Universal life insurance is a type of permanent life insurance policy that will furnish life insurance coverage along with the additional benefit of flexible premiums, and cash value accumulation, comparable to the savings component in a whole life insurance policy.
This means that when the insurance premium is paid, a part of the premium will pay the actual cost of life insurance, and then the balance of the premium is applied to an internal savings account in the insurance policy known as the cash value account.
Provided that cash value is available, the policyholder can elect to miss payments for a period of time as long as there is sufficient cash to cover the missed payments. And finally, universal life insurance policies could possibly provide coverage for life if the cash values are sufficient enough to support the continual cost of the life insurance.
There are Different Types of Universal Life Insurance to Meet Your Needs
Traditional Universal Life Insurance
Traditional Universal life insurance was created out of whole life insurance and is similar to it in specific ways. There are, however, several distinct differences. Universal life insurance is referred to as an unbundled insurance product. This means that the mortality expenses, interest rate, and various other expenses are factored in to determine premium rates and expected cash value. This method delivers some flexibility in making your payments, but can also work against you since many insurance agents sell the policy at the lowest permissible premium as opposed to the insurance carrier’s premium guidelines.
Due to traditional universal life not being a guaranteed insurance product, it could certainly end up costing you a fortune if you do not pay enough premium in order to accumulate sufficient cash value that will keep your policy in force for a lifetime. If you own a traditional non-guaranteed universal life insurance policy, you should call us at (342) 234-2354 now to check out your options for converting to a guaranteed lifetime universal life policy.
Guaranteed Universal Life Insurance (GUL)
GUL is similar to a traditional universal life insurance but your periodic premium is guaranteed not to go u. So as long as your guaranteed periodic premium is paid in a timely manner, your death benefit will always remain in force. Guaranteed universal life is a fairly new development, and is popular because it performs similarly to your life-long term policy. The GUL is an excellent universal life policy for individuals who are 55-years old or older and are looking for lifetime insurance coverage but with a minimum fixed premium. The GUL can be implemented for estate tax liquidity, final expense coverage, or a legacy for surviving loved ones or your favorite charity.
Indexed Universal Life Insurance (IUL)
Indexed Universal life can be guaranteed for life or not guaranteed for life with the option to link your cash account to a major stock market index like the S&P 500, Nasdaq, or index. Interest crediting can go up or down based on the performance of the indexes you’ve selected to invest in. Non guaranteed indexed universal life policies have comparable disadvantages like non-guaranteed universal life. Non guaranteed indexed universal life is a more effective option because it offers the opportunity to earn even better interest with few guarantees. In all of the forms of universal life insurance products, the guaranteed universal life policy is the better option if you are searching for a permanent life insurance benefit with cash value growth.
What makes the IUL policy so popular today are two basic things: 1. Many policies are earning about 10% and have done so for the last five years. 2. Since the policy has a “floor” inside the sub-account, with most insurance companies, your interest will never be a negative number which means your cash account will not lose money during a down market.
Variable Universal Life Insurance (VUL)
Variable universal life insurance is quite similar to traditional universal life insurance or non-guaranteed IUL. With this type of insurance policy, the policyholder can invest in the stock market (primarily assorted types of mutual funds) directly rather than just link to a stock market index. The investment accounts within a variable universal life insurance policy are called separate accounts.
The policyholder can invest into and manage a variety of mutual funds within the insurance policy, and the performance of a VUL policy will be dependent on the overall performance of the mutual funds you’ve selected. A variable universal life insurance policy has most of the disadvantages of non-guaranteed universal life and unlike Indexed Universal life, they do not have a floor which means you can lose money.
We regularly get calls from individuals who purchased a policy when the stock market was up regularly but now they are losing most of the cash value in their policy and are forced to pay an additional premium. This policy is considered a ticking time bomb and can be difficult to win with this policy. If you own variable universal life insurance, you should inspect your policy documents and then seek the advice of an experienced and reputable life insurance specialist. Feel free to call us now at (342) 234 – 2354 during normal business hours or contact us through our website at your earliest convenience.
Accessing the Cash in Your UL, IUL, or VUL
Every insurance article will typically have some good news and we are at that point. Unlike other investment products like an IRA or 401k, there is no limit on the amount of money you can contribute to your IUL. Because of this, the cash value in your IUL can accumulate at a significant rate. As this cash accumulates, you need not be concerned about tax liability because the earnings within your policy are tax-deferred.
Once your cash account has accumulated a substantial amount of cash, you are at liberty to begin accessing that money by taking tax-free distributions. This can become a tax-free retirement income! You are allowed to access your cash account by taking loans on the policy or doing partial surrenders and both methods are tax-free.