Universal Life Insurance Policy
Along with providing a death benefit, a universal life insurance policy also incorporates a savings vehicle. In short, it is like combining a term life insurance policy with a tax-deferred interest accumulating savings account. One benefit of purchasing a universal life insurance policy is that besides accumulating a tax-deferred savings, one may not have to pay premiums during the entire policy. If money to pay the death benefit and other related costs accumulates in the tax-deferred savings portion of the policy, then premiums may eventually not be required to keep the policy in force. It is more advantageous to pay the smallest amount of premium of the life of the policy. This will produce the highest rate of return on the premium stream at death. Look at it this way, if you pump lots of money into the universal life policy in the beginning years your cash value will escalate rather quickly. So, if you have $100,000 of cash value and your death benefit is $500,000 you get the $500,000 when you die so the carriers at risk factor is really $400,000. The point is, the industry would prefer all policyholders to pay as much upfront or higher premiums for this reason. There are policies out there with $200,000 in cash value with $400,000 death benefits. Better off taking the $200,000 and buying a $200,000 policy.
So who could benefit from a universal life insurance policy? Since a universal life policy is an investment vehicle along with a life insurance policy, only people who feel they need life insurance into their 70's would benefit from a universal life policy.
This would give the savings portion enough time to possibly accumulate into an investment. Most persons will not need life insurance that late in life, and in the case life insurance is not needed that late, it may be more beneficial to purchase a term life insurance policy and plan a proper retirement investment savings account such as a 401K, 403b, Roth Ira, etc.
If a universal policy looks right for you there are a few important points to remember. First, make sure you plan to have the policy long term since you will need to have the policy in force at least 15 years to be eligible for any return of the policy. More importantly, understand that most permanent policies are projected and not guaranteed. So you must understand the risk factors as many policies implode when not managed properly. Secondly, make sure you have a knowledgeable insurance agent to review your options such as term and permanent insurance.
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