Getting acquainted with universal life coverage and accidental death life insurance
Universal life coverage is created back in the 80s and the chief intention was to combine the permanent aspect of insurance with the possibility of flexible premium payments together with cash value growth potential. There is more than one type of this insurance variation and the common categories are interest sensitive, variable universal life, guaranteed death benefit and equity indexed universal life insurance.
Universal life insurance has a cash value and the premiums increase it. On the other hand, the very cost of insurance and other charges that the insurer can assess will reduce the already mentioned cash value. Nevertheless, apart from variable universal life, all interests are paid at one rate specified by the insurer, which again increases the final cash value.
When it comes to variable universal life, cash value will be relative and it will depend upon the oscillation of the investments chosen by the policy owner. The surrender value of the policy will be the amount paid to the owner after determining the surrender charges; of course, only if that should be necessary.
With universal life both the premiums and the death benefits are flexible except when there is a guaranteed death benefit. Also, one has to bear in mind that the internal rate of return can be higher since it moves parallel with prevailing interest rate and financial markets, which is the case with equity indexed universal life and variable universal life. Since the mortality and administrative costs are known upfront cash value is thus considered more easily obtainable, because the owner can end the premiums is the money value permits it.
Having a flexible death benefit means that the owner can either decrease or increase it, which would require a new eligibility assessment by the insurance company. Another option of flexible benefit is choosing between two alternatives and changing them in the course of time. One of these alternatives is referred to as level death benefit and the premiums are lower. The other alternative implies paying the face amount in addition to the cash value which increases together with the death benefit. This also means that if the cash value decreases so will the death benefit. It is easily assumed that the other alternative requires higher premiums.
In cases of accidents, the most common type of insurance used is accidental death type which covers deaths that can be consequences of injuries, various accidents and so on. This does not extend to the deaths due to illnesses or suicides but it does mean that the premium will be lower than with other policies. Another name for this form of insurance is accidental death and disbursement insurance or AD&D policy and the benefits are payable not just in the occurrence of death, but also if a person loses a limb or other body function (audio, visual etc).
It needs to be underlined that AD&D policies are known to pay the benefits rarely, since the situations and injuries covered are limited and the policy should therefore be thoroughly checked. For example, activities such as dangerous and extreme sports, military involvement, motor racing and other will definitely be excluded from the contract. This policy may be added as a rider to a regular type of the policy, in which case the face amount in the event of accident can double and even triple. It is also known as double indemnity policy.