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Universal life insurance is a combination of term and whole life insurance that provides low cost family security with the ability to accumulate cash values that grow tax deferred. Universal life has many advantages including flexible premiums and death benefits, tax advantages of permanent life insurance, and low cost lifetime guaranteed insurance.
A well-designed universal life plan can do the following:
Flexible Premiums and Death Benefits
The principal advantage of universal life insurance is its flexibility. The flexible policy options of universal life include adjustable policy premiums and the ability to increase or decrease coverage amounts.
The unique design of universal life insurance allows policyholders to pay premiums on a flexible, non-scheduled basis. Subject to policy minimums, the policy owner can choose the frequency of premium payments as well as the amount of the premium. In other words, as long as there is sufficient cash value to cover insurance costs and policy fees, the policy owner has the option of paying no premium. Or, if cash value growth is an objective, maximum policy premium payments can be made subject to insurance company and IRS guidelines. The capability to adjust premium payments based on changing objectives gives the policyholder the flexibility to buy the amount of insurance needed today while at the same time providing an option for future premium increases.
Universal life insurance death benefits are also flexible. Insurance coverage amounts may be increased or decreased subject to certain policy limitations. If the face amount of the policy is increased, the company will require proof of good health and there must be enough cash value in the policy to cover the additional insurance costs associated with the increase. If the insurance amount is decreased, a surrender charge may apply and minimum amount of insurance is required to maintain IRS guidelines for life insurance. The ability to adjust insurance face amounts gives a policyholder options that are not available in most other life insurance policies.
Policy cash values may be accessed tax free via withdrawals up to the basis of the policy and then with policy loans. The policy basis is the total amount of policy premiums paid to date. Any withdrawal or partial surrender up to the basis is considered return of premium and no taxes are payable. Any withdrawals beyond the policy basis would be subject to income taxation. Once withdrawals to basis have been made, a tax free policy loan can be used to access cash values. Policy loans are charged a market interest rate and accrue interest over time. As long as the policy retains enough cash value to pay insurance costs and policy expenses, taxes can be avoided using the withdrawal to basis then policy loan approach. At the insured’s death, any loan balance will be deducted from the policy’s death benefit.
Low Cost Lifetime Guaranteed Insurance
Life insurance death benefit proceeds are payable to the policy’s named beneficiary income tax free. This important tax advantage may change in the future, but currently is a significant benefit of universal life insurance.
Lifetime guaranteed universal life insurance offers a fixed premium and death benefit for the life of the insured. A lifetime guaranteed UL policy can be thought of as a “hybrid policy” offering a combination of level term insurance and traditional whole life insurance. Premiums for lifetime guaranteed universal life are cost effective like level term premiums but the policy also offers the long term death benefit guarantees associated with whole life insurance. These guaranteed policies have a major competitive advantage in situations where permanent coverage is required but cash value growth is not important. Lifetime guaranteed universal life policies have effectively bridged the gap between term life and whole life insurance.
All Your Needs Insurance will listen to your concerns, assess your needs, explain options, and help you get the right coverage for your financial insurance needs. Keep in mind that the insurance marketplace is dynamic. Because circumstances, coverage's available, and regulations change from time to time, we suggest that you ask our All Your Needs Insurance financial insurance staff to evaluate your coverage periodically — a service that demonstrates our commitment to provide valuable insurance guidance.
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