Universal Life Insurance

Universal Life

Universal life coverage mimics term except you can have it for the rest of your life.  The premiums are usually significantly higher because there is no termination to the policy and these policies also have the ability to build cash values.  The premium you pay goes toward expense charges and any excess is  paid to your policy account where it earns a set interest rate or possible return, if invested in an index like the S&P500.  It’s your choice.  If you have chosen to build a cash value you may have the ability to take loans or make withdrawals from the account value for personal needs.

What’s the difference between Universal Life and Whole Life?
The biggest difference between Whole Life and Universal Life insurance is that the premiums for whole life are much more expensive because they have a definite cash value component.  With that, the main benefit of selecting Universal life over Whole Life is flexibility.  If you want to, you can fund your policy with a lot of cash over a short period of time, and technically, if administrative costs stay low and you gain a decent interest rate (or return if additional monies are invested), it’s possible, after a paying into the policy, you may no longer need to pay premiums.  For example, your annual policy costs maybe $1500 for the year, but if you send a check for $2,000, $500 will be allocated to an interest strategy, where it may grow for you.

If I do build a cash value, do I receive a 1099?
Universal Life was originally designed with the idea that people would want to contribute enough to the cash value which would sustain the cost of insurance and premiums would no longer be needed.

With this as the goal, the IRS allows for gains on the policy to grow tax deferred.  So when these policies earn interest or there’s a return, a 1099 is not generated because there is no taxable event.   Additionally, in many cases, the cash is accessible for loans or tax free withdrawals.

How are premiums determined?
Below are some of the criteria that go into determining the premium.

  • Age
  • Gender
  • Smoker/Non Smoker
  • Height/Weight
  • Family History
  • Travel plans
  • Hobbies

As always, I recommend you speak with a knowledgeable, independent agent who can assess your needs along with your health, and recommend the best policy available on the market.

More about Whole Life | Term Life