The debate continues over which type of life insurance is best: term life or whole life. For many people, the answer could lie somewhere between the two, using a type of insurance called universal life insurance. Like term life insurance, universal life insurance costs significantly less than traditional whole life and it offers more flexibility. Like whole life, universal life offers coverage until death no matter changes in the age or health of the insured.
Universal life insurance is permanent life insurance. The insurance stays in force for so long as premiums are paid off. This differs from term life insurance, which, as its name suggests, insures a life for a limited amount of time, or term. The term could be rather long up to thirty years, but when the end of the term comes, the insurance expires.
Certain intervals, but the price increases with every renewal. A 60-year-old person has a much greater probability of dying during the coverage term compared to a 30-year-old does, so the premiums for a 60-year-old are much higher. According to the most recent figures from Insure.com, a 20-year, $500,000 term policy which costs a guy $245 annually at age 30 could cost $2,525 a year at age 60 – an increase of over 1000%. If more weight, high blood pressure, or high cholesterol accompany the era increase as is frequently the case that the premiums will be much higher, if the individual doesn’t have a renewable term life coverage. A person that has developed serious illness, such as cancer, HIV, or even diabetes throughout the 30 years covered by the term life policy, might not be insurable once the term is finished.
Insurability with life insurance. Permanent means permanent. With the assurance of open-ended insurability, permanent life insurance such as whole life insurance and universal life insurance policy cost can cost up to ten times more that term life insurance. The price savings of term life insurance can be erased later in life, when the initial term has expired and the consumer reapplies for coverage.
Along with supplying permanent insurability, both whole life and universal life provide savings attributes that term life does not. In the first years of the policy, the true cost of insuring the policyholder’s life is less than the premium amount. The surplus amount minus administrative charges and the insurance company’s gain is invested by the insurer. These funds collect within a tax-deferred savings account. The surplus premiums and the profits from these investments create the policy’s “cash value.”
Whole life insurance provides “set it and forget it” simplicity. The premium amount, the face value of the policy (the amount the policy will pay upon departure of the insured) and the build-up of money value are adjusted–and guaranteed–at the time the coverage starts. Easy and secure, whole life doesn’t offer much flexibility.
Universal life insurance combines the strengths of entire life insurance with increased flexibility so the policyholder may adjust to changes in lifestyle. The policyholder can adjust the premium upward or downward, within limits, to maintain pace with their increased or decreased buying power. The policy holder may also change the death benefit to meet changing aims and duties. For example, if policyholder gets more children, or remarries and suddenly has more dependents, they may decide a larger death benefit is necessary to aid her or his survivors to keep their lifestyle without her or his income to rely on. Making such a shift is simple with universal life insurance.
The money value of a universal life insurance policy is tied to the insurer’s performance. In the event the company’s investments work well, the cash value from the policy can accumulate more quickly than using a whole life insurance policy. In case the insurance companies don’t work well, but the accumulation rate of the money value will increase more slowly or not at all. Because of this, universal life insurance costs significantly less than life insurance.
The universal life insurance policyholder can’t direct the Investments into accounts or investments, as an independent investor can, or as a policy using a type of life insurance called variable life insurance can.
The cash value of the universal life policy collects tax-free. The death benefit can be tax-free. In the event the cash value of the policy is removed before retirement age, however, the gains are subject to taxation.
Universal life insurance policies can also be emended with various “riders”. The coverage can be expanded to insure the life of a spouse or child. Separate riders can offer insurance covering mortgage protection, disability, accidental death, and critical illness.
Many customers find that the flexibility of coverage, premiums, and death benefit amounts make universal life insurance a reasonable solution for the vicissitudes of existence.