FAQ About Universal Life Insurance
- Why hasn't my agent told me about Universal Life Insurance? Often agents become experts in specific areas they feel best provide protection to their clients. As new or different products evolve in the marketplace, offering such products could conflict with agents’ past passionate advice about what customers should (and should not) buy, placing agents in an uncomfortable position. It is best that your agent always keep an open mind, serve the best interests of his or her clients, and not fall into the one-size-fits-all mentality.
- Do I need Universal Life Insurance? The benefits of Universal Life Insurance can be enormous, depending on your specific financial goals and objectives. Further, this is a permanent form of insurance that is guaranteed to provide a death benefit to your beneficiary that is non-taxable. Further, there is no limit on the span of coverage, unlike term or even whole life insurance, which both have policy term limitations. And finally, Universal Life Insurance has an investment component not offered by other life insurance products, and this component can be tailored to meet the needs of the most sophisticated consumer.
- Is Universal Life Insurance expensive? The cost of a Universal Life Insurance policy is based on the age, gender, and health condition of the applicant, the specific payment options and terms of the policy, and the desired death benefit. The sooner an applicant obtains coverage, the less the premium. Further, many premium payment options allow a significant amount of flexibility to meet the budget of almost any applicant.
- How does Universal Life Insurance work? Universal Life Insurance premiums accrue interest based on the current market interest rates. Interest returns are then added to the cash value of the policy, and a portion of the premium pays for the cost of insurance along with fees charged by the carrier. Most policies offer a minimum interest rate to assure a suitable rate of return, and depending on market conditions, can significantly grow the cash account in addition to the guaranteed death benefit. Further, the Universal Life Insurance policy offers payment flexibility, investment options, tax advantages, and liquidity that cannot easily be matched.
- How do I qualify for Universal Life Insurance? The application process for a Universal Life Insurance policy is generally very simple and requires no out-of-pocket cost. Depending on your age and amount of desired coverage, a simple questionnaire and the initial premium payment could be all that is necessary to place coverage in force. There are many options associated with a Universal Life Insurance policy that should be considered to select the plan that best fits your personal needs and desires. Further, certain plans and amounts of coverage might require proof of insurability.
- How do I determine how much Universal Life Insurance I need? Every individual’s financial and personal situation is different, but a good rule of thumb is typically 7–10 times your annual salary. Prior to determining how much coverage is needed, a proper assessment of who in your life would be impacted negatively by your unexpected passing should be evaluated. This could include your spouse or partner, dependents, or even your business partner and employees. Once you have completed this evaluation, you must determine how you would want your beneficiaries to be cared for or your business to remain viable, and then consider other costs such as uninsured medical bills and burial expenses.
- What is the minimum for Universal Life Insurance? Most single premium Universal Life Insurance policies have a $5,000 to $10,000 minimum premium. However, there are both fixed premium and flexible premium plans that are much more affordable, offer flexible payment options, and can assure the same level of protection to your family. Most carriers offer minimum coverage providing a guaranteed death benefit, and the ability to supplement it with a flexible investment account can be as little as $50,000.
- Does Universal Life Insurance have to be with the same company as my other insurance? No; as a matter of fact, most risk managers encourage their clientele to diversify their portfolio into many different products and carriers. However, some carriers provide additional premium discounts for acquiring more than a single line of coverage. Universal Life Insurance can be purchased in combination with other coverage or separately as desired, from the same or different carriers.
- What questions will my agent ask me when I call? Your insurance professional should make the process of considering Universal Life Insurance as comfortable as possible. Make sure to take the time to communicate clearly your personal goals and objectives so your agent has a clear understanding of what you hope to accomplish, so the right plan options can be provided that fully meet your particular needs. Your agent should already have most of the information the carrier will need, with the exception of just a few questions asked in order to submit a complete application.
- What does the rating system mean, and how can I find out how my insurance company is rated? Purchasing a Universal Life Insurance policy is a lifelong commitment, and you will want to be confident in the carrier. Carrier rating services such as A.M. Best, Standard & Poor’s, Moody’s, and Fitch offer their opinion of the strengths and weaknesses of the various insurance carriers. Carriers are rated using slightly different scales of numerical equivalence by each rating firm. For example, A.M. Best’s highest rating is an A++, Moody’s is Aaa, and Standard & Poor’s and Fitch’s is AAA. Most highly recognized insurance carriers are known to maintain an “A” rating, and anything below the “A” rating is less desirable.
Universal Life Insurance Directory