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.