Universal Life Insurance
Universal life insurance can help fund estate taxes
and provide for future generations.
When you pass away, you want to leave behind some financial benefit to help take care of the loved ones
that depend on your income. That’s the benefit of purchasing life insurance. Life insurance pays a death
benefit to the person(s) you name as the policy’s beneficiary.
Basic Types of Life Insurance
There are two basic types of life insurance – term and permanent. Term life insurance pays the benefit
only if you pass away within a specific time frame, or term. While your insurance premium can remain the
same within the term, if you renew your policy after it expires, your premium will go up.
Permanent life insurance is available forever and your monthly premiums are the same as long as you
keep the insurance. With permanent life insurance, part of your monthly premium pays the cost of
insurance. The other part is invested into a tax-deferred investment account and used to build the cash
value of the policy.
Types of Permanent Life Insurance
Then, there are two basic types of permanent life insurance – whole and universal. Whole life insurance
is the stricter of the two types of permanent life insurance with level payments throughout the policy. On
the other hand universal life insurance is more flexible in premium payments and death benefit amounts.
How Universal Life Insurance Works
With a universal life insurance policy, you can typically pay your premiums at
any time and in any amount, after you’ve made your first premium payment.
Before you choose to reduce or stop making insurance premiums payments,
you should have enough cash value in your policy to cover the premium.
Otherwise, the insurance company may cancel your policy. You also have the
ability to increase or decrease the amount of your death benefit as your
beneficiary’s dependence on your income changes.
Unlike whole life insurance, you don’t have to pay your insurance premium on
a universal life insurance policy up until your expiration. After a certain
number of years, you may have accumulated enough cash value in your
policy to cover the death benefit and the remainder of the premium payments.
Most insurance agencies guarantee a minimum return on the cash value of
your policy. The typical minimum return is 4%. No matter how the
insurance’s investments gain or lose, you will always earn at least that amount.
With universal life insurance you have two options for death benefits. First, the
death benefit may be paid from the cash value of the policy. Or, the policy
might pay the contract value of the policy in addition to the cash value
you’ve accumulated. The second option typically costs more.
Universal Life Insurance and Estate Planning
A lot of financial advice will steer you away from universal life insurance
policies because they cost more than comparable term life insurance. But,
people with several millions of dollars in assets can benefit from a
universal life insurance policy. When you pass away, your estate will
probably be inherited by one of your family members, like your child. If your
estate is worth more than $3.5 million, every dollar over the threshold will be
taxed at 45%. So, for example, if your estate is worth $4.5 million, your
beneficiaries would be responsible for paying $450,000 in estate taxes. If
your estate doesn’t have that much in liquid assets, one of the assets will
have to be sold to cover the taxes.
A universal life insurance policy can allow you to accumulate enough cash to cover the estate taxes and
leave your loved ones with income to live on. This will eliminate the need to liquidate assets to pay for
costly estate taxes.
Since the laws of estate taxes are complex, it’s important that you speak with an estate planning
professional like an accountant or attorney. Since insurance agents earn commission when you
purchase a universal life insurance policy, you may not get the best advice from them. To learn about
what type of life insurance coverage you need to protect your estate, it’s best to speak with an unbiased
party who has nothing to gain from your decision.
Universal Life Insurance Quote
You can get a universal life insurance quotes via the many resources available online. This is not only a
great way to get a feel for how much you'll have to pay, but you can also compare universal life quotes
from several top insurers. Universal life can have many hidden fees and costs. Make sure you have a
good understanding of your UL policy before purchasing. You'll also want to choose a solid insurer, that's
rated "A" or better. This will provide you with the peace of mind necessary when making a significant
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