What Is Universal Life Insurance? Universal life insurance is a form of money-value life insurance, most commonly sold in the United States. Under the agreement, the insured’s excess over the current value of coverage is credited to the insurance’s cash value, which accrues to a growing amount on a tax-deferred basis. In many ways, this type of life assurance resembles stocks, with premiums varying according to market trends and perceived risk. The insured pays a fixed amount every month, with that amount growing as time goes by until the death benefit is reached.
Many people choose universal life insurance policies because of their flexible payment schemes. The policyholder can set premiums and take out a line of credit, making it easy to adjust the amount of coverage needed. They can also elect to include their dependents on the policy. However, there are some disadvantages to a whole life policy. For one thing, the dependents of a policyholder who dies must also pay the policyholder’s expenses upon the policyholder’s death – unless they are paid by other means.
Unlike whole life policies, universal policies allow for variable premiums. To determine what the premium will be, some basic information must be reported: gender, age, marital status, years of work, and insurance coverage history. Policyholders can also elect to pay annually or monthly. There are several types of plans: catastrophic, guaranteed renewable, limited pay, return of premium, income premium, and lifetime benefit plans. Although premiums vary by plan type, the most common type is the income premium.
There are a few things to consider before signing up for a policy. First, it’s important to understand that universal policies are not tax-deductible. Therefore, tax savings are not an option. Policyholders should expect to pay taxes on the death benefit, however. Some universal policies do offer tax-deduction options, but these options are usually only available in the case of a terminal illness or terminal death. In addition, it’s important to be aware that term and renewable premiums may be taxed, depending on the state.
Another thing to think about when considering the whole life option and what select star term insurance plan benefits is whether or not the plan offers options such as flexibility. As discussed above, whole life insurance policies allow policyholders to adjust premium amounts at any time. While flexible policies may be appealing in the short term, it’s a good idea to think about the long-term consequences. For example, flexing your premium amounts too much without providing any additional benefits can cost more in the long run.
One additional thing to consider is the cash value. Cash value is the amount of money remaining on a policy once the death benefit has been paid out. The most common type of universal life plan feature is the ability to build cash value. Once the death benefit has been paid, however, the policyholder will only receive the death benefit. Most universal policies do have an option to add a benefit to a policy that allows you to choose between two different payment plans.
Finally, consider the flexibility of your policy. Flexibility refers to the ability of the policyholder to change premiums and benefit packages at any time. The most common reason for flexibility is when an experienced policyholder makes a substantial investment and receives a high return. However, some universal life insurance plans do have restrictions when it comes to investment types. Before buying, it’s important to check the fine print.
Overall, there are several factors to consider when comparing the features of various term insurance policies. Some of these factors include premiums, nominee details, and the ability to make changes to your policy at any time. Premiums are the most obvious factor, but remember that the longer you can go without making a new premium payment, the less money you will save. Also, keep in mind that lower premiums may translate into more costly monthly premiums in the end. Lastly, remember to examine the ability of a policy to grow cash value or provide flexibility.