Affordable Life Insurance Protection for Your Family

Universal Life Insurance

What Is Universal Life Insurance?

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Universal life insurance is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element like whole life insurance which is invested to provide a cash buildup.

Universal policies combine a term life policy with a tax-deferred interest accumulating savings account.

The death benefit, savings element and premiums can be reviewed and altered as a policyholder’s circumstances change.

In addition, unlike whole life insurance, universal life insurance allows the policyholders to use the interest from accumulated savings to help pay premiums.

Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy.

The universal life premiums (which are variable), are broken down by the life insurance company into insurance and savings, allowing the policy owner to make adjustments based on his/her own individual circumstances.

For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly.


How Does Universal Life Insurance Work?

Universal life insurance premiums are paid into your policy’s account value (after premium expense charge), where it earns interest.

Every month, various deductions, such as a charge for insurance protection, are then made from the account value. You have the ability to take loans or make withdrawals from the account value for personal needs.

Loans accrue interest and unpaid loans plus interest and withdrawals will reduce the death benefit and cash value. The policy continues as long as the cash value is sufficient to cover the various deductions each month.


Benefits of Universal Life Insurance 

One benefit of purchasing Universal Life is that besides accumulating a tax-deferred savings, one may not have to pay premiums during the entire policy.

If money to pay the death-benefit and other related costs accumulates in the tax-deferred savings portion of the policy, then premiums may eventually not be required to keep the policy in force.


Disadvantages of Universal Life Insurance

With universal life you will pay a higher premium with the promise that the insurance company will take those extra dollars and invest them for you. The problem is that this type of insurance is very expensive. The investments don’t grow because the expenses eat up your interest.

Universal Life policies may make sense if you have an estate-tax problem.

Since a universal life policy is an investment along with a life insurance policy, only people who feel they need life insurance into their 70’s would benefit from a universal life policy. This would give the savings portion enough time to possibly accumulate into an investment.

Many seniors may not need life insurance that late in life, and in the case life insurance is not needed, it may be more beneficial to purchase term life insurance and plan a proper retirement investment savings account such as a 401k or annuity.

If a universal policy looks right to you there are a few important points to remember.

First, make sure you plan to have the policy long term since you will need to have the policy in force at least 15 years to be eligible for any return of the policy.

Second, make sure you have a knowledgeable insurance agent to review your other options such as term life and whole life insurance.


Which Insurance Companies Offer Universal Life?

There are many life insurance companies in American that offer universal life, including but not limited to:

  • State Farm
  • Banner Life
  • American General
  • Lincoln Financial Group
  • Prudential Life Insurance
  • Sagicor Life Insurance Company
  • Transamerican Life Insurance Company


What are Typical Uses for Universal Life?

  • Provides for a family’s loss of income, mortgage costs, and educational needs.
  • Access to cash value for life’s opportunities.
  • Estate, special needs and business planning.


Features of a Universal Insurance Policy

  • Flexibility – You decide the amount of life insurance and premium payments subject to policy minimums.
  • Death Benefit – Life insurance proceeds are generally income tax free to the beneficiary.
  • The Growth in Cash Value is tax-deferred under current federal income tax law.
  • Access to Cash Value – The cash value can be accessed to help with educational expenses, provide a retirement supplement, or other personal objectives. 

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