Universal Life Insurance
Universal Life Insurance is a somewhat new form of permanent or "whole life" insurance that combines life insurance protection with a much more flexible investment feature than that offered by other kinds of life insurance. To understand Universal Life Insurance, you first need to understand a little about life insurance. There are two forms of life insurance: temporary coverage, which is generally described as "term life insurance," and permanent coverage, most often called "whole life insurance."
When purchasing term life insurance, you are renting the coverage for a defined period of time. With whole life insurance, you purchase the coverage and it stays with you until your ultimate demise or until you sell it, pawn it, or stop paying for it. Like a home, a permanent life policy is an asset that has value. The value or equity can be used to obtain funds at a relatively low cost for other purposes, such as buying a car, bailing a friend out of jail, or getting a facelift. Term life is often less expensive, but it is not an asset like a permanent policy and is useful only for the limit of the term in force.
Universal Life Insurance was created to be a bit different than the more traditional whole life insurance policy because many individuals believed it was more cost efficient to buy term coverage and invest the difference between term and whole life themselves, providing better control over where and how much the funds in the premium were used for investment purposes. However, over the life of an individual, most agree that the whole life policy is a better overall value, so the Universal Policy was created, providing the best of both types of life insurance coverage and several advantages that whole life does not offer.
Universal Life Insurance advantages include lower administrative costs, tax advantages for growth and at payout, significant investment selection flexibility, and higher rates of return. When premiums are paid, a portion of the premium is allocated to the investment feature, which is invested in a tax-deferred account that is intended to earn interest at rates comparable to prevailing money market interest rates. A Universal Insurance policy can offer the policyholder the flexibility to change the amount of insurance coverage, the amount of the premium payment, and/or the portion of the premium payment allocated to the investment feature.
Universal Life Insurance Quotes
- You should ask yourself this question:
I died, would anyone in my life
be negatively impacted financially?” Most people immediately
think of their spouse or partner and children, but there are also
individuals you might not be thinking of, such as your elderly
parents, grandchildren, a business partner, and even employees who
could suffer financial devastation if you were gone. Next, you
should ask, “What would I want the policy to pay?” Answering
this question requires considering what it will take to care for
your beneficiary and your dependents properly, evaluating what
current or future debts will need repaying, costs associated with
dependent education, uninsured medical expenses, and burial
expenses. Then consider others such as your business partner or
employees: if you were gone, could the business continue to
prosper, and if not, what kind of investment would it take to
A good rule of thumb is that one’s life insurance should typically be 7–10 times one’s annual salary, but the amount varies depending on the particular situation and the desires and expectations of each individual. The best thing to do is to write down all your current and expected future obligations to care for your family, other dependents, and all current and future anticipated debt and business needs, and then determine what assets are currently available to pay for these obligations. The amount you are short is a good starting point. Then you need to consider other expenses such as costs not covered by medical insurance, burial expenses, and anticipated inflation. Another factor is how much you can afford. We would all like to be certain that our loved ones are well cared for when we are gone, but it might not make financial sense to set your dependents up as “rock stars” if that is not their current standard of living. However, individuals need to be fully aware of additional costs that could impact a family if the main breadwinner is gone. Your current standard of living needs to be reconsidered to include the things you do to make life possible in your household. Whether it is mowing the lawn, driving the carpool, or fixing a leaking sink, the things you do have a significant value and cost if you are no longer there to take care of them.
- Your budget for premiums – The
not whether you can afford it insurance premiums; it is whether you
can afford not to have it? Your budget to pay for a Universal Life
Insurance policy depends on the type of policy payment option you
are considering. There are single premium, fixed premium, and
flexible premium options available that generally can fit any
financial and budgetary situation.
A single premium Universal Life Insurance policy is generally best for those individuals who have a fairly large amount to invest and do not want to worry about making ongoing installment premium payments. Generally, a single premium payment as low as $5,000 to $10,000 can be invested to place coverage immediately in force, depending on the age of the policyholder. Once the single premium payment is deposited, no future investment is needed to obtain the full guaranteed death benefit unless loans or partial withdrawals are made.
A fixed premium Universal Life Insurance policy is generally best for those individuals who are not able or interested in making a large initial investment in cash, but still want to ensure their beneficiaries are well cared for in the future. A small premium payment is made to place the coverage in force, and then affordable fixed premium payments are made at defined time frames such as monthly, semi-annually, or annually until the policy is fully funded. The actual amount of the periodic payments depends on the age, gender, and health condition of the policyholder at policy inception.
The flexible premium Universal Life Insurance policy is best described as a hybrid of the single premium and fixed premium options. With the flexible premium option, a larger initial premium payment is made that allows more flexibility on when and how much future premium payments are due within the specific guidelines defined in the policy. This allows the policyholder the flexibility to change the amount and frequency of the premium payment based on the policyholder’s personal financial situation, and the initial premium payment minimum is not as substantial as that required by the single premium option.
The many different payment options allow almost any individual the ability to find a policy that best fits one’s budget and still ensures that the individual’s loved ones will be cared for properly when the individual is gone.
- How long you need the coverage
– With a
Universal Life Insurance policy, there is no need to worry about
how long you need insurance coverage because Universal Life
Insurance is a permanent investment in your future that provides a
guaranteed face value death benefit to your beneficiaries when
Term life insurance policies are based on a policy start date and end date that is usually one year, but that can be expanded to as long as 30 years depending on the particular term product. At the end of the term, you are required to purchase a new policy, and based on the fact that you are another year or up to 30 years older, and your physical condition could have changed significantly (and generally not necessarily for the better), a term life insurance policy could require you to be personally re-evaluated in order to provide evidence of insurability. Let’s face it, as we age, just as with cars, things more often become a little more tattered and torn. But unlike your personal automobile policy, where your premium usually goes down each year with the value of your car, a term life insurance policy premium most often goes up in cost, reflecting the higher probability of your ultimate, untimely demise. In comparison, a Universal Life Insurance policy is rated once at the policyholder’s age and physical condition when the policy is initially purchased, and the coverage lasts an entire lifetime, without the need for the policyholder to be re-evaluated each year. Similar to what is known as a “whole life policy” without the 100-year whole life limitation and inflexible investment opportunities, Universal Life Insurance is a permanent insurance product that can ensure a guaranteed death benefit, provides unparalleled tax advantages, and still allows the additional investment opportunities to increase your cash account and the final death benefit to your beneficiary. Further, a Universal Life policy is an asset that has and always maintains value, unlike a term policy that is useless one day after the end of the term.
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