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Universal Life Insurance is a type of permanent life insurance based on a cash value. The policy is established with the insurer where premium payments above the cost of insurance are credited to a cash value. You can actually make money from the interest that is gained.
The cash value is credited each month with interest, and the policy is drafted each month by a cost of the insurance charge, and any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by your insurer.
Universal Life Insurance
The potential advantage of the universal life policy is its flexibility and the potential for greater cash value when the current interest rates out-perform the insurers account. Universal Life is more flexible than whole life in two ways: the death benefit and usually the premium payment are very flexible. The death benefit can be increased and decreased without surrendering the policy or getting a new one as would be required with whole life. A range of premium payments can be made to a policy, from a minimum amount to cover some of the guarantees the policy may offer to the maximum amount allowed by the IRS. The primary difference is that the universal life policy shifts some of the risk for maintaining the death benefit to the insured.
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