Wednesday, June 15, 2022

What Is Universal Life Insurance

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A Special Note For The Policy Illustration:

How Does Universal Life Insurance Work?

A policy illustration is designed based on assumptions. If you are contributing additional deposits to be invested then you need to pay attention to the illustrated rate of return especially if you have chosen a variable cost of insurance . Why? The rate of return will determine the growth of your deposits necessary to pay for the rising cost of insurance. If you do not achieve the illustrated growth then you may end up having to pay additional sums of money in later years in order to meet the minimum requirements and not have your policy lapse.

All illustrations usually use an assumed rate and show an alternate scenario with a lower rate. The alternate must meet your minimum cost and it needs to be illustrated at a rate of return that is reasonable.

If you choose a level cost of insurance then you already know what your minimum cost is throughout your policy. If you contribute additional deposits for investment then your illustrated rate and alternate rate will only demonstrate how much money you will accumulate with time.

Reality check is when you receive your statements. Actual performance results can differ from the assumptions made. You may choose to increase, decrease, or stop additional deposits. Any changes will affect the financial performance of your plan, therefore, it is imperative that you continually manage the plan.

Who should buy this plan??

Anyone that needs life insurance and is looking to purchase a permanent plan.

Is Universal Life Insurance Worth It

A universal life insurance policy can be very expensive, and for most people, purchasing a term life insurance policy and investing the difference in an IRA, 401, or traditional investments will provide greater returns for a lower cost. But for individuals in a high tax bracket, a universal life insurance policy can offer a tax-deferred asset accumulation option that also protects the financial security of their loved ones.

Speaking to a financial advisor is the best way to determine whether or not a universal life insurance policy fits into your financial plan.

Similar Life Insurance Types

A similar type of policy that was developed from universal life insurance is the variable universal life insurance policy . VUL lets the cash value be directed to a number of that operate like mutual funds and can be invested in stock or bond investments with greater risk and potential growth. Additionally, there is the recent addition of indexed universal life contracts similar to equity-indexed annuities which credit interest linked to the positive movement of an index, such as the S& P 500, Russell 2000, and the Dow Jones. Unlike VUL, the cash value of an Index UL policy generally has principal protection, less the costs of insurance and policy administrative fees. Index UL participation in the index may have a cap, margin, or other participation modifier, as well as a minimum guaranteed interest rate.

Universal life is similar in some ways to, and was developed from, whole life insurance, although the actual cost of insurance inside the UL policy is based on annually renewable term life insurance. The advantage of the universal life policy is its premium flexibility and adjustable death benefits. The death benefit can be increased , or decreased at the policy owner’s request.

With the requirement for all new policies to use the latest mortality table beginning January 1, 2004, many GUL policies have been repriced, and the general trend is toward slight premium increases compared to the policies from 2008.

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Who Offers The Best Universal Life Insurance In Canada

Not all life insurance companies offer universal life insurance. Itâs a complex product, so itâs generally only sold by providers with a highly developed life insurance division. The most reliable providers of universal life insurance are Canadaâs big three life insurance companies: Sun Life, Great-West Life, and Manulife. Most bank-owned life insurance providers donât offer universal life insurance, with the exception of RBC life insurance.

The best way to get started with universal life insurance is to compare some life quotes and perhaps speak with a licensed agent to help you decide. We can help by getting you started in just a few minutes.

Universal Or Adjustable Life

Term Life vs. Universal Life Insurance

This type of policy offers you more flexibility than whole life insurance. You may be able to increase the death benefit, if you pass a medical examination. The savings vehicle generally earns a money market rate of interest. After money has accumulated in your account, you will also have the option of altering your premium payments providing there is enough money in your account to cover the costs. This can be a useful feature if your economic situation has suddenly changed. However, you would need to keep in mind that if you stop or reduce your premiums and the saving accumulation gets used up, the policy might lapse and your life insurance coverage will end. You should check with your agent before deciding not to make premium payments for extended periods because you might not have enough cash value to pay the monthly charges to prevent a policy lapse.

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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:

Who Should Buy Universal Life Insurance

Universal life insurance products are usually for high net worth individuals with very specific tax or investment needs. If you have maxed out all other investment components, for example, youâd benefit from adding a universal life insurance policy to your portfolio. Or, if you’re a very high earner, you may consider adding a universal life insurance policy to your financial toolkit because it can help you build a nest egg without entering an even higher tax bracket.

âTypically the people that are doing this strategy, they’ve kind of exhausted all other avenues already,â said Lee.

âYou need to go through â what I call â the savings hierarchy. You need to look at your…most tax-efficient investment and saving tools… first. Next, you have your tax-deferred vehicles. Lastly, you need to look at your taxable accounts â your life insurance strategies ,â explained Lee. âLife insurance is the third option for me.â

Additionally, individuals with permanent life insurance needs may opt for universal life insurance. For example, if your spouse relies on your pension or your children will be liable for estate taxes when you die.

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How Much Universal Life Insurance Do You Need

The amount of life insurance you purchase should be based on your financial plan.

Some insurance agents recommend purchasing a policy valued at 10 to 15 times your annual salary. However, that should really depend on the use you want to give the policy and your financial obligations.

If you’re purchasing insurance as income replacement for your loved ones, don’t forget to factor in the following:

  • The number of years your beneficiaries will need to replace your income
  • Outstanding debts such as your remaining mortgage balance
  • Future expenses like college tuition payments for dependent children

Universal Life Insurance Cash Value

Is Universal Life Insurance A Good Idea?

To keep a universal life insurance policy, you must pay premiums that cover the cost of the insurance. But with indexed or variable universal life insurance, policyholders can also pay more than the minimum cost of insurance. The excess gets added to the cash value of the policy and can earn interest.

Policyholders can use this cash value in a few different ways. One option is to cover the cost of future premiums. This allows the policyholder to skip a payment or two or possibly stop making payments altogether if their cash value is substantial.

They can also withdraw the cash value to use for their own purposes. But they’ll pay taxes if they do this and it will reduce the death benefit available to their heirs. Another option is borrowing against the life insurance policy’s cash value. The policyholder won’t face taxes if they do this, but they must pay back what they’ve borrowed with interest. If they fail to pay back the loan, the insurer subtracts the outstanding balance from the death benefit upon the policyholder’s death.

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What Can Cause A Claim Denial

While it’s rare for a life insurance company to deny a death benefit claim, it can still happen.

Here are some common reasons for life insurance claim denials:

  • Providing incorrect or incomplete information during the application
  • A death by suicide during the contestability period
  • Failure to pay premiums
  • Using alcohol or drugs before death

Universal Life Insurance Vs Whole Life

Whole life insurance is another type of permanent life insurance. It’s more expensive than universal life insurance coverage, but it provides more guarantees. These policies provide guaranteed premiums that won’t go up. They also provide guaranteed death benefits and a minimum guaranteed rate of return for the cash value component of the policy. Some whole life insurance policies also pay dividends, though these aren’t guaranteed.

These policies could be a good fit for someone who wants lifelong coverage and is willing to pay extra for these added guarantees.

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What Is The Maturity Date In Life Insurance

Universal life insurance policies have a maturity date which occurs when you turn a certain age . When a policy reaches its maturity date, you generally receive payment and coverage ends. Depending on the policy, the payment might be the death benefit or a specified dollar amount, but its usually equal to the policys cash value.

This can be a problem if you live past the maturity date and have used most of the cash value to pay premiums, as you can end up with no coverage and little money returned to you. Therefore, you should choose a policy with a maturity date that youre comfortable with given your intended use of the coverage. For example, if you want to prevent your family from having to pay inheritance taxes when you pass away, no matter when that is, youll want a very high age for the maturity date.

Advantages Of Universal Life Insurance

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

When you purchase UL through LGA, youll get affordable lifetime protection for your family with flexibility to get you through lifes changes. Flexibility comes with options including a flexible premium, meaning you can choose to pay level premiums for your lifetime guaranteed coverage, or customize your payments with a short pay guarantee.

The short pay guarantee allows you to craft a customized premium payment for a specific number of years. For example, say you have an inheritance and want to use that to pay enough premiums to guarantee lifetime coverage, or you want a plan where you can complete the payments of your lifetime premiums before you retire. A short pay allows you to do this by consolidating the premium payments required for a lifetime guarantee over a limited period of time. Your premium payments would stop after the payment period has ended.

Some of the biggest advantages of purchasing a UL from LGA:

The policy doesn’t expire. You’re covered for life.

UL can be more affordable than whole life insurance.

Premiums are flexible. Pay in a way that works for you.

Your policy is backed by a trustworthy insurance provider.

  • Includes provisions for guaranteed cash values
  • Includes provisions for guaranteed cash values
  • Flexibility so you can choose a lower premium
  • Guaranteed cash value
  • Short pay guarantee so you can consolidate payments over a limited period
  • Ideal for adults with grown-up children and business owners
  • Fixed premiums

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How To Use Your Policys Cash Value

As a policyholder, you can use the cash value in a variety of ways:

  • Cover premium payments: fully or partially cover your premium payments with the investment accounts proceeds.
  • Make withdrawals: withdraw money from the policys cash value. Different tax treatments may apply depending on whether you withdraw from the basis or the excess cash .
  • Borrow against cash value: take tax-free policy loans from the cash value account, but if you dont repay the loan with interest, the insurer will deduct the outstanding loan balance from the policys death benefit. If the death benefit is not enough to cover the loan, the policy lapses.
  • Cash-out: cancel the coverage later in life and cash out the value of the policy. Typically youd have to pay surrender charges and then income taxes on the policys surrender value.
  • Donate: donate the entire policy to a charity or foundation.

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.

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Building Wealth And Personal Protection With Universal Life Insurance

Whether youre young, old, or in between, few things are as important as owning a quality life insurance policy and helping to ensure your financial security. With a Universal life insurance policy from AAA Life, youll be able to accumulate cash value and help ensure your familys security after youre gone. Our Lifetime insurance and Accumulator insurance policies start at $100,000 in coverage, offer the ability to choose between flexible or level payments, feature built-in additional benefits for covered accidental death, and provide highly customizable insurance riders. Youll find that a Universal life insurance policy from AAA Life is one of the best ways to add a little long-term peace of mind.

Can I Cash In My Universal Life Insurance Policy

What is Universal Life Insurance in Canada

Yes, you can access the cash value from your universal life insurance through withdrawals, loans, or surrendering the policy.

Generally, you are able to withdraw a limited amount from your universal life insurance policy, depending on your policy type and provider. In addition, many policies offer the option of taking out a loan and using your built-up cash value as collateral. On the other hand, surrendering your policy means canceling your life insurance completely, allowing you to use the money as you see fit.

Be sure to consider your options carefully, as there can be disadvantages to accessing your cash value. For example, withdrawals can reduce your death benefit and they arenât always guaranteed to be tax-free. Surrendering a policy early could also lead to high fees while loans might have high-interest rates. Ask yourself why you purchased universal life insurance to begin with and if you still need the protection.

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Shop Around For Quotes

If youve decided that universal life insurance is right for you, you can start shopping around for quotes. Many companies offer online quotes in just a few minutes, while others require you to speak with an agent to get an estimate.

The initial quote you get isnt a guarantee of your actual premium, but it can give you an idea of which carrier is most affordable. Youll still have to go through the application process and, in many cases, a medical exam to determine your actual costs.

What Is Right For Me

Life insurance policies, no matter the type, have a common goal: helping people and families when financial needs arise after a tragic loss. When someone dies, especially when theyve been providing financial support for others around them, a death can have serious financial implications.

Funds provided to beneficiaries from the life insurance company can provide an added layer of financial security. This can be the case, for example, when there are minor children, or when there is a mortgage and other debts that still need to be paid off.

Beneficiaries can use payouts to cover major expensessuch as housing, medical bills, educational costs, child care, and/or other financial needs. In some instances, beneficiaries may use payouts to pay unsettled estate taxes or bills.

Life insuranceno matter the policy typehas a common goal.

When deciding what type of policy to purchase, life insurance shoppers might want to calculate how much money is needed to adequately protect their designated beneficiaries.

The amount needed will vary according to individual situations, debts and outstanding financial responsibilities.

Buyers considering a universal life insurance policy as an investment strategy may also want to ask themselves this question: Does the cost of this type of plan justify the benefits?

Long story short, selecting the kind of life insurance suitable for unique needs is a matter of how a person wants to invest their money and the level of control they want to exert.

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