Universal Life Insurance is similar in many ways to whole life insurance, but is different in the sense that the policy’s cash value earns interest. In this respect universal life insurance is more than an insurance policy, it is also an investment.
You have a divided premium on universal life insurance. A portion of your premium payment goes toward covering the cost of your insurance, the remainder goes toward the policy’s cash value. You earn interest on the cash value portion of your universal life insurance. Some policies will offer you a minimum interest payment that is guaranteed.
Universal life insurance is a great choice if you want to protect your family but also have options. Universal life offers you guaranteed death benefits (provided that the cost of the premiums is not more than the cash value) as well as a solid investment which you can either borrow or withdraw against.
There are optional term riders that come with most universal life policies. Therefore you can increase your benefits temporarily without having to buy a new policy. Usually you can also add additional beneficiaries, such as children or a spouse, to your policy. The versatility with universal life insurance makes is a great choice for growing families.
You also have the ability of deferring capital gains taxes with universal life insurance. The capital gains can remain with the cash value on the insurance policy until your death. At that point in time they are subject to estate taxes. The cash value can be used before death without having to terminate the policy or paying taxes on it. You can simply borrow against the cash value.
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Many times a policy for universal life insurance will let you choose the amount of your premiums that goes into the tax-sheltered amount. Your investments can be guaranteed and safe, or you may want to choose a mutual fund or other type of investment.
There are three different kinds of universal life premiums. With a single premium, one amount pays for the complete policy. As long as your insurance costs don’t deplete the investment or cash value, the policy will remain valid. With a fixed premium, you have monthly premium payments for a certain, fixed amount of time. Normally, the policy will be in effective well after you have stopped paying insurance premiums. With a flexible premium, you get to decide how much and when to make payments. When you don’t make a premium payment, the amount of the payment gets deducted from your policy’s cash value. This form of policy, allows you the opportunity to make a single large payment at the time that you first obtain your policy, and then make other payments sporadically depending on what your financial situation is.
Most policies come with an option called Waiver of Premium. If you become disabled, you can still continue your coverage without having to pay premium payments.
A big part of starting your family is planning ahead for the future. There is more to it than just saving a few dollars in a rainy day fund. What universal life insurance provides you with is the opportunity to protect your family in the event of your death as well as save and invest. It can help you now and also help your family in the future. Contact your life insurance agent and discuss whether or not universal life insurance is the right thing for you and your family.
