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Universal Life Insurance, a type of Permanent Life Insurance, extends the whole lifetime of the policy holder, that provides a more flexible premium payment, allowing the policy holder to adjust premiums and benefits throughout the policy. Insurance Warehouse provides Universal Life insurance policies, including Variable Universal Life Insurance (VUL) and Indexed Universal Life Insurance (IUL).
A Universal Life Insurance policy provides flexibility to customize your coverage and premiums. Universal Life Insurance is a type of Permanent Life Insurance, along with Whole Life Insurance. Universal Life insurance is considered a Permanent Life Insurance because it extends the whole lifetime of the policy holder. Like Whole Life, Universal Life provides a savings, but requires lower premiums, making its cost comparable to Term Life. Some Universal Life policies require a “single premium” (a single lump-sum premium payment). Others might require a “fixed premium” (a schedule of fixed premium payments). Usually, though, these policies provide a flexible premium payment option. Although the insurance policy can accumulate a cash value for the holder, beneficiaries only receive the death benefit of the policy.
Universal Life Insurance offers greater flexibility than Whole Life, allowing holders to adjust the premiums and death benefits throughout their policy period. Over the time of the policy, the cost of insurance increases as the holder ages. Upon the death of the policy holder, the insurance company retains all remaining cash value of the policy, and the beneficiaries only receive the policy’s death benefit. Policy holders must stay attuned to the rising premiums as their policy continues, as well as increased fees, and they might need to reevaluate their policy because the policy might not be worth its payments.
There are typically two components to the premiums of Universal Life Insurance, Cost of Insurance and savings.
Cost of Insurance (COI) is the minimum premium payment that the insurer requires to keep the policy active. The Cost of Insurance itself involves multiple components, including charges for mortality, policy administration and other associated fees. The Cost of Insurance varies by policy, and is contingent on the holder’s age, insurability and an insured risk amount.
The savings is the second component, also known as the “cash value” of the policy. Excess payments above the required premium add to the cash value portion of the policy. As premiums increase over time, the accumulated excess cash value can be used to cover increases in the Cost of Insurance or payments can be skipped without a lapse in coverage. The excess premium payments also accumulate interest for the policy holder.
Universal Life Insurance policies provide a savings of a cash value that accumulates over time. This cash value accrues interest, based on the current insurance market or a minimum interest rate, whichever is highest. Policy holders can access a portion of the accrued cash value without affecting their guaranteed death benefit. Although Universal Life policy withdrawals are taxed, loans against the cash value may be provided without being taxed. However, loans accrue interest and a “cash surrender fee”. Also, unpaid loans will reduce the death benefit by the outstanding balance, while the unpaid interest will be deducted from the policy’s remaining cash value.
Variable Universal Life Insurance gets its name from a variable nature as the result of policy holders investments in the fluctuating open market. Variable Universal Life policies provide flexible premiums, which are paid into the cash value. They normally have a maximum and a minimum of investment return associated with the savings. These policies also provide investment subaccounts in which the cash value of the policy can be utilized. These subaccounts function similarly to mutual funds, allowing the holder to invest the cash value into various stock accounts, bond accounts and money markets. Based on market fluctuations, these investments can either provide significant returns or can result in significant loss. Each year, the insurer deducts its fees and the remainder stays in the separate accounts to earn further interest. The accrual of the policy’s cash value is tax-deferred, and holders may withdraw and borrow against it.
Indexed Universal Life Insurance policies provide the flexibility of adjustable life insurance and an opportunity to increase cash value, with reduced risk. It allows the holder to accumulate a cash value through investments while still providing a guaranteed death benefit. Premiums are typically lower because the policy holder bears the risk of his investments. As premiums are paid, a portion goes to the insurer’s cost to provide the death benefit, and the rest is added to the cash value. IUL policies cash value accumulation is tax-deferred. This insurance type lets the holder decide how much cash value he wants to assign to either a fixed interest account or an equity-indexed account. The cash value is credited with any interest earned based on increases in an equity index during the month. These policies can offer a variety of well-known indexes, including Nasdaq-100 and S&P 500. Although these investments can be more volatile than those provided by fixed Universal Life policies, there is less risk since the policy’s money is actually invested in equity positions. Because they’re difficult to understand, IULs are considered an advanced Life Insurance product.
Secure a Universal Life policy today that suits your family’s present needs, as well as helping provide for your family’s expenses and loss of income at death.
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