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Universal Life Insurance Policy Investment Features

Life Insurance
Walls Insurance Agency
Walls Insurance Agency - Travelers, Hanover, NyCM,Progressive

The ability to invest and earn interest on a universal life insurance policy is one of the major benefits associated with the policy. Like all whole life policies, a universal life policy has a cash component and can serve as an investment vehicle. However, if you do opt to use your universal life insurance policy as an investment, it is important to understand what return you will get on your money.

Interest on a Universal Life Insurance Policy

A universal life insurance policy is a more flexible type of whole life insurance than a fixed premium whole life policy. With a universal life insurance policy, you have the option to pay a monthly premium within a set range. You can pay the minimum premium required or the maximum premium required, or anywhere in between. The more you pay each month, the more will be invested and the more the cash value component of the policy will grow.

The cash value component of the policy earns interest, like any other investment. In most cases, a universal life insurance policy ties interest rates to the current market interest rates. Some policies will provide a guaranteed interest rate or return of return, but other policies will not guarantee a rate-of-return on your investment. Regardless of which type of policy you have, your interest rate will fluctuate as market interest rates change with economic swings.

If the prevailing interest rate drops, your cash value may earn less interest. In some cases, your policy premium payments are linked to the amount of interest you earn, since your cash value investment helps pay for part of the premiums. If your policy is structured this way, if the interest rate drops low enough, the required amount of money you need to pay each month in order to maintain your policy will be raised.

Tax Advantages

Many people argue that a universal life insurance policy is a good investment option because of the tax advantages. Money you invest in a universal life insurance policy can grow tax-free. If you withdraw the money, you do have to pay taxes on it. However, policyholders can get around this by borrowing against the policy instead of simply withdrawing, thus earning tax-free income. This is OK under the law, and you will not be charged taxes unless you take so much money out that you allow your policy to become delinquent or your coverage to lapse.

Universal Life Insurance as an Investment

The use of universal life insurance as an investment is somewhat controversial. Many financial advisors suggest it isn’t a wise investment, while others like the idea of investing in this type of policy because it provides you with flexibility, tax free investment options and a type of forced savings. Whether or not universal life insurance is right for you depends on your financial situation and your needs.

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