Most people are aware of the differences between term life insurance and whole life insurance. However, there is a hybrid called the universal life that many have little idea about what it is or how it works.
Background
Universal life insurance was developed in the late 1970s as a result of arbitrage interest rates that financial institutions feel the high interest rate environment at that time. During the late 70's and early 80-ies, banks offer certificates of deposit at double-digit interest rates, but a whole life insurance only showed a relatively modest dividends and interest. Customers will be withdrawn or cash values, loan and deposit them in the creation of CD-type arbitraže.Osiguranje industry response was to create a kind of permanent, cash value life insurance building that is more directly sensitive to changes in interest rates, which gave birth to what is called universal Life (UL ).
How it works
UL is unbundled access to cash value life insurance building. Every year, customers receive an annual report clearly shows that every dollar prize was awarded ... how much went into insurance costs, administrative fees, and interest credited.
UL could be regarded as a bucket of money. The trash goes in the form of cash premium, and interest shall be credited with a bucket (or a separate account returns to a variable universal life). Premium dollars plus interest creates a cash value vrijednost.Gotovinsku supports the death benefit. There must be a cash value in the bucket or the policy will cease to exist .... without insurance. Continuing with the analogy of a spoon at the bottom of the bucket is a hole that drips from the costs. Costs such as premium loads, administrative fees are fixed and the other 'drip' is the cost of insurance charges (COI). This can be considered one year term cost. Every year, because the insured is older, this charge increases and becomes larger and the drip drip brže.Ideja UL is that, when the compounding factor of the cash value exceeds the increase in 'fall' policy is just enough .... Interest will increase faster than the cost of insurance and other troškove.Kamatna credited rate is declared by the insurance company, but you can change in any given month. There is a minimum or guaranteed interest rate is stated in the policy where the interest rate loan can not fall ispod.COI charge changes each month and is expected to grow as the insured ages. There is a maximum, or guaranteed COI charge is stated in the policy whereby the company can not move.
flexibility
One of the main advantages is the flexibility of universal life. Again, continuing with the bucket analogy, the owner of the responsibility to pay a premium estimate. He may pay more or less depending on personal circumstances or preferences. If the owner wants the policy to pay for a short time, can increase the payment or payment amount. If he is experiencing financial difficulties, could reduce or even skip a premium. If interest rates rise, the owner could continue to pay the expected amount of premiums or reduce the amount. If interest rates fall, the owner of May have to increase premije.Vlasnik may increase or decrease the death benefit to his / her needs change. (Increase compensation for death usually requires more medical underwriting ).
risks
With flexibility comes increased risk. S, the insurance company guarantees a majority of elements of the insurance contract. As long as the owner pays a premium, no matter what happens to interest rates or dividends, the insurance company guarantees to pay a death claim. However, with the UL, there is no such jamstvo.Jedini real way to guarantee that a UL contract to take the minimum interest rate, with a maximum COI rates. What you will usually find that a UL premium will approach or even exceed the comparable whole life premiums. With the UL, the insurance company essentially moves the interest rate and mortality risks for the policy owner. This "risk shift" is not guaranteed premiums are usually much lower than whole life counter-parts. If interest rates and mortality experience to work, then UL could do. If you do not, as was the case recently, UL owners could find great premium growth coming in the mail notification. Although people are living longer and mortality costs have dropped significantly, due to the reduction of the interest rate environment, many UL contracts have lost significant cash value, and are in danger of 'blowing' ... running out of money and death benefit is lost.
Contrary to what most mutual life insurance companies want to believe, Universal Life is a viable option for permanent life insurance. However, we must be aware of moving parts, and that are leading to more rizika.Pitanje becomes, are you willing to take risks with what protects your family?
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