Universal Life
Insurance
Unlike Term Life Insurance, Universal Life is a type of permanent
insurance. It will provide insurance for the duration of the insured's
life
Permanent Life Insurance provide life insurance protection
for the lifetime of the insured. A key feature to providing life
long protection and keeping the rates inline is that the policy
accumulates a cash value. The cash value are funds that can be withdrawn
or borrowed and they generally receive favorable tax treatment.
Permanent life insurance products vary. Here are some key points of
difference:
-
Premium payment flexibility
-
The method the cash value is accumulated (stocks, interest, etc)
-
Guarantees on the death benefit
The most prominent types of permanent
insurance are Universal Life and Whole Life.
Universal Life
Insurance was developed to improve upon the Whole Life product and
deliver more flexibility. A notable feature of Universal Life is
that the policy owner can adjust the frequency and timing of
the premium payments. One can make larger payments, skip payments, make
regular payments, etc. The policy will remain in force provided you have
sufficiently funded the cost of insurance.
Premium payments are
applied to the policy's cash value, which earns an interest rate set by
the carrier. The policy's cash value is determined by deducting from
this amount the cost of insurance and administrative costs , typically
monthly, from this cash value. The interest rate which helps build the
policy's cash value can change but will have a minimum rate guaranteed
by the carrier.
Most Universal life
policies permit a change to death benefit. However, if the death
benefit is increased proof of insurability is generally required. If the cash
value increases to a level comparable to the death benefit, the policy's
death benefit will increase. This is due to a provision within the tax
code.
The cash value may be withdrawn or borrow against. Some policies provide for the
withdrawal of part of the cash value without a loan interest penalty. In
some case a loan will reduce the death benefit or change other features
in the policy
If the policy becomes under funded, the policy will lapse.
The policy can be designed to be guaranteed for a period of time as long
as the determined premiums are paid.
Universal Life Insurance can be
structured into individual and survivorship (i.e. based on two lives)
