Universal life insurance comes in 3 basic structures and availability largely depends on the insurance company. Life insurance quotes online.
This is your typical policy you see offered by most every life insurance company. Simply put, this is individual coverage and insures only one person.
Another popular structure you may see occasionally is called Joint Universal Life Insurance. Joint Universal Life Insurance covers two people and the death benefit is paid upon the first person to die. Typically couples will purchase policies such as these to kill two birds with one stone when it comes to providing protection to the household; however, in some cases a term insurance rider for the spouse on a different policy may make more sense if it is offered. It is best to review all options on the table before making a decision on products like these and discussing options with a licensed independent agent.
A less popular structure you will see is Survivorship Universal Life Insurance and it looks very similar to a Joint Universal Life Insurance, but is a “last to die” policy and only pays out when both insured parties die. This is not a practical or common policy for the bulk majority of people out there and is largely used in advanced estate planning to help prepare for coverage of an estate tax if the insured’s estate exceeds the overall Federal threshold on estate taxation. If your estate isn’t worth over $10 million, you most likely can find better coverage elsewhere.
Traditional Universal Life
Traditional Universal Life Insurance policies are typically the ones largely discussed when people talk about universal life insurance. These policies allow for the flexible premiums and accumulate cash value slower than the other types (generally), but are also safer as the cash value accumulates inside money market accounts. Many use these types of policies as a way to supplement retirement income needs by taking loans against the policy after retirement.
Indexed Universal Life
Similar to Traditional Universal Life Insurance, these policies are invested in index funds that usually follow the S&P 500 or similar type of equity index. Many of the features and options inside an Indexed Universal Life Insurance policy mimics a Traditional Universal Life Insurance with the biggest difference being that gains are usually larger. These are usually used to augment other investment options inside a long term strategy, combining protection with wealth growth.
Variable Universal Life
Much like Indexed Universal Life Insurance with similar options and features,Variable Universal Life attaches the cash value account inside the policy actual investment funds that trade largely in equities and bonds. With Variable Universal Life, growth in the cash value can increase very quickly and seems to be lucrative on the surface; however, the risk is also greater and can cause the cash value to disappear in the event there is a severe downturn in the markets. Not only is the risk greater, the amount of fees attached to these policies make it a less than ideal option for 99% of the people we talk to. If you are considering a Variable Universal Life policy, we encourage you to locate an independent FINRA Registered advisor.
Whole life assurance
Guaranteed Universal Life
Probably the closest to a normal term life insurance policy, a Guaranteed Universal Life Insurance typically has little to no cash value build up and does not offer the flexibility on premiums compared to other forms of universal life insurance products. These types of policies mimic term life insurance, but offer coverage for the entire life instead of a predetermined amount of time. Often these policies are cheaper than a Traditional Universal Life Insurance.
Your financial needs rarely stay the same for the entirety of your life. On top of that, you may want to pay less during economic downturns to minimize potential losses (depending on the type of universal life policy you own) or just need to pay the minimum to keep the policy active. This flexibility gives you many options to best customize your coverage.
Choices regarding interest strategy
Based on the type of policy you have, you may not be forced to accept where you cash accumulation goes. Insurance companies often give you options to choose from depending on the type of policy you purchase.
As long as you pay the premium, you have life insurance for the rest of your life.
Cash value accessibility
Like a whole life policy, you have access to the cash value for loans and withdrawals in the event you need to use it.
Tax deferred growth
All growth inside universal life insurance policies grow tax deferred, meaning that the IRS won’t bother you right away for the taxes on the gains made inside the policy. Always consult with your independent financial advisor about potential tax obligation on withdrawing money from the policy.
Because of the fees and premiums, universal life insurance will cost you usually 4 times more than a standard term policy.
Cost Of Insurance
Universal life policies come in two forms: LCOI and Yearly Renewable Term.
LCOI, or level cost of insurance, is where they take the entire cost to insure you and make the premiums level and never change throughout the life of the policy.
Yearly Renewable Term is similar to buying a new term life insurance policy every year, so the cost of insurance gradually increases. This type of method allows for cheaper overall cost during the early years, but gets more expensive as the policy goes on.
Repayment of Loans
Borrowing against your universal life policy not only could lower your death benefit, but you will be charged interest as well.
Monitoring Cash Value
Most of these policies are not “set and forget” policies, depending on the type of universal life insurance you purchase. Indexed universal life insurance and variable universal life insurance are meant for people who may be more savvy in regards to investing as these types of policies need to be monitored closely on the overall performance of the cash value.
Full term life insurance quotes
Super-Low Interest Rates
The interest rates on most of the universal life insurance policies are extremely conservative(2-3%) and may not even account for inflation. You will not get rich off owning a universal life insurance policy.