Universal life insurance is a type of permanent life insurance.
Like whole life insurance, it offers insurance and savings components.
Those characteristics take in the realm of an investment opportunity, as well as lifetime security for your family or business, both before and after your death.
You should research your options carefully as each type has its pros and cons.
DEFINITION OF PERMANENT LIFE INSURANCE
universal life insurance lasts a lifetime. We will start by describing permanent life insurance.
This type of insurance provides coverage throughout your life. It differs from term life insurance that remains in force for a specified period of time.
- Term life insurance is basically a death benefit that is paid to your beneficiaries after your death.
- Permanent life insurance includes more features that increase its overall value.
Permanent life insurance includes a savings piece in addition to coverage.
It is more expensive than term life insurance, per thousand, regardless of type. The price differences are significant, depending on your coverage.
However, it does not mean that it is not money well spent. Rather, your premium funds both the insurance and the savings portions of your policy.
The differences between the two involve how interest is earned and the types of changes you can make to your life insurance policy over its life. In any case, life insurance is a long-term product. Therefore, your current situation and your anticipated future are important considerations whether you choose term or permanent life insurance.
LIFE INSURANCE WITH CASH VALUE
The key difference between term and permanent life insurance is the cash value portion. Part of the money you pay goes to investments in your insurance company. These funds will earn interest that you can collect without federal income taxes.
In many ways, this insurance is no different than reserving money in an IRA. The difference is in how the funds are managed.
Whole life insurance and universal life insurance are two types of permanent life insurance. You can use the cash value of either one to get loans against you. These types of insurance allow you to obtain financial benefits during your life. You can also make withdrawals. While you don’t have to pay them back, they will subtract your final death benefit so they’re not completely risk-free.
So what is universal life insurance?
To put universal life insurance in context, we’ll start with a summary of whole life insurance.
On the surface, the two are closely aligned. They both have insurance and savings portions. With full life insurance, you pay a fixed premium. One party finances the savings portion that guarantees you a cash value. You can earn more money through dividends to pay your premiums.
Universal life insurance differs in several important points.
First, the hallmark of this insurance is greater flexibility. These features are activated once you have made your first premium payment. So, you’re in charge. You can change your death benefit to meet the changing needs of your family. You can also exercise flexibility when it comes to premiums in both quantity and frequency.
There are several tax advantages of permanent life insurance that also apply to universal life. Your death benefit is generally tax-free, but may be subject to state or local tax laws. You can accumulate funds with your tax-deferred cash value. There are also other specific benefits of universal life insurance.
ADVANTAGES OF UNIVERSAL LIFE INSURANCE
As you can see, its flexibility is one of its most attractive features, subject, of course, to the restrictions of your life insurance policy. You will still need enough money to cover insurance costs and fees. And this is another area where flexibility comes into play.
You can also use the cash value of the policy to pay your premiums so that you can also realize its value. It benefits you and your beneficiaries.
Its cash value generates interest based on a minimum rate. You know what to expect from your universal life insurance policy in advance. You can also earn additional interest if you exceed the minimum interest rate. It is one reason why universal life insurance is also known as adjustable life insurance.
Perhaps another advantage is its uniqueness in utility for things like pension maximization plans, estate planning, and even charitable giving where the benefit is guaranteed and permanent.
Like everything else in life, it has good and bad points.
DISADVANTAGES OF UNIVERSAL LIFE INSURANCE
While you have many possibilities, you should also be aware of the caveats associated with universal life insurance.
Although you can earn more interest during good times, you will also find that your cash value can stagnate during the poorest. It is a smart idea, therefore, to get this type of insurance while you are younger so that the cash value can grow if you need it later.
Keep this in mind, although loans are a good benefit, you should keep your loans under control to keep their value and cover the cost of insurance. Plus, you can pay taxes or withdrawal fees. You should take the time to learn about the conditions of the loans and withdrawals to know the real costs.
Remember, its flexibility also adds to its complexity.
WHAT TO CONSIDER BEFORE BUYING UNIVERSAL INSURANCE
Life insurance is your way of safeguarding your family’s financial future. It can serve many purposes, including income replacement for your spouse and as a college fund for your children. It works best if it is a good combination for you and your current situation.
To determine if universal life insurance is right for you, consider the present and future needs of you and your family.
If you’re just getting started, universal life insurance offers an excellent way to adapt to changes in your life, but it can be more expensive than a simple term life insurance policy. Whether your family continues to grow or your business is just starting, universal life insurance can be tailored to what you need, but the term is the simplest and cheapest if you only want basic coverage.
However, it offers a practical way to deal with changes in your financial situation with little risk to you. Give what is known as a vital benefit.
For example, you can increase your death benefit if your family grows. You can also increase it to cover the long-term business debt.
If your situation changes, you can adjust your life insurance policy to better meet your needs.
ESTIMATING YOUR NEEDS
Similarly, you can decrease your death benefit as your other investments increase in value. Remember, life insurance is only part of your estate planning.
To ensure adequate replacement income for your family, consider all the factors that contribute to future family income, and determine the role that life insurance should play.
To estimate the amount of coverage you’ll need for universal life insurance, start with an approximate annual income that you want to guarantee to your spouse. Take this number and multiply it by 10 to determine what you will need to provide to meet the needs of your spouse throughout life. Also, consider current income as well as other investments you may have.
Now, the term should be most of this, but if you see the need for longer insurance than the term offers, cover just this part with a universal policy and the rest with a term. This will save you thousands in the long run.
Universal life insurance offers different ways to address the issue of the death benefit. You can set a fixed amount that you can adjust as your financial situation evolves. You can also choose an increasing death benefit that includes the cash value of the policy. It is another way to make insurance flexibility work for you.
Universal life insurance offers another permanent life insurance option that gives you the flexibility to adapt to the changing conditions of your financial situation. With the opportunity to borrow, you also have the opportunity to support your growing business or deal with a financial setback.
It is a safe option for a safe future for you and your family.