Universal Permanent

How Cash Value Grows in Whole, Universal & Variable Life Insurance

All permanent life insurance policies come with a cash value account. However, different types of permanent policies gain cash value in different ways. The value of equity and purpose of the cash will depend on which type of policy you invest in, such as whole or universal life insurance.

When a whole life policy is concerned, a fixed amount of your premium is paid into your account. The growth rate of this account is fixed.

A universal life insurance policy is different because your premium payment is deposited into your cash account. Once the payment has reached the account, your insurance carrier withdrawals its fees from it, which covers the cost of maintaining your policy. However, with a universal policy, the premium payment occurrence and amount is up to the policyholder. It is the policy owner’s responsibility to make sure there is adequate cash in their account to satisfy the carrier’s fees.

Both permanent life insurance options gain interest. The carrier invests the equity of all policies and thus gains interest. The difference in the two policy types, however, is that the whole life option gains interest at a fixed rate. The rate of this policy type is guaranteed to be a certain amount at any given time. Universal life, while it does have a guaranteed rate of interest, it differs in that it is a minimum interest rate guarantee. The actual rate of interest in this type of policy reflects the policy owner’s invested . This option is a worthwhile investment vehicle because while it will never fall below a certain point, it has the potential to exceed above that guaranteed rate.

When considering either of these options, work with a life insurance agent or advisor. They will be able to provide an illustration of how your money could grow with either account (hypothetically, due to the variable). For example, your universal policy could perform better or worse than illustrated, based on the market, but it will never dip under the minimum guarantee.

Variable whole or universal insurance is a type of policy variation available for the two. The addition of the word variable to ones policy, allows the policyholder to have a say in how his or her cash is invested. It gains its own interest, based on how the investment performs. The option also gives the policyholder more control, allowing them to divide his or her among sub accounts.

Rather than an ordinary policy, you may opt for variable whole life insurance or variable universal life insurance. Variable life insurance allows the policyholder some discretion over how his-or-her cash is invested. Instead of enjoying interest from the insurer’s general portfolio, it is credited with its own interest, based on its own investment performance. However, this option does not provide a guarantee rate of interest.

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