Are you an adult?
Does anyone else depend on you financially?
Do you have any debts at all?
If so, you need life insurance. Life insurance offers protection for your loved ones and their lives in the event of your death. If you pay rent or a mortgage, have credit cards or other debt, or have a child to worry about, you need life insurance.
There are nearly 291 million life insurance policies in force in the U.S. This is a reduction of nearly 41 million policies compared to the economic boom cycle just eight years earlier. People feel the pressure to save money and practice thrift.
Finding the best universal life insurance quotes is a process. Read on to learn how to make it painless.
What Exactly Is Universal Life Insurance?
Before you go and get universal life insurance quotes, you need to understand the basics.
Universal life insurance is permanent and does not expire (as long as you pay the premiums on time.) It was created as more flexible and affordable alternative to whole life insurance policies. It combines the affordability of term life insurance with an element of savings similar to whole life plans.
Universal life insurance has a stated death benefit similar to term life insurance and commonly offers an interest earning, tax-exempt savings account. Typically you have the flexibility to adjust premiums and death benefits.
Universal life insurance policy premiums are divided into the cost of insurance and the cash value savings component. Every year, the policyholder must pay the cost of insurance so the policy does not lapse, but the percentage of the premium allocated to savings can change.
Any premium amount paid in excess of the cost of insurance is placed in the cash value savings account. Funds from the cash value account can be used to pay the cost of insurance portion of the premium. So long as the cost of insurance is paid with an outside payment or with the cash value account, the policy remains in force for the contract period.
What Determines the Best Universal Life Policy?
The insurance company issuing a universal life policy establishes an interest rate minimum paid on the cash value savings account. Take this into consideration as you get universal life insurance quotes. For most of the 1980's and 90's, the rate was around 4%. Most new policies are now indexed to the stock market.
Universal life is a form of permanent life coverage, meaning it lasts for your lifetime, then pays out a guaranteed death benefit, tax-free. However, only some policies actually last your whole lifetime. Other policies are similar to term life insurance, ending at a certain term length or when you reach a certain age.
If the insurance company's investment portfolio outperforms the minimum interest rate, the excess earnings roll into the cash value account of a policy. Unlike whole life policies, you can earn more than the minimum interest rate. This makes universal life policies attractive.
Cash value accumulates through a combination of interest, excess earnings and excess premium. You can use part of the balance to pay their cost of insurance premium and it won't affect the guaranteed death benefit. You can also withdraw cash value but there is a tax penalty for doing so.
A policyholder can take out a loan against accumulated cash value without tax liability, however, if the loan is unpaid at the time of your death, the guaranteed death benefit is reduced.
Ask questions about these terms to understand your universal life insurance quote and to make fair comparisons between policies.
Types of Universal Life Policies
There are several choices of insurance products available. The four basic types are:
1. Non-Guaranteed (Traditional) Universal Life
Universal life insurance factors in risks like mortality and interest rates, to calculate premium rates and cash values. This is what gives your flexibility in allocating your premium payments, but it also negatively impacts you as the cost of insurance can rapidly and unexpectedly increase as you age.
Your policy lapses if you don't have the means to absorb higher premiums.
2. Guaranteed (No-Lapse) Universal Life
Your premium never increases. As long as your premium is paid on time, your policy will always be always in force and your death benefit is guaranteed. This is a preferred universal life policy for seniors 55 and older who need a life insurance with minimum fixed premiums.
3. Indexed Universal Life
Indexed Universal life is the most common type of universal insurance product sold today. It can be guaranteed or non guaranteed and ties the return of your cost value savings account to a major stock market index like the Dow Jones Industrial Average.
While the stock market has tended to outperform most fixed-rate investments over the years, the rate may not be enough to meet rising cost of insurance premiums in non-guaranteed policies.
4. Variable Universal Life
With this policy, your cash value savings account can invest in the stock market directly through mutual funds. You can invest in and manage a selection of mutual funds within the cash value portion of your policy, and the rate of return depends on the performance of these mutual funds. Your cash value will go up and down based on your selections and the performance of the mutual funds in your portfolio.
Summing All of It Up
Whether you want to make sure your family is covered in case of your untimely demise or you are looking for the right way to plan for a legacy to leave your family, a life insurance policy may be the answer.
Universal life insurance policies combine the low-cost advantages with the savings of a whole life policy in a flexible form. There are many types of policies and premiums to choose from, but universal life insurance falls into four broad categories.
Each of these types of universal life policies has distinct advantages and disadvantages. When seeking universal life insurance quotes, have an experienced agent can walk you through different scenarios.
To learn more, keep reading or leave a comment below.