Universal Life Insurance
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We work with the leading life insurance companies so our clients can rest assured knowing that their policy will provide financial assistance and protection for their families and/or business interests in times of need.
Universal Life Insurance Explained
Life insurance policies can be very rigid or flexible in nature. Universal life policies offer permanent coverage and are designed to provide flexibility and lower premium outlays to the insured. When comparing similar face amounts, UL will be less expensive than whole life, but more expensive than a term policy.
Other than affordability, the primary advantage of a universal life insurance policy is the flexibility it provides. Premiums are not rigid like most other coverages allowing the owner to adjust the cash value and death benefit (assuming insurability) throughout the course of the policy.
Interest returns will be credited to the policy by the insurance company and are calculated based on the type of policy purchased. There are three “engines” that can be used to credit interest:
- Traditional Interest Rate – These plans pay interest based on the guaranteed and non-guaranteed fixed interest credited to the policy. In this way, the interest rate will float and the policy may require additional premium when interest rates fall below certain levels.
- Equity-Indexed – Policy growth in an indexed universal life is determined by the performance of certain market indexes like the S&P 500. Like an indexed annuity, this method is popular based on the safety it provides as the policy does not invest in stock, bonds, or mutual funds directly.
- Variable – This is the most risky option as policy growth is determined by the performance of chosen stock and bond market investments like mutual funds. When the market loses value, variable universal policies can illustrate negative returns.
Guaranteed Universal Life Insurance Coverage
In the past, may UL policies were sold based on unrealistic performance models. When interest rates went down or the stock market crashed, the growth assumptions could not be met and the policies required more premium to stay in-force.
Unfortunately, many older policies lapsed when the assumptions did not hold true and the insured was reluctant to contribute more premium than what they were told to anticipate.
In response, the insurance industry evolved and created what are known as guaranteed universal life insurance contracts. Assuming that minimum premiums are made each year, GUL policies will stay in-force for the lifetime of the insured.
Underfunded policies will not accumulate significant cash value for the insured, but they will not lapse and the insured does not have to worry about depositing higher than expected premiums in the future. In this way, GUL coverage can look somewhat like term insurance, except that the coverage is permanent and offers premium flexibility.
Single Premium Indexed Universal Life Insurance
Indexed universal life coverage is gaining in popularity as an alternative to CDs, annuities and other fixed interest conservative investments.
This coverage is used primarily to transfer wealth between generations as it grows tax-deferred and the death benefit is not subject to federal or state income taxes.
Policies offer access to the cash value and/or the accumulated death benefit in times of financial need or for long term care expenses. In this way, the insured will have access to their investment principal should it later be needed.
The potential and realized growth from the equity indexed model can credit significantly higher interest to the policy each year than one that is based solely on fixed interest rates.
Unlike a variable policy, the cash value and death benefit will reset each year (based on the performance of the chosen index) and all gains from the present and previous years will be locked in and protected from possible market losses in subsequent years.
Indexed life policies typically offer more favorable caps, spreads, and participation rates than the indexed annuities they are modeled after. In other words, they offer the potential for stronger growth while also protecting the lump sum investment. When the income tax savings is factored in, there is a very good argument for using these polices to efficiently transfer wealth to family members or a favorite charity.
Summary and Quote Request
In summary, universal life insurance is popular due to the cost savings, flexibility, tax advantages and permanence it provides for the insured. Premium and death benefit amounts can be adjusted through the years to meet changing financial situations. Additionally, various growth engines can be used to offer the potential for stronger policy performance.
Contact us today to request quotes and illustrations for your review.