Universal Life Coverage – Live in a Stress-Free Life in the Insurance World

There are countless new buzzwords surrounding the world of life insurance. Everyday, something seemingly enters the discourse on life insurance and spins the whole things cock-a-hoop. But one phrase more than others seems to have a massive impact on the policy movers and shakers, and that phrase is ‘Universal Life Coverage'. To the life insurance beginner, it might not mean a great deal: it sounds more like the title of a science-fiction film or a cheap airport novel about alien invasion than anything to do with making sure you and your families health is covered! But those three little words are having more and more effect on how life insurance is decided upon and formulated.

So just how is Universal Life Coverage different from traditional forms of life insurance? To explore this, we need to go back to basics on what life insurance exactly is and what potential it has to be used to the advantage of the consumer. There are two main processes that underpin the entire concept of life insurance. Firstly, the death process: all the money paid in by consumers as premiums is pooled together and paid out to the few consumers' families who do actually die. This, of course, is why you bought life insurance in the first place. The second process is called the money process: all life insurance policies have a stipulation that if the purchases reaches an age of 95 to 100, say, the policy matures and those nonagenarians will see a nice cash payout to make their final years on earth very pleasant indeed. However, all does work as easily as that, and as ever in the world of life insurance, a spanner is put into the otherwise well-oiled wheels of policy making. Pensions and insurance eggheads known as actuaries have worked out that even if only 1% of all policyholders do struggle though to be 90 or above, the premiums from the other members won't cover the money needed to reward those who live. So – extra cash has to be drafted in from elsewhere. It would be very unlike the insurance companies to go out of pocket!

So how does universal life coverage help in this instance? It helps by guaranteeing that death will occur, but not guaranteeing the money process. This is made possible due to the flexibility – and that is a real key word here – that universal life policies allow inherently in their creation. The national interest rates – set by the independent body The Bank of England – alter how much your premiums actually are. So if interest rates are high, then the benefits of the system help your premium costs along, and you would have to pay less in to keep the policy going. If interest rates are low, then additional funds would have to paid by you to keep the policy afloat and healthy. So in effect, universal life coverage meets the problems met by actually living your whole life! Many consumers may be put off by taking life insurance when they can't see any advantage – when would they actually get the benefits of the cash? When they're six feet under. This form of life insurance allows a whole life to be lived and still be covered, payments being made as and when they can be. A little more detail is required is we're to coax the best deal out of the universal life coverage life insurance format.

The main claim made against this form of life insurance is that essentially, there is no rock-solid guarantee that if all the premium costs are met, a payout will be made in the event of any misfortune that may befall the consumer. This sounds initially like a move tantamount to madness in the eyes of the consumer – what is the point in getting a policy if no monetary gain is actually cast-iron? Their fears are compounded in the annals of history too – what of the scandalously high-interest rates of 1980s, where many brokers sold universal life insurance on the basis that interest rates were so high that the policies themselves would be self-sustaining? Indeed, they did prove to be for a short time – interest rates kept the premiums low enough to be paid off themselves. It was a life insurance buyers' dream come true – but it didn't (and couldn't) last. The money process couldn't function, and some consumers lost out – hard.

But all this is ancient history. Life insurance is so well developed now that such a thing would be stopped in its tracks if something similar were to happen. All that is needed if for consumers to let the universal life coverage model enter the world, and they'll be soon on the path to a worry-free existence at a price that suits them.