Universal Life Insurance

Universal Life Insurance

Universal Life Insurance is a form of permanent life insurance coverage. This type of life insurance provides a death benefit and a cash value component where the funds are allowed to grow tax-deferred.

Universal Life Insurance is more flexible than whole life coverage. This is because the policyholder is allowed, within certain guidelines, to choose how much of his or her premium dollars will go toward the policy’s death benefit and how much will go toward the policy’s cash value.

Because universal life is a permanent life insurance policy, the policyholder will have access to their cash value account. Just as with a whole life plan, the cash can be borrowed or withdrawn for any reason, including paying off debt, supplementing retirement income, or even going on a vacation.

Advantages to Consider

• Flexible premiums
• A level or increasing death benefit
• Tax-deferred investment opportunity to the insured
• Ability to overfund the policy in addition to the monthly premium
• Potential cash value growth over time
• Cash value may be borrowed from or used to subsidize future premium costs

Disadvantages to Consider

• Cash value may be affected by market gains and losses
• Management fees may be charged by the insurance carrier
• Borrowing funds can devalue the benefit paid to beneficiaries at the time of death
• Policy structure can be complicated and should be reviewed carefully

Universal life insurance is a great option for those seeking life insurance that can be borrowed from and that has cash value build up, but it is best to learn how all the benefits work before deciding to purchase.

Indexed Universal Life Insurance

Indexed Universal Life Insurance plans are similar to traditional universal life insurance, but have some different features. Indexed universal plans, like all universal life insurance, carry a death benefit and a separate cash value that increases over time, but differ in how the non-insurance part of the plan is structured.

The premiums paid go toward the life insurance cost, fees, and the rest toward the cash value of the policy. The main difference is that the cash value pays a return based on increases in an equity index, like the S&P 500, versus a fixed rate as with standard universal life insurance plans.

Indexed Universal Life Advantages

• Tax-deferred growth of the cash value
• No contribution limit on policy contributions, which may be attractive for tax purposes
• Exposure to stock market indexes may offer better long-term growth versus other universal life plans
• Premiums can be lower than traditional universal life insurance plans
• Lower risk than direct stock investing because cash value will not decrease if the target index falls
• May offer better returns than other universal plans in a strong stock market

Indexed Universal Life Disadvantages

• Returns will usually trail the index because the insurer keeps a portion of the gains
• The policy may pay lower returns than other universal life plans in a poor stock market environment
• Total costs may net less long-term benefit compared with other insurance and separate investing alternatives
• The policy can be complicated and should be explained by an insurance professional

Professional Guidance Matters

Universal life insurance and indexed universal life insurance policies can be very complicated insurance policies to understand and are best purchased through an insurance professional.

Understanding all the moving parts can be a very detailed process, and it is advised to seek professional assistance to understand how to best utilize the benefits of the insurance policy you are purchasing.

We at Healthcare American are experts in these types of policies and would be happy to speak with you and provide our expertise.

Please give us a call.