What is Universal Life Insurance?
Universal life insurance was introduced in the years 1981-1982 as a permanent life insurance which rests on cash value. It has the features of both a term and whole life insurance which allows policy holders to choose varying payment methods and coverage every year while adjusting its interest on a monthly basis.
Basic Characteristics of a Universal Life Insurance
1. Account Value: This is the accumulated gross value of all the investments contributed to the policy which include the income after deducting all the current monthly expenses.
2. Cash Surrender Value: This is the current account value of the policy with all the surrender charges and outstanding loans already deducted. This is based on a multiple of the policy’s required minimum premium back end charges which are normally larger than front-end charges.
3. Premiums: This is the amount required by the insurance company that the policy holder pay which is equivalent to the cost of the insurance charges as well as other expenses related with the policy.
4. Death Benefit Options: There are four classifications for death benefit options under universal life insurance policies and these are as follow:
a. Level death benefit: This only covers the amount accumulated during the length of the policy.
b. Level death benefit, indexed: This option features yearly increase in the amount of death benefit as predetermined by percentage rule.
c. Level death benefit with account value: The amount given is equivalent to the initial face value amount plus its gross account value. This is by far the most popular because the gross account value is never taxed.
d. Level death benefit with cumulative gross premiums: The amount received is increased as the amount of the gross deposit added to the policy increases.
5. Premium Flexibility
Advantages of Universal Life Insurance
Universal Life Insurance has several advantages, one of which is its flexibility. It can easily be adjusted to fit your changing needs. You are given the freedom to change the timing and even the amount of your premium payments as the need arises. You are also given the luxury to vary the amount of death benefit which you wish to leave behind according to your set of preferences.
Aside from this, universal life insurance is also considered cheaper compared to other types of insurance. The cash value of your policy remains intact as long as your payment sufficiently covers the monthly insurance charges. Moreover, it keeps your investments safe and intact because it does not venture into using your investments in the stock market which other types of insurance policies do. It is very transparent so you can conveniently monitor the movement of your policy’s account value.
Benefits of Universal Life Insurance
Universal life insurance can be used in several ways. It will not only cover future funeral, medical and burial expenses but it can also be used as an income replacement for the surviving children and spouses. It can also be considered as an additional tax shelter for those who have maxed out in their IRA. Most importantly, it is one of the best options to secure any economic loss which the family of the decedent may experience after the policy holder’s demise.