Understanding Universal Life Insurance
Universal life insurance is a form of whole of life assurance that's fairly new on the market. This investment type policy affords greater flexibility in your financial choices and more control over the components of your life insurance policy. Like other forms of permanent life assurance, universal life includes a sum assured and a savings and investment component compared to term life insurance. With universal cover, the policyholder may make adjustments to these components in order to reach specific goals.
As a type of whole of life assurance, universal life offers a guaranteed sum assured to the policy's beneficiaries. However, with universal cover, the sum assured will not necessarily remain level over time. Fluctuations in the value of the policy's investment element may affect the sum assured, and policyholders must be aware of any changes that may affect the payout to their survivors.
Benefits of Universal Life Insurance
As with any other investment product, universal life insurance presents an element of financial risk. Universal life is similar in many ways to unit linked whole life insurance, also known as balanced cover. With unit linked life insurance, your premium payments are divided between the sum assured, or the payout your loved ones will receive upon your death, and an investment account. A traditional, unit linked life insurance policy is balanced so that the sum assured remains level, even if the investment element does not perform as anticipated.
With universal life insurance, the policyholder has more control over the disbursement of funds. The policyholder may shift the focus of his or her contributions to emphasize the sum assured or the investment element. Managing a universal life insurance policy requires participation on the part of the policyholder, who should always be aware of the investment fund's performance. Otherwise, the sum assured may fall below the amount you wish to leave to your beneficiaries.
With a universal life insurance policy, the earnings from your insurer's investments may pay all or part of your insurance premium. If the insurer's investments are profitable, the profits may be used to pay your premium. If the investment element does not earn sufficient profits, you will be required to pay higher premiums to cover the sum assured.
Optional Features
In addition to offering a flexible, versatile alternative to traditional whole life insurance, universal life offers a variety of optional covers that can enhance the value of your policy. The earnings from the investment element of a universal policy may be used to purchase additional insurance, such as personal accident cover, critical illness coverage and private health insurance. Together, these added features protect the policyholder against a wide range of eventualities.
Critical illness coverage is a valuable addition to any life insurance policy. Critical illness cover pays a sum during your lifetime if you are diagnosed with a serious condition, such as diabetes, heart disease, multiple sclerosis or kidney failure. Private health insurance may be used to enhance the medical care you receive as a taxpayer on National Health Service. Personal accident protection covers a percentage of your medical costs if you are seriously injured in an accident.
Universal life insurance may also include a hospital income benefit, which can replace a percentage of your income if you are hospitalised. With this combination of covers, you can enjoy greater peace of mind and receive faster, more personalised medical services. In exchange for these benefits, you must be prepared to accept a higher level of financial risk than a traditional policy presents. Understanding universal life insurance before you buy a policy will ensure that you make the best decision for your circumstances.