What is universal life insurance?

Universal life insurance is similar to participating whole life insurance in that both are guaranteed for life. This type of product also provides a savings feature, just like setting up a savings account at a bank, except that the savings feature in the policy has a special name, called the "Cash Value" part. After paying the insurance cost, the remaining portion is automatically converted to cash value and the insurance company is able to enter the investment market. Universal insurance income is generally tied to market interest rates, specific dividend terms, and investment returns. The terms are determined by the policies of the different insurance companies.

A simple comparison is that universal life is equivalent to a life with a cash value function Term life insurance, the premium is usually between term life and Participating whole life between, and the premium payment is more flexible than dividend-type whole life insurance.

How universal insurance works

The premium paid is divided in two, one part is used to pay the cost of insurance to provide death compensation protection and the other part will be invested in a cash value account. The logic of the operation of universal insurance is that, As time goes by, the return on investment continues to grow. Due to compound interest, the income generated will probably be enough to cover the cost of the insurance for the rest of his life. In this case, the client can choose how many years to pay for the policy, that is, after the amount of money invested, you'll get lifetime protection without paying premiums.

Another difference from participating in whole life insurance is that the universal insurance policy is more flexible. The policyholder can pay at any time, the cost can be higher or lower, but the minimum payment level must be reached to ensure that the universal insurance policy cannot be maintained due to cost reasons.

The history of universal life insurance

In 1971, GR Disney proposed the concept of a "universal insurance plan" in his presidential campaign speech. Later, under the influence of the market, insurance companies launched the first universal insurance products, which are a combination of life insurance term and deferred annuity products. But when the death benefit involves an annuity contract, it will cause federal tax problems for the beneficiaries. In 1979, California Life Insurance launched a product called Total Life, which solved these problems with an insurance policy contract and formed the current universal insurance.

In 1983, large companies followed suit one after another, entered the universal insurance market, and developed a wide range of universal insurance products. In 1984, the government passed a series of bills that cleared some doubts about the future development of the universal insurance market, and since then, universal insurance has become a mature market.

Advantages and disadvantages of universal insurance

The advantages of universal insurance are flexible premiums and lifetime protection. The cash value can be used to pay premiums and borrow money. The death benefit is not static and can be adjusted by policyholders. In general, universal insurance gives policyholders more flexibility based on term life insurance and the participating whole life insurance.

The cash value investment portion of universal insurance has an administration fee cost, similar to the cost when you buy a mutual fund or ETF. Some universal insurance derivative products (such as VUL investment universal insurance) generally have administration fees higher than other universal life insurance policies.

In terms of premiums, for the same amount of insurance, while universal insurance premiums may be cheaper than participating life insurance products, it can still be approximately three times the premium for term life insurance.

Universal insurance derivatives

As a kind of whole life insurance product after dividend-type whole life insurance, universal insurance has gradually evolved into the following three categories of products with the advancement of the market and the revision of the tax system and laws and regulations. We will explain them in detail later:

      Guaranteed universal life insurance: Guaranteed universal life / NSR: a type of pure loss insurance, Referred to GUL Insurance. According to the agreed premium, after a certain year, even if the market is in the worst situation, the payment of the claim will be guaranteed for life. This is currently the cheapest whole life insurance. If we only use it to inherit wealth and leave a legacy to our children or beneficiaries, and don't care about the policy's cash value function, and are unwilling to take market risk, GUL Insurance can be said to be a suitable option.

      Universal investment insurance: Variable Universal Life / VUL

      Indexed Universal Life: Indexed Universal Life / IUL

Importance of having Indexed Universal Life Insurance

Although death is a subject that not many of us want to touch, it is important to see the importance of this. I want to ask you, does your family depend on you financially?

Do you have any plan for your family to survive and pay your debts and expenses in case of death or illness?

A Universal Indexed life insurance is an indemnity whose purpose is to cover expenses in case of illness or death. This is a safeguard that can get your family or dependent out of any economic hardship in case this unfortunately happens.

Here are 4 reasons why it is important to think about buying this insurance:

      Your family will be protected: Whether you have children, or your parents, siblings or partner, they will have the certainty that they will always have financial support in case you are missing.

      Coverage in case of accident or illness. Although the most common idea about life insurance is that you will not be able to use that money as long as you live, with Universal Indexed life insurance you have coverage in case you suffer an accident or illness that prevents you from working.

      Coverage in other expenses: Even if your family has money even if you were missing, the insurance helps to solve other unforeseen expenses that arise as a result of the death, such as funeral expenses or inheritance taxes.

      It is a necessity, not a luxury: This product has never been more accessible, there are policies for every budget, since you choose the amount you want to be insured for.


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