please explain how universal life insurance works in details?

is it the same as variable insurance wherein you can increase or decrease your insurance coverage for the same premium or universal life have a fix premium for a given age and amount and if you want to increase your coverage, you just add a yearly term insurance?How do you increase its coverage? Will it affects the premium if you want additional coverage? I understand variable life insurance has a range of minimum to maximum coverages for a given premium, is it the same with universal life?please explain in details how the entire process works.

Public Comments

1. "Universal" is a catch all phrase. You're going to have to get specific answers on this from the agent you're considering buying this from.
2. The simplest way to explain Universal Life Ins, is that it is a term Ins policy with a savings account. (Cash Accumulation fund). When a policy is first written, the agent may suggest a premium to be paid monthly/annually, ect, that should last for the life of the policy. Any money that you pay toward the policy goes into the Cash accumulation fund, after the load fee is taken off by the insurance company. Ususally 4-9%, then the money in the fund earns an interest rate. That's where the savings acct comes in. Meanwhile once a month the comapny goes in and takes out a monthly cost of insurance, which goes up every year as you get older. The cost of insurance is cheaper the younger you are and increases every year on the policy anniversary date, when it was written. Cost of insurance is determined by your age and amount of coverage you have. Generally it goes up 10% a year, but it goes up, as you get older. The older you are, the more chance you have of kicking the bucket, therefore you're a bigger risk to insurance companies. As long as there is money in your cash accumulation fund, the policy will remain in effect. UL policies are generally flexible premiums and a premium payment can be paid at any time into this policy. The general idea is that you pay more in the beginning of the policy when your cost of insurance is low, and your fund grows from the interest, so that when you are older and the cost of insurance is higher, there won't be as much strain on your purse strings. If you want to increase your coverage amount, there is usually a fee, and you go to your agent to make a change. The cost of insurance will increase because of the coverage increase. The premium paid into the policy can be flexible as long as the cash accumulation fund has enough to cover the cost of insurance. Ask your agent to run an illustration to project how the policy will perform, and what the target premium should be. The amount of coverage for a UL policy is the same for a given premium, it doesn't have a range like Variable policies. That's why they're called variable policies. Hoped this answered your question! Good Luck!!
3. They're both pretty much the same thing. Most Variable Life policies are variable universal life (although there are other chassis they are occasionally built on). These days you can even get death benefit guarantees on variable and fixed policies depending on your risk tolerance. Please beware on the fixed and variable side that the declared interest rate is only half of the story, the other half are the charges (which can usually fluctuate at the company's whim). There are a few exceptions to the rule, but usually the only way to increase your death benefit once the policy is inforce (without underwriting again) is to over fund it so that the cash value necessitates an increase. The fact that you're going to Yahoo Answers tells me you're not getting a satisfactory answer from the agent you are currently dealing with. Ask another agent about your specific situation. It never hurts to get a different perspective.
4. This will be fairly involved but here goes: Your money goes in two directions: 1) Cost of insurance and 2) The savings. 1) Cost of insurance- You have purchased Annually Renewable Term. This means that the COI will go up every year. Your premiums will stay the same. Your premiums will not go up every year. Your Cost Of Insurance will go up every year. What does this mean to you? This type of policy is meant to self-destruct. Once the Cost Of Insurance equals the premium payment, the policy anniversary date your COI will exceed the premium that you pay. What the company will do is take the difference from your savings- each month. You begin to erode your savings in order to pay your premiums. Your extra premium will erode and destroy what you had saved in the beginning. Then you will receive anotice saying that your policy will cancel unless you pay $xyz amount (3-4x what you had paid at the start). Then, each year you will receive another letter saying the same thing. 2) Your savings- There are five main points to the saings: a) In the first couple years, you have NO savings! It is going to pay the agent his commission and to the insurance company. b) When there is money, it will only earn between 1-4%; this is after fees and everything else that eats into the money. c) Should you choose to take some money out of your savings, you can take YOUR money out after you pay the COMPANY 6-8% interest. d) You had better have planned for an emergency withdrawal because it could take up to 6 months to receive your money- company discretion. e) You will have paid for two things- insurance and savings. Your survivors will get only ONE! They will choose between the face amount of the policy OR the cash amount. However, you may give them both but you will pay a higher premium to do so. All or most of these rules apply to this policy. You have to check very carefully. Forget the interest your agent showed, that is a fairy tale. Look only at the guaranteed interest. Somewhere around the fifteenth to twentieth year, you will see zeroes. Once you see zeroes, this means your policy has been terminated. You no longer have any coverage. Be very careful when choosing insurance. Know what you want it to do and for how long. Term insurance is, in almost every case, the best insurance for families. If you put together the right plan, the money you have in the future gurantees that you do not need insurance. Email me if you have further questions.
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