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What is Universal Life Insurance?
Universal Life is an “unbundled” policy. The policy owner can see exactly where the premiums go, what interest is earned, and what the expenses are on a month-by-month basis. It can be used as a permanent or a temporary plan. The amount of both the death benefit and the premium can be changed. While there is a minimum guaranteed interest rate, and guaranteed maximum mortality and expense charges, there is no guaranteed cash value since the policyholders do not have to commit to a fixed premium.
Uses of Universal Life Insurance
- Final expenses, such as a funeral, burial, and unpaid medical bills
- Income replacement, to provide for surviving spouses and dependent children
- Debt coverage, to pay off personal and business debts, such as a home mortgage or business operating loan
- Estate liquidity, when an estate has an immediate need for cash to settle federal estate taxes, state inheritance taxes, or unpaid income in respect of decedent (IRD) taxes.
- Estate replacement, when an insured has donated assets to a charity and wants to replace the value with cash death benefits.
- Business succession & continuity, for example to fund a cross-purchase or stock redemption buy/sell agreement.
- Key person insurance, to protect a company from the economic loss incurred when a key employee or manager dies.
- An alternative to long-term care insurance, where new policies have accelerated benefits for Long Term Care.
- Mortgage acceleration, where an over-funded UL policy is either surrendered or borrowed against to pay off a home mortgage.
- Charitable gift, where a UL policy is donated to a qualified charity, or the policy owner names a charity as the beneficiary.
- Estate equalization, where a business owner has more than one child, and at least one child wants to run the business, and at least one other wants cash.
- Life insurance retirement plan, or Roth IRA alternative. High income earners who want an additional tax shelter, with potential creditor/predator protection, who have maxed out their IRA, who are not eligible for a Roth IRA, and who have already maxed out their qualified plans.
- Term life insurance alternative, for example when a policy owner wants to use interest income from a lump sum of cash to pay a term life insurance premium. An alternative is to use the lump sum to pay premiums into a UL policy on a single premium or limited premium basis, creating tax arbitrage when the costs of insurance are paid from untaxed excess interest credits, which may be crediting at a higher rate than other guaranteed, no risk asset classes (e.g. certificates of deposit or U.S. Savings Bonds).
- Annuity alternative, when a policy owner has a lump sum of cash that they intend to leave to the next generation, a single premium UL policy provides similar benefits during life, but has a stepped up death benefit that is income tax-free.
- Pension maximization, where permanent death benefits are needed so an employee can elect the highest retirement income option from a defined benefit pension.
Universal Life insurance is a great way to put all of your financial needs together, less hassle and more freedom. Call us today to learn more about a plan that would fit your needs!