UNIVERSAL LIFE INSURANCE
Universal Life insurance is a permanent policy and was introduced in the late 1970’s as an alternative to Term and Whole Life insurance. It is now one of the most popular forms of life insurance in the market.
These policies offer flexible premium schedules (you can even miss one) and flexible death benefits. They can also accumulate cash value based on a guaranteed and non-guaranteed crediting rate; this rate is determined by the insurance carrier’s investment portfolio. Universal Life differs from Whole Life by being designed for premium payment and death benefit flexibility while having a transparent charge structure which breaks out the charges, loads, fees, etc., in the insurance contract.
Going a little deeper into Universal Life’s flexibility, the policies generally allow policyholders to:
- Set the initial premium (within product limits), such as a lump sum, for only a specific period of time or just a modest premium for life.
- Increase or decrease the premium as circumstances change.
- Make lump sum payments.
- Adjust the death benefit.
When designed properly a Universal Life policy has the potential for non-guaranteed, tax-advantaged cash value build-up. The cash value growth in Universal Life is determined by the premiums paid, the interest rate credited and the policy charges that are deducted. The cash values can be accessed via policy loans or withdrawals, or used for other purposes as well, such as exchanging the policy for another policy via a tax-free 1035 exchange.
Today’s Universal Life products can be lumped into the following broad categories:
- No-Lapse Guarantee Universal Life (GUL)
- Current Assumption Universal Life (CAUL)
- Indexed Universal Life (IUL)
- Variable Universal Life (VUL)
In general, Universal Life insurance is well-suited for:
Universal Life is well-suited for those wanting flexible premiums and the potential for modest-to-strong cash value accumulation, along with longer-term or life expectancy death benefit guarantees.
Guaranteed Universal Life is well-suited for those wanting permanent life insurance with built-in guarantees, but who want those guarantees at a lower cost, in general, than Whole Life. Those who are not interested in accumulating cash value and plan on this being their final permanent policy may also be good candidates.