The Risk of a Universal Life Policy
Just like any insurance policy there are risks to purchasing universal life insurance. While a universal policy is great because of the flexibility of the death benefit and premium amount you always run the risk of not paying enough on your premiums and letting your policy lapse. You need to keep close track of what is going on with your policy and how much you are require to pay to keep the policy in effect.
Lapse in Universal Life
Since there is a lot of flexibility in the payment of premiums it is not hard for the policy to lapse leaving you with no protection. Maybe you have just found yourself unemployed or go the news that your wife is having triplets. While you need to keep your insurance protection in effect, you may not have a lot of extra cash to pay the premiums. If you have some cash value built up this will cover the premiums for a certain amount of time, but you will still need to make sure enough money is being paid to keep the policy current. This is one of the risks to purchasing this type of policy, but as long as you keep track of what is going on, you should not have to worry about it too much.
If for some reason your universal life insurance policy lapses because not enough money was paid on the premium, you may have to forfeit the policy and begin all over. Although universal coverage is probably the least strict of all life insurance policies, there are still rules that must be followed. When you look online for your quotes and rates or are reviewing your policy, make sure you completely understand what needs to be done to make sure you never find yourself with a lapsed policy and without the income protection you need for you and your family.
Bad Investment with Universal Life
Another risk to owning a universal life insurance is if the company you are insured with is not performing well. One great thing about a universal life policy compared to a term life policy is that it builds a cash value. You may be counting on a certain amount of cash value to be added to the benefit amount your family will need in the event of your death. If the company does not invest well and consistently loses money - your cash value will be less. Take this into consideration when deciding how much face value you need for your life insurance policy.
Another risk of owing a poor performing universal life insurance policy is that there will not be cash value to help out if a financial emergency arises. While most people do not purchase a life insurance policy for this reason, many people borrow against their policy to make a down payment on a home, pay for a child's college education or pay expensive medical bills. If your policy does not have a large cash value this will not be an option for you. Again, make sure you understand the universal policy you are purchasing.
Educating yourself about the risks of universal life insurance will help you understand the risks involved with this type of policy. There are many different types of policies and both have pros and cons. Universal life insurance is great if you need a lot of flexibility, but understanding the risks is also important. Don't let your family think they are protected and then find out the policy lapsed. Keep track of what is going on and you can be confident in your choice to purchase universal life insurance.
