What is Universal Life Insurance? Universal Life insurance policies are popular life insurance products due to the flexibility, including flexible premiums, they offer the policyholder when compared to other life insurance products. People who choose universal life insurance (over term life insurance or whole life insurance) are typically looking for permanent coverage but also looking to maximize their life insurance coverage over the long-term and are less concerned with building cash value.
A universal life insurance policy is different than the other most common type of permanent life insurance – whole life insurance policy (for additional information regarding the different types of life insurance policies, refer to this article). Universal life insurance is known for its flexibility—the policy allows you to adjust your premium payments (within limits) and death benefit amount depending on your needs. If, after some time, you decide to lower or stop paying your scheduled premiums, you can use the cash value to cover the premium payments. In order to do so, you need to have sufficient cash value in the policy.
With most kinds of life insurance, you can purchase a policy, put it away, and simply pay your premiums as they come due. Assuming you make those payments, the policy will provide entire life coverage for the insurance policy beneficiaries. The difference with universal life is that you can make changes to your premium payments after taking out the policy.
A universal life policy, and other similar types of policies like variable universal life insurance (also known as VUL), break down the different components of the policy cost – namely, the cost of insurance (also known as the term charge), the expense charges, and the investment or savings account. The cost of insurance is set by the insurance company upfront, at the time the policy is issued, and will generally set the maximum level of life insurance premiums that could be charged each year.
The cost of insurance is determined by the insurance company underwriting, a combination of your age and health. While the expense charges are impacted by the amount of life insurance paid, since the expense charges typically include a “load” (% of premium amount). The investment component is what generates the policy’s cash value growth. When reviewing your policy with your financial advisor, you should review these key items, including the level of guaranteed death benefit to make sure you understand each of these components of your policy and all of the insurance options in the policy. While you may focus on the guaranteed death benefit and premiums, you can also calculate the minimum premiums to keep the policy in-force.
With universal life, when you make a premium payment that is greater than the cost of insurance and the expense charges, that extra amount gets added to the cash value (also known as account value) in your life policy. This cash value grows at an investment rate, depending on the type of policy you have. Typically, the cash value is invested in the life insurance company’s general investment account and earns a minimum rate of return that is guaranteed. The rate of return can be higher than the guaranteed rate in any given year.
The cash value in a universal life policy grows tax-free and can be used to offset future premium payments (more on that point below). Additional information on how you can take advantage of the cash value in your universal life policy is described more fully below.
The expense charges on your universal life policy typically have a fixed and a variable component. The fixed component is typically in the form of a monthly “policy fee” that is deducted every month from your policy cash value. The exact amount of the policy fee is listed in the policy document. The variable part of the expense charge is typically called a “policy load” and is also listed in the policy document. The policy load is usually a fixed percentage of the amount of premium paid.
What this means is that every time you make a premium payment, some percent goes directly to the insurance company rather than into the cash value. The policy load may change over the years of your insurance policy (also written directly in the policy document). So, your fees will vary depending on the amount of premium you pay.
As previously discussed, one of the great attributes of universal life insurance is that the premium payments are flexible. Make sure you understand how making different premium payments impacts your policy and coverage amount. There are a couple of things to note that you need to be aware of with respect to the flexibility of the premiums:
A universal policy will lapse and terminate if you stop paying the premiums and the cash value becomes depleted. However, there are options if you no longer want or can afford your Universal Life insurance policy. You can surrender the policy for the remaining surrender value (the cash value component of the policy after a surrender charge is applied) back to the insurance company, lapse the policy if there is not enough cash value, or you can sell your policy in a life settlement transaction.
Policyholders put in place a financial plan that includes a life insurance policy to protect their loved ones. But, changes in financial plans can happen over the life of the policy, and universal life provides the flexible premiums to allow a policyholder to adjust the policy and make the life insurance work for the current situation. With universal life insurance policy, as opposed to term life insurance or whole life insurance, you can lower premiums and find adjustments to prevent a policy lapse. This is what differentiates a universal life insurance policy from other permanent life insurance policies and term life insurance policies.
Are you experiencing higher premiums or a significant increase of the premium needed to keep your Universal Life Insurance policy in force? Do your beneficiaries no longer need the death benefits of your life insurance policy? Did you know that you can sell your life insurance policy?
You can sell your life insurance policy in a transaction called a life settlement. Life settlements are safe, secure transactions that are regulated in most states (43 of 50 states). You can refer to your state’s insurance department to see the companies that are licensed or registered to purchase life insurance policies in your state.
If you cannot afford the required premium increase or higher premiums, we can help you evaluate your life insurance policy to see if you can sell it for cash! You can get an instant estimate of the value of your life insurance policy by visiting the Q Life Settlements life settlement calculator. There is no medical exam required when you sell your policy.
When you sell your life insurance policy, you can make those adjustments to your retirement plan and explore annuities, long-term care, or other financial products that better meet your current needs. You will no longer need to make premium payments on your life insurance policy, and you can use the money you receive from the sale as you see fit, whether that is to help your loved ones or help support your retirement plan.
You can call Q Life Settlements at 866-679-9410 or email us email@example.com to discuss your situation and help understand your options with your universal insurance policy. Want to make an appointment to talk to one of our specialists? Click here to set up an appointment or leave us your information. Our team is available and ready to explain to you all that you would want to know about life settlements.
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