tax is levied on the growth of the cash value of the policy. If the policy is terminated early, the owner will be subject to penalty charges because a universal life policy is considered permanent insurance.

When shopping for universal life insurance, it is important to consider the needs of the person requesting the insurance. For example, some insurance companies also offer terminal illness or critical illness benefits. With these options, purchasers can receive a pay out when either of these conditions arise.

The purchaser should compare multiple policies and should investigate what discounts they may be eligible for before they make a final selection. For example, companies will often offer a discount if a person takes out multiple insurance policies through the same firm. The easiest way to find out about potential discounts and to compare different policies is online. Not only is all the information available, but the purchaser can also privately search for the information and review it at their own pace, in their own home.

An insurance company's financial health is also something that should be considered. Independent ratings agencies, such as Standard & Poors, evaluate all of the insurance provider's financial statements and then rank them on a common scale. These ratings can also easily be found online.