Universal life insurance is a type of “permanent” life insurance. It offers you life-long coverage, along with cash value, an interest-bearing account attached to your policy. This account builds equity that’s yours to draw upon as you need it. At any time, you could cash in your policy and walk away with the sum total of your cash value account. It’s a great combination of coverage with the additional financial security of cash value.
But is it right for you? It might be, if you’re looking for these three key factors:
You’ve got a lot of room for customization with a universal life insurance policy. For example, the death benefit, monthly payment amount, and cash value are all adjustable as you see fit. If you’re the type who likes to actively manage your finances, this type of policy could be a great fit for you.
You and your insurer work out the payment plan together when you buy your policy. They’ll give you guidelines for figuring out how much to pay each month, including minimums, target amounts, and maximums. You don’t have to stick to these guidelines, however—the actual amount you pay and the dates when you pay are up to you. You can use the plan you developed with your insurer, or modify it to meet your financial needs. If you have a big expense planned, for example, you might skip a payment or two and pick up again when you’re able.
Your entire monthly payment amount goes straight into your policy’s cash value. As long as your policy is in force, your cash value gains equity. All you need to do is be sure the account has enough cash value in it to cover the periodic fees your insurance company will charge. If you don’t keep enough cash value in the policy to cover these periodic charges, your policy will lapse (terminate) due to non-payment.
TIP: Your cost of insurance (COI) in a universal policy is based on the difference between your death benefit and your cash value, so keeping more funds in your cash value account will actually lower the cost of your policy!
You also get to choose how big or small of a death benefit you want. You can change this at any time, too, although some insurers will want you to take a new medical exam if you want to increase the size of your benefit. If you want to decrease your death benefit, it will also decrease the overall cost of your policy, which can help you save money.
Keep in mind that the IRS limits the amount you can pay into your policy. Your insurer can give you all the up-to-date regulations.
Transparency is a big deal with financial institutions these days, so why shouldn’t your life insurance policy follow suit? Here’s what it means with regard to a universal life insurance policy.
With other types of life insurance, you make your monthly payment and you never see what the insurance company does with your money. With universal insurance, though, there is no required monthly payment—you pay whenever you want, however much you want.
So how and when does the insurer deduct its fee? It makes small periodic charges against your cash value account—a charge for administration, a charge for loading, etc. You’ll see a listing of each expense as it hits your account, so you always know exactly what’s going on in terms of fees.
While it’s true that universal life isn’t the least expensive type of coverage, it costs much less than whole life insurance (the other type of permanent coverage).
You may be wondering how this policy can be cheaper yet still offer you so much flexibility at the same time. In the real world, flexibility for the insurer translates to responsibility for you. By giving you more responsibility for making payments and monitoring the payment schedule yourself, your insurer cuts costs and can pass some of those savings onto you.
Who buys universal life insurance?
Many of our clients buy a universal life policy to:
- Use as a tax-advantaged investment vehicle
- Protect a business (at the death of the owner, for example)
- Protect an estate against liquidation by providing cash to pay any estate tax
- Fund a retirement plan
If any of these options are a part of your financial strategy, give us a call. We’ll show you other people are using universal life to sock away money for retirement, create financial security for their families and businesses, and more!
Call us at 800-823-4852 or click the button below to get started now.