Universal Life Insurance
While universal life insurance is a permanent form of insurance, it has some of the features of term life. The cost of the policy increases as the insured ages. Most universal life insurance policies have a flexible premium with a minimum and maximum payment. The more money the policyholder pays into the premiums, the greater the amount that is diverted into the cash value.
Cash Value and Death Benefit
In some universal life insurance policies, the amount of the death benefit is tied to the cash value of the policy and the actual death benefit may be less than the policy’s face value. The cash value can also be used to pay the policy premiums and as the insured person ages and the premiums rise, the cash value can be greatly diminished as it is used to pay premiums. Universal life insurance is permanent life insurance and cannot be cancelled by the company as long as the premiums are paid.
Universal Life Insurance Has Flexible Payments and Benefits
Unlike whole life insurance which has a fixed premium and death benefit, universal life insurance policies can be modified to meet changing financial circumstances. Payments can be made monthly, quarterly, semiannually or annually at the policyholder’s choice. Universal life insurance policies have a minimum and maximum payment and the more the policyholder pays into the policy, the greater the amount diverted to the cash value. Most universal life insurance policies do not guarantee a rate of return on cash value like whole life insurance.
Returns on Investment
Unlike whole life insurance where the cash value is in a secure account, universal life insurance offers an investment account. The money in the universal life insurance policy is invested in financial instruments and the returns are usually linked to a market index. Some universal life insurance policies, called GULs, may guarantee a minimum rate of return on investment, but rates for these policies are slightly higher. If investments fail and the cash value of the policy reaches zero, and the insured is unable to make payments, the policy may lapse.
No Lapse Guarantee Universal Life Insurance
Whole life policies guarantee payment of the death benefit, but universal life insurance policies can lapse if the cash value of the policy reaches zero and the policyholder is unable to pay the full amount of the premiums. Universal life insurance policies with a no lapse guarantee keep the policy in force if minimum premium payments are made over a specified time period. The no lapse guarantee is available on most policies as a rider and there is an additional cost for adding the no lapse option.
Tax Advantages of Permanent Life Insurance
If cash value accumulates in a universal life insurance policy, the returns are tax deferred until they are withdrawn from the policy. A policyholder can use up to 90% of the policy’s cash value as security for a low interest loan with no repayment schedule. When the cash value is used to secure a loan, no taxes are due on the amount since a loan is not considered income or a capital gain. The tax deferments on investment returns make universal life insurance policies an attractive alternative to other investments.
Disability Waiver of Premium Rider
This rider can be added to a universal life insurance policy to keep the policy in effect if the insured becomes disabled and cannot make the minimum payments. There is a waiting period of between 90 and 180 days before the rider will begin making the premium payments. If the disability lasts longer than the waiting period, the rider will make premium payments to keep the policy from lapsing. The waiver of premium rider is an excellent addition to a standard universal life insurance policy.
Converting To Other Permanent Life Policies
In most cases, a universal life insurance policy can be converted to a whole life insurance policy or a variable universal life policy as long as the death benefit remains the same or is reduced. Most insurers will not require evidence of insurability for the conversion. Whole life insurance is more expensive for young consumers than universal life insurance, but it offers fixed lifetime premiums and greater security in the cash value. Variable universal life insurance gives the policyholder greater control over the investment of the cash value.
How Much Life Insurance To Buy
The amount of coverage needed depends on a number of factors including the age of the insured person and the reason for buying life insurance. Older individuals with few financial obligations may choose a low limit policy to cover final expenses, while young, single individuals may need a higher limit to cover outstanding debts like student loans or car loans as well as any final expenses. Wage earners with dependents need more life insurance to guarantee their family’s lifestyle can continue even if they die prematurely.
Factors To Consider
In addition to monthly expenses for the family, secondary life insurance, like mortgage life insurance, should be factored in when deciding on an appropriate death benefit. Other sources of income, like Social Security survivor’s benefits or pensions may provide some income for surviving family members. Young children will need financial support for more years than older children and the cost of college tuition for children is another consideration when calculating the right amount of universal life insurance.
Life Insurance For Stay At Home Parents
Although not all parents are wage earners, parents who work in the home still make an important contribution. When buying life insurance for a parent who works in the home, the cost of the services they provide must be considered. These include child care, housekeeping, shopping and food preparation, and transportation for children who are not old enough to drive. When deciding on the right death benefit, the cost of replacing these services should be included when calculating a death benefit.
Is Universal Life Insurance The Right Life Insurance?
When choosing a life insurance policy, consumers should compare the features and costs of different types of life insurance. Universal life insurance offers the security of a permanent policy with an initial cost that is about the same as inexpensive term life. For young families, the lower cost may make universal life insurance a good alternative to a more expensive whole life policy. Each person must consider the policy features to decide if this coverage will meet their needs and financial goals.
Buying Life Insurance
As a consumer buying life insurance, it is important to compare the features of different types of policies including term life, whole life and universal life insurance to find the type of coverage that best meets and individual’s needs, financial goals and budget. It is vital to keep a life insurance policy in force even during periods of financial difficulty so survivors are not left with a financial burden and families have the financial resources they need to continue their lifestyle.
Getting Affordable Life Insurance
Consumers can find the best life insurance policy and the most affordable rates by comparing the rates of different policies and different life insurance providers online. Many life insurance websites offer rate quotes from multiple companies so individuals can easily compare the rates of different companies for the same coverage side by side. By comparing features and rates, anyone can find the life insurance they need at a price that fits comfortably into the budget.
Universal life insurance may not be the right choice for every individual, but it provides the best features of both whole and term life insurance. Over the course of a lifetime, the cost of universal life insurance may be higher than the cost of whole life, but features like flexible premiums and no lapse riders make it the best choice for many people.
Variable Universal Life Insurance
While variable universal life insurance does have a life insurance component, it is usually purchased by individuals for its investment value. Insurance agents who sell variable universal life insurance must have both an insurance broker’s license and a license to sell securities. Variable universal life insurance is the only type of life insurance that is considered investment grade.
Unlike whole life insurance, variable universal life insurance can be modified by the policyholder. The premiums and death benefit can be modified to meet the changing financial circumstances of the insured person. The policyholder also controls the investment choices and can change investments of the policy’s cash value to take advantage of market trends. The disadvantage is the cash value is subject to market fluctuations and is less secure than the cash value of whole or guaranteed universal life insurance.
Premiums and Cash Value
Premiums on variable universal life insurance include the cost of the life insurance policy, the cost of administering the policy and investments, and the amount that the policyholder chooses to invest. In some policies, there may be a charge for making investment changes that is folded into the premium payment. Insurers usually offer investors a choice of mutual fund like accounts across major classes and the policyholder can choose whether to invest in one or more of the offerings.
Variable Universal Life Insurance As A Retirement Investment
Like the returns on the cash value of other types of permanent life insurance, the returns on investments in a variable universal life insurance policy are tax deferred which makes it an excellent tax shelter. It is a good choice as a retirement investment since the cash value can be used for low interest loans that do not require repayment. The loans are not considered income and are not subject to income or capital gains taxes so policyholders have a non-taxable retirement income.
Converting To A Different Permanent Life Insurance Policy
Most variable universal life policies allow the policyholder to covert to another type of permanent life insurance policy without showing proof of insurability. The death benefit on the new policy must be equal to or lower than the amount of the existing policy. This can be advantage if a policyholder is diagnosed with a debilitating, terminal illness like cancer, since converting may reduce the amount of premiums without compromising the financial protection needed for the insured person’s family.
No Lapse Guarantee
When added as a rider to a variable universal life insurance policy, the no lapse guarantee keeps the death benefit in force even if the cash value of the policy reaches zero. There is a provision which requires that the premiums be paid for a specified amount of time, for instance, 5 years, before the no lapse guarantee goes into effect. Since the risk to the cash value is greater with variable universal policies than with other types of permanent life insurance, the no lapse rider is a good addition to a variable universal life insurance policy.
Disability Waiver of Premium
The disability waiver of premium rider pays the policy premiums if the insured is unable to make payments due to a disabling injury or illness. There is usually a waiting period of between 90 and 180 days before the disability waiver begins payments. This rider is one of the most popular additions to a variable universal life insurance policy and gives added peace of mind to policyholders that need to provide protection for their financial dependents if they die. The rider is optional coverage and there is a charge for its inclusion in the policy.
How Much Coverage Is Necessary?
The amount of the death benefit depends on the purpose of the policy. If a consumer buys a life insurance policy to provide money for final expenses, a benefit of $10,000 to $15,000 is usually sufficient. People with outstanding financial obligations should have enough coverage to pay off debts in addition to final expenses so survivors are not left with a financial burden. Wage earners with financial dependents need enough life insurance coverage to replace their income so their family can maintain their current lifestyle.
Who Should Buy A Variable Universal Life Insurance Policy?
This type of life insurance policy is not the right choice for everyone since it requires that the policyholder have some knowledge and experience in financial markets. Anyone selecting variable universal life insurance will have to spend some time researching the available investments and administering the cash value of the policy. Affluent investors who want to build wealth without incurring additional tax liability are the best candidates for this type of life insurance policy.
Comparing Rates with Online Quotes
Comparing the rates of variable universal life insurance policies is more complex than comparing the rates of other types of policies since the important differences in the rates are the cost of the actual policy and the cost of administering investments. Investors will also need to know the maximum amount they can invest in the policy annually in order to determine the best policy to meet their needs. In addition to online life insurance rate quotes, the previous performance of the available investments should be considered.
Investment Potential of Variable Universal Life Insurance
Most people who purchase variable universal life policies are primarily interested in the investment potential with the life insurance protection as a secondary consideration. Different life insurance providers offer different investment options for this type of policy but they usually include large cap, medium cap, small cap international and real estate assets. Some companies may also offer investment bonds. Consumers should investigate the investment opportunities of various companies before selecting their policy.
A variable universal life insurance policy is an investment vehicle with the tax advantages of life insurance. It offers the same death benefit protection as other life insurance policies but the cash value investments are under the control of the policyholder rather than the insurance company and the potential for gain and risk of loss are greater than those of other types of permanent life insurance.
How Much Life Insurance Should I Have?
Given that nothing in life is guaranteed, why assume that tomorrow is guaranteed? In the event you were to die tomorrow, do you understand what would happen to your loved ones? This article will help you choose the very best life insurance for your needs by comparing the different types of life insurance, such as term and whole life insurance, to determine which kind of coverage best fits your needs.
In addition to choosing the right type of life insurance, it is important for consumers to consider the proper factors to determine how much life insurance you need. Potential policyholders interested in finding the best and cheapest life insurance for their family will also need to compare life insurance quotes. There are various websites that offer free, instant life insurance quotes online to help consumers compare life insurance companies, rates, types of policies, coverage amounts, and death benefits, allowing you to find and buy the best and most affordable life insurance available.
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Do exploration ahead of time therefore you can request the required concerns of an insurance agent. See if they are able to answer your queries quickly and knowledgeably. Be sure to request about premium assures, and request whether your policy could be renewed or canceled. Shop carefully and think of all the details and you are sure to uncover the ideal policy.
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