Universal Life

Universal life insurance is an “unbundled” permanent insurance plan: your premium payments are transparently segregated between the pure cost of lifelong insurance coverage and an investment component.

Similar to other life insurance products, a policyholder makes periodic premium payments for universal life coverage. The insurance company deducts a portion from the premium to meet the cost of insurance and administrative charges. The balance is deposited into an investment account and earns tax-deferred interest. The amount left in the investment account, also known as account value, earns interest, based on the investment option selected.

 

A policyholder can choose to only make the minimum deposit amount to cover the cost of insurance and have the policy continue to remain in force. However, this would mean not taking advantage of universal life’s unique feature: the investment account value that grows on a tax-deferred basis. You are not required to pay any tax on the investment account returns, provided the account value does not exceed a certain amount (a legal requirement we’ll explain further).

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What are the advantages of universal
life insurance coverage?

Universal life plans can be tailored to meet personal financial objectives

What happens if I outlive my insurance?
Universal life policies do not have a fixed premium amount. You may instead select the timing and amount of premiums payments. You may pay just enough to cover the insurance cost and conserve your additional cash. Alternatively, you may choose to pay the maximum possible amount, that does not trigger the anti dump-in rule (see below).
Broad range of investment options
Universal life products offer a range of investment options that you can choose from depending on your investment style and risk tolerance. You can be as involved as you may want in managing the investment portion of your policy.
Affordability
Universal life is usually more affordable than whole life insurance. Since the responsibility of managing the account value is vested with the person seeking insurance, the cost of the premiums are therefore lowered as compared to whole life insurance, where the insurance company manages and guarantees the investment returns.

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