| Universal Life Insurance, also called Permanent Life | | | | set premiums and benefits to fit your budget. |
| insurance, is the type of policy where you also | | | | The disadvantage is that you can lose cash value |
| hear the term, "cash value". The cash value is the | | | | through a downturn in the basis investments, low |
| difference between the amount of your premium | | | | interest rates or if the insurer's costs deplete the |
| paid, and what the insurance's actual "costs" are. | | | | cash value, making the policy worth nothing. If the |
| The difference accrues into a cash value, and the | | | | cash value gets depleted due to downturns in |
| insurance company pays interest on this cash | | | | investments or the insurer's costs exceeding the |
| value it accumulates. Often times, in the earlier | | | | cash value, the policy is expired, your premiums |
| years of the policy, your premiums heavily | | | | lost and you have no death benefit. |
| outweigh the insurer's "costs", so you are basically | | | | In contrast, Term Life Insurance is a policy that is |
| accruing "cash value" on a tax-deferred basis. | | | | purchased for a set death benefit amount, with |
| Your death benefits and premiums are flexible, | | | | set premium payments and a guaranteed |
| without having to rewrite the policy, if you decide | | | | payment to your beneficiaries, as long as you |
| to make changes. The cash value can be used to | | | | keep the premium payments current, no matter |
| have your premium deducted, if you have enough | | | | how the insurer's costs or investments perform. |
| value. You also hear about people borrowing | | | | It is a much safer and guaranteed life insurance |
| against their "cash value", however, these loans | | | | policy, if your goal is to have a benefit paid after |
| will be deducted from the death benefit, it not | | | | your death, to help your loved ones with |
| repaid and also will become taxable. | | | | expenses. Term Life Insurance is not really part |
| Many people chose Universal Life or Permanent | | | | of an investment strategy, but a protective |
| Life as part of an investment strategy, they build | | | | strategy. Universal Life Policies, as you can see |
| cash value with tax deferment, if interest rates | | | | are basically, a financial investment growth |
| are high-they will earn interest above the insurer's | | | | strategy, with risks involved that may or may |
| costs, and some policies are written as Variable | | | | not take care of expenses after your death. It is |
| Universal Life policies, where you can even direct | | | | often called permanent, because, "it is permanent, |
| investments in mutual funds and other stock and | | | | as long as your cash value pays the premiums, or |
| bond issues where the risk of return (or loss) | | | | you pay the premiums, but your death benefit is |
| may be available. You can also borrow against the | | | | not a guaranteed value, but it assumes it will be |
| cash value, in the event of an emergency, and | | | | permanent as long as premiums exceeds costs, |
| they offer flexibility on the benefit or premium. | | | | but it is NOT guaranteed your whole life". As you |
| The advantage of Universal Life policies is the | | | | can see, life insurance can be confusing, but may |
| flexibility they offer. You can invest, borrow, and | | | | not be the best investment strategy. |