Useful Guidelines for Buying Universal Life Insurance

Written by: Dorothy Bland • Edited by: Donna Cosmato
Updated Oct 11, 2010

When investigating life insurance options, universal life insurance is a category for consideration. Exactly what is universal life insurance? To explain universal life insurance, we take a deeper look into how the program is structured and review guidelines for buying universal life insurance.

The Need for Life Insurance

Is Universal Life Insurance A Good Investment For You?

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All the jargon can be confusing to wade through when shopping for life insurance and especially when attempting to explain universal life insurance. So to understand better the guidelines for buying universal life insurance, we first have to examine term life insurance.

Most people with life insurance have term life insurance. In this form of insurance coverage, a policy may last 1, 5, 10 or 20 years, however, the policy will eventually expire, and none of the initial investments can be recouped. These policies typically are renewable after the expiration, but the price will go up when the policy is renewed. Age is also a factor with term life insurance; it gets more expensive after age 60, and insurers generally consider those aged 75 and older uninsurable.

Explaining Universal Life Insurance

Do Your Research Before Buying Universal Life Insurance

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The guidelines for buying universal life insurance operate a little differently. As a form of permanent life insurance, the policy remains in effect for the life of the policy if payments are made as scheduled. When the fixed yearly premium is paid, part of these funds cover the cost of the policy. The remainder is invested in a money market account where it accumulates interest on a tax-deferred basis. To explain universal life insurance, a variable plan can also be considered. With a variable universal life insurance policy, the borrower takes the freedom and risk of investing in stocks and bonds. With either method, the cash value is held in an accumulation fund and can be borrowed against.

Universal life insurance has its uses, but if you buy a policy without careful research, you might as well be throwing your money in a well. Before purchasing a plan, you need to know: if, when and why to buy.

Guidelines for Buying Universal Life Insurance

Because the premium payments for universal life insurance are much higher than with term life insurance, the plan won't work for everyone. Typically, universal life insurance is beneficial for individuals with dependents and major assets and expenses. For younger individuals with less disposable income, no dependents or major assets the value is minimal.

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