|Universal life insurance was developed in the late
1970s to overcome some of the disadvantages of term and whole life
with other types of life insurance, you pay regular premiums to your
insurance company. In exchange for these premiums, the insurance company
will pay a specific benefit to your heirs upon your death.
like whole life insurance, a portion of each premium goes to the
insurance company to pay for the pure cost of insurance. The remainder is
invested in the companys general investment portfolio.
universal life policies pay at least a minimum guaranteed rate of
return. Any returns above the guaranteed minimum will vary with the
performance of the insurance companys portfolio.
wont be able to exercise any control over where these funds are
invested. The insurance companys professional portfolio managers will manage
there is an area where universal life policies offer a great deal of
life policies are very flexible. As the policy owner, you can vary
the frequency and amount of the premium payments. You can also increase or
decrease the amount of the insurance to suit changes in your
your financial situation improves significantly, you can increase your
premiums and build up the cash value more rapidly. If you find yourself
under a financial strain, you may even be able to deduct premium payments
from the cash value of the policy.
some universal life policies, you may even withdraw some of the cash
value in your policy directly. Of course, you can also take a policy loan,
just as you could with a whole life insurance policy. You have the
flexibility to decide which will best meet your needs.
the premium or withdrawing part of the cash value within your
policy will affect the rate at which your cash value accumulates. It may
also reduce the size of the death benefit.
unlike other tax-deferred investments, any cash you withdraw from your
universal life policy is considered basis-first. You wont incur a tax
liability until your withdrawals exceed the premiums youve paid into the
policy. Any amounts that exceed the premiums will be taxed as regular
many universal life policies, it is possible to structure your policy
so that the invested cash value will eventually cover your premiums. Youll
then have full life insurance coverage without having to pay any additional
premiums as long as the cash value account balance is sufficient to pay for
the pure cost of insurance and any other expenses and charges.
can be surrender charges if the policy is surrendered prematurely.
investors who want the flexibility to change their premium or death
benefit, a universal life insurance policy may be ideal. The cost and
availability of the type of life insurance that is appropriate for you
depends on factors such as age, health, and the type and amount of insurance
you need. If you are considering purchasing life insurance, consult a
professional to explore your options.
© 2003 Emerald