Wednesday, June 15, 2022

What Is A Universal Life Insurance Policy

Don't Miss

How Do You Choose The Right Insurer

Universal Life Insurance Policy: Everything you need to know.

Before choosing an insurance company and policy, consider the following:

  • Obtain quotes from different companies and compare quotes in order to reach a decision
  • Narrow your choice to companies that are financially stable
  • Consider policy options, including the investment opportunities of permanent life
  • Be complete and honest about your health history
  • Research ratings and reviews

Your life insurance premiums will depend on your age, health history, gender, occupation, lifestyle and habits, and the policy type and coverage amount you choose.

Life insurers have different underwriting guidelines, which means they do not all assess risk differently. Shop around for quotes from a number of life insurance companies to get the lowest possible premium, and for other policy features that matter to you.

If you’re looking at your insurance policy as an investment, know that universal life isn’t without its risks.

Your policy’s cash value growth will depend on stock market performance. Also, the complexity of some policies including universal life insurance makes it difficult to compare competing products. Consult with a financial advisor before purchasing a universal life policy.

How To Take Money From Cash Value

When it comes to taking the cash value from a policy, you generally have a few options. Make sure you understand the policys rules for taking out cash value and all of the financial implications that come with that decision.

  • Withdraw funds from your cash value:;You could make a tax-free withdrawal from your policy. However, if you withdraw more cash value than the portion funded by your premium payments, the investment gains you take are taxed as income. Also, taking out cash value will reduce your death benefit and your beneficiaries will receive less.
  • Borrow against your policy:;Typically you can borrow tax-free from the cash value of your policy. If you die before the loan and interest are repaid, the outstanding balance will be subtracted from your death benefit.
  • Surrender the policy: If you decide you no longer want or need life insurance, you can contact the insurer to surrender the policy. Youll receive the cash value minus any surrender charge.

Does Universal Life Insurance Expire

Universal life insurance typically guarantees a rate up to a certain age, such as 100 or 105. If you live past that age, you can still keep the policy in force but will have to pay a substantial rate increase.

A universal life policy will expire if you stop paying the premiums and the cash value becomes depleted.

If you need life insurance, its best to keep the policy payments up to date. If you have to buy a new policy later youl be charged at your older age and may have to take a new life insurance medical exam.

Also Check: How To Obtain A Life Insurance License

What Happens If I Outlive My Whole Life Insurance Policy

So if you outlive your policy the coverage simply ends. Its a term policy, but if you outlive it, youre returned your premiums. So its a guarantee because either your beneficiaries receive the death benefit or youre returned all the money youve paid in. Exactly.

What Is Universal Life Insurance Pros And Cons Of Universal Life Policies

Life Insurance: Permanent, Whole, Term, Universal ...

Universal life insurance offers lifelong coverage, provides flexibility when it comes to paying premiums and choices for how the policys cash value is invested. A standard universal life insurance policys cash value grows according to the performance of the insurers portfolio and can be used to pay premiums.

Variations such as variable and indexed universal life insurance give you options for how to invest the policys cash value. Universal life insurance is often compared to whole life insurance, a policy that also offers lifelong coverage, but is less expensive and offers more policy options.

You May Like: Do Parking Tickets Affect Car Insurance

Who May Benefit From Universal Life Insurance

Universal life insurance is designed for people who are looking for:

  • Protection for your family in case of your premature death
  • Potential cash-value growth with tax advantages to use for things such as supplemental retirement income
  • Built-in flexibility, in case something happens and you need to adjust your premium or death benefit value
  • Options for covering long-term care expenses
  • A way to transfer wealth to future generations in a tax-efficient manner

How Much Are The Fees

The fees youll pay for cash value life insurance are astronomical. There are fees to have the insurance in the first place, fees to cover commissions and fees to cover expenses for the insurance company. And the thing is, because of those crazy-high fees, you will build;zero;cash value in the first three years. Theres a reason insurance companies try to sell you universal life insurance. Its because they make more money if they do.

Recommended Reading: Insurance Agent Exam

How Do You Take Money From Cash Value

You can contact the life insurance company if you want to tap into the cash value portion of your policy.

There are three options: Take out a loan, withdraw funds or surrender your policy. Here are the differences.

Taking out a loan on the policys cash value means you have to pay back the amount plus interest or it will be subtracted from the policys death benefit.

Withdrawing funds lowers the death benefit.

Surrendering or canceling the policy allows you to get the cash value after the life insurer subtracts any penalties, unpaid balance and outstanding loans. However, it also means you longer have that life insurance policy.

Compare Types Of Universal Life Insurance

Is Universal Life Insurance A Good Idea?

Some universal life products offer you the flexibility to design the product to meet your needs, with the ability to increase and decrease the amount of coverage or premium payments as your circumstances change. This flexibility can help you address a wide variety of financial needs.

Benefits

Recommended Reading: Dental Insurance For Military Dependents

A Truly Flexible Option Transamericas Ffiul Provides The Death Benefit Associated With Traditional Life Insurance Plus The Potential For Policy Value Accumulation

  • Federal income tax-free death benefit.
  • Policy value accumulation potential with basic interest account and index account options.
  • Guaranteed minimum interest rate, or floor, brings safety through guarantees.1
  • Tax benefits including tax-free loans and withdrawals, tax deferral on any earnings, and tax-free transfers between account options.2
  • Now available with the new Concierge Planning RiderSM .

1 Guarantees are based on the claims-paying ability of the insurance company.2 Loans, withdrawals, and death benefit accelerations will reduce the policy value and death benefit. Provided the policy is not and does not become a modified endowment contract , 1) withdrawals are tax-free to the extent that they do not exceed the policy basis and 2) policy loans are tax free as long as the policy remains in force. If the policy is surrendered or lapses, the amount of the policy loan will be considered a distribution from the policy and will be taxable to the extent that such loan plus other distributions at that time exceed the policy basis.

Universal Life Rates Of Return

Check the rates of return for investments under RBC Universal Life insurance.

The information above is intended as a summary only. Please see the sample policy for RBC Universal LifeOpens PDF in new window or RBC Universal Life with Bonus InterestOpens PDF in new window for complete details on terms and conditions, including benefits and exclusions.

Can I decide how much to pay into my RBC Universal Life insurance policy?

Yes. Your policy will allow you to choose how much premium you want to contribute to your policy, within the minimum premium we set to keep your policy in force and the maximum we set to keep your policy exempt from taxation. The minimum premium is specified in your policy; the maximum changes every year depending on how your policyâs accumulation value is growing.

Your policy gives you complete choice over the timing and allocation of premium paymentsâyou can pay annually or monthly by pre-authorized debit, and you decide how your money will be invested. After we deduct a premium tax from each premium payment, we direct the balance to your policyâs interest options. Every month we deduct enough to cover the cost of insurance and a guaranteed policy fee of $10 per month.

How long will I pay premiums for RBC Universal Life insurance?

There are various terms and payment options to choose from. A licensed RBC Insurance® advisor can help you choose the policy thatâs right for your specific needs and budget.

You May Like: How To Obtain A Life Insurance License

Guaranteed Universal Life Insurance

A guaranteed universal life insurance policy offers a death benefit and premium payments that will not change over time. You select an age at which the policy ends . Choosing a higher age will increase the premium.

Guaranteed universal life insurance generally has little or no cash value. Because of this its the cheapest kind of universal life insurance you can buy. Youre paying for the lifelong coverage.

GUL is sometimes called no lapse guarantee universal life insurance. This is to address recent problems where traditional, non-guaranteed universal life insurance policies lapsed because the cash value couldnt cover the policys expenses and the cost of insurance. Some policyholders who wanted to keep their insurance in force had to suddenly pay much larger premiums;that they never expected.

These newer no-lapse policies promise to stay in force. But theres a catch: If you make a late payment or miss one, the policy will likely terminate. Since theres usually no cash value, there wont be any money to take away. The insurance company will keep the premiums you paid.

Unlike other types of universal life insurance, a GUL policy doesnt offer flexibility with the premium payments or death benefit amount. However, it can be a good choice for someone looking primarily for lifelong coverage and who cares less about the investment component of cash value.

Is Universal Life Insurance A Good Investment Strategy

What Is Guaranteed Universal Life Insurance and How Does ...

Is Universal Life Insurance a Smart Financial Investment? The bottom line is: no. Unless, of course, youre an insurance company. If you are investing in universal life, you are paying a high premium for a lengthy period of time, possibly two to five times longer than you would with term life.8 août 2019

Don’t Miss: Will My Dental Insurance Cover Veneers

The Cash Value In Universal Life Insurance

The interest earned on the cash value of a universal life insurance policy is based on market index performance, such as the S&P 500, and is subject to market fluctuations. Your policyâs index depends on your insurer, as is the floor and cap on gains set by insurers.

âThe floor is almost always 0%. The cap for every product is different, but itâs usually between 8 and 13 percent,â explains Pat Hanzel, Advanced Planning Specialist and Certified Financial Planner at Policygenius.

This means that universal life insurance isnât always the best option to save money for the future. While you wonât lose money due to the floor, the capped returns realize a much smaller gain than you could get by investing the same amount in an IRA or 401.

For example, an insurer may set the rate of return on universal life insurance at 2%, while the rate of return on an IRA or 401k that matches historical stock market averages is 7-10%. Additionally, some of the most profitable savings accounts can get over 2% interest, and the money would be available to you at any time. The lower rates of return on a universal life insurance policy are why many financial advisors recommend buying term life insurance and investing the difference.

Who Should Consider Universal Life Insurance

If you want life insurance coverage that lasts the duration of your life, you might consider a universal life insurance policy. For example, universal life insurance can fund a trust to take care of a special needs child or other dependents after youre gone.

You might also consider a universal life insurance policy if you have big long-term savings goals and need both an investment vehicle and life insurance, but only after youve maximized other savings options such as retirement plans.

See our ratings to find the best life insurance companies.

Read Also: Does Lightning Mcqueen Have Car Or Life Insurance

How To Apply For Universal Life Insurance

The process of signing up for universal life insurance or any type of life insurance, for that matter is different from other insurance policies you may have purchased.

You cant simply complete the process online from start to finish. You may be able to get a quote online or over the phone in just a few minutes, but the entire process may take several weeks to a month. You usually have to go through an application process that may require a medical exam and an evaluation of your risk factors.;

Heres a step-by-step guide to applying for universal life insurance:

Index Universal Life Insurance

Universal Life Insurance Explained – Good or Bad – What to know about these complicated policies

Customers should cover all their bases when preparing for the future. Should they pass away unexpectedly, they want their loved ones to receive death benefit to help replace lost income, pay off debt, or cover living expenses. Additionally, their policies could accumulate cash value that may be accessed in retirement to help meet their needs. Thats where the Transamerica Financial Foundation IUL® comes in.

Also Check: How Much Does Tooth Bonding Cost With Insurance

How Do Universal Life Insurance Policies Work

Universal life insurance policies are bundled products, meaning you get insurance protection and an investment return.

Investment returns are based on the rates declared periodically by your insurer and can be changed at the insurers discretion. However, the insurer cannot decrease it beyond the minimum crediting rate which can be set at 0%.

Universal life insurance policies are different from typical whole life insurance policies. Unlike most life insurance policies, after the inception of universal life insurance policies, you have the option of adjusting the sum assured and the cash value of your policy.

Understanding Universal Life Insurance And Cash Value

Universal life, along with variable and whole life, are the three amigos in the world of;cash value life insurance. They do the job of covering your income if you die, but they;also;act as a savings account. Cash value is the cash build-up in that savings account. The insurance companies set their rates of return for cash value just like a bank would.;

Whole life returns usually just keep up withand sometimes fall belowinflation.;Universal and variable rates are harder to nail down, but they can be considerably higher than whole life. But, as weve said over and over again, the fees tacked to a universal life policy will eat you alive.;

Thats why you should always invest in a good growth mutual fund that is completely separate from your insurance policy. You could earn, on average, a 1012% return without those heavy fees.;

Plus, when you break down how much of your cash value premium goes toward;making;you cash, youll probably die a little inside, especially if you compare it to term life insurance . Do the math and youll see, just like orange juice on cereal, you should keep your investments out of your life insurance!

You May Like: Is Trustage Life Insurance Any Good

Whats A Guaranteed Floor

Index changes can be positive or negative. However, with the FFIUL, customers have the security of knowing they will never be credited less than the guaranteed minimum interest rate, or “floor.” The floor can protect cash values and helps ensure that segments with positive value will be credited with interest.

What Affects The Cash Value Of A Universal Life Policy

What Is Guaranteed Universal Life Insurance and How Does ...

Since a universal life policy offers flexibility in making premiums payments, therefore there are no guarantees to the amount of cash value accessible in the future. The cash value may fluctuate over time due to:

  • The timing and amount of insurance premiums
  • The rate of return earned on the selected investment option
  • The type of cost of insurance option and the death benefit selected
  • Any cash withdrawals or policy loans made from the policy
  • Any changes made to the coverage

You May Like: Will My Dental Insurance Cover Veneers

What Is Included In A Universal Life Insurance Policy

Universal life insurance guarantees a death benefit when you die as long as you stay current on premiums.

Universal life policies also have cash value, similar to other permanent life insurance policies. You can take money from a policys cash value while youre still alive. You need to pay back the money taken out of cash value or your beneficiaries will receive a smaller death benefit when you die.

Universal life insurance also lets policy owners choose the premiums each year. You may want larger premiums to put more money into their policies or decrease premiums if needed.

You can also increase or decrease the death benefit. However, if you want to increase the policys death benefit, you may need a new medical exam before the life insurance company allows it.

Is Guaranteed Universal Life Insurance Worth It

If youre more conservative with risk and building cash value within a life insurance policy isnt a priority to you, guaranteed universal life insurance is a good option. With other permanent policies, the cash value can accumulate to amounts that allow you to use these funds by taking out loans against the policy.13 fév. 2019

Recommended Reading: Will My Dental Insurance Cover Veneers

Understanding Universal Life Insurance Policies

18 Aug 2021 | 4 min. read

Find out how universal life insurance policies work and what you should be mindful of if you are considering whether to buy one.

Key takeaways

  • Universal life insurance policies are traditionally marketed as a tool for leaving a substantial inheritance to your loved ones. You should prioritise your basic protection needs ahead of leaving behind an inheritance.
  • You should assess if you can afford to pay a very high one-time premium upfront .
  • You may be offered a loan to pay the premium. Think very carefully before taking it up as you face a higher risk of losing your life insurance coverage prematurely if you cannot repay the loan.
  • You may need to pay additional premiums after the upfront payment to prevent your policy from lapsing.
  • There are also other types of universal life insurance policies which focus on wealth accumulation, thus offering lower protection benefits with a lower premium outlay.

More articles

Popular Articles