Of course, the insurance company will set some boundaries on these adjustments. Monthly premiums must sustain a basic benefit amount and cover the cost of the policy's monthly maintenance by the insurer.
Universal life insurance policies are also tied to shorter-term interest rates than are whole policies. This means that their rate of return is often significantly higher, but it can also mean greater risk when interest rates are falling.
Universal life insurance policies are best for policyholders whose financial needs or status varies over time. The policy can be adjusted to fit your present circumstances without risking the coverage itself. Some adjustments may require an additional medical examination.
The pros and cons of universal coverage
The wisdom of choosing a universal life insurance policy has everything to do with timing. Universal life insurance earns interest at the current money market rate. Insurers make no minimum guarantees concerning your "cash value" savings on such a policy.
Therefore, your cash value yields and your premiums will fluctuate with the changing economy and interest rates. If the interest rates drop, it is likely you will have to pay more in premiums to maintain the policy.
However, on average, the cash value of a universal life insurance policy grows faster and larger than the cash value savings of a whole life insurance policy. The bottom line is that you need to weigh the risks you are taking against the rewards you will reap from smart investing.
Who should buy a universal life policy
Since universal life insurance allows flexibility, this is a perfect policy for a someone who anticipates varying degrees of coverage, but does not want to keep switching policies.
If you have not taken on too many new financial obligations, such as a mortgage, or had too many expenses, such as college or a newborn, but know that such commitments are in your future - consider this option.
Keep in mind that this type of policy requires organization to keep track of the varying prices and coverage. If you prefer to pay your premiums and leave the rest to the experts, you might be better off with standard whole life insurance. If you want even more control over policy details, consider variable life insurance.
