Life insurance can be a wise precaution if you have a spouse, children, or other loved ones who depend on your income. With this insurance, your beneficiaries will receive a lump sum payment if you pass away. This would give them enough money to cover any debts, pay for college, or handle other costs that may arise.
You may consider numerous life insurance policies, including term life insurance, whole life insurance, and universal life insurance. Nonetheless, they are not created equal.
Whether you’re looking to purchase life insurance or improve your current coverage, now is a great time to take action. Obtaining a quote is an excellent starting step.
Here’s everything you need to know about universal life insurance and how it can help you.
What Are the Pros of Having Universal Life Insurance?
There are numerous advantages to purchasing universal life insurance. These are some examples:
- Flexibility: You can reduce your premiums over time, and if you need cash in the future, you can borrow against the coverage.
- Affordability: They are less expensive than whole life insurance policies, saving you money in the long term.
- Longevity: Universal life insurance policies are perpetual, which means you’ll be insured for the rest of your life.
- Compulsory savings: All universal life insurance policies include a cash value account that allows you to save money and expand it over time.
There are also certain tax advantages to having universal life insurance. For example, any increase in the cash value account is tax-deferred, and beneficiaries pay no income tax while receiving their death benefit.
Contact a life insurance professional to get started if you need this coverage. They can help you determine what you need in insurance and how to get it.
What is Universal Life Insurance?
Universal life insurance is a form of insurance that covers a person for their entire life. When it comes to life insurance, it is the most versatile option because it gives lifetime protection.
Every universal life insurance policy includes a cash value component (similar to a built-in savings account) that collects interest and accumulates over time. When the policy’s cash value reaches a specific level, you can borrow against it. You can also utilize the balance to lower your premiums, enhance your death benefit, or even stop making payments entirely.
The Basics of Universal Life Insurance
You’ll pay premiums for universal life insurance, part of which will go toward the cost of your death benefit and the other portion toward your cash value account. When the value of this account reaches a certain threshold, you will be able to utilize it to pay your premiums. You can reduce your premiums or increase your death benefit depending on your preferences.
Upon your passing, your beneficiaries will receive a payment based on the policy and the cash value account amount. They will not owe income taxes on this money and may spend it as they see fit.
Other Factors to Consider
On the other hand, there are a few downsides. It’s possible that term life insurance isn’t the best choice for your situation and that a whole-life policy better serves you. Universal life insurance has the following drawbacks:
- There is no guarantee: As with other types of life insurance, your cash value account is not guaranteed to grow. Beneficiaries have also not been assured a benefit.
- Potential risk: Stopping monthly payments and relying on your cash value account is unsafe if you do it. If you deplete the balance in your account, your coverage may lapse.
- Benefits aren’t as generous as they are on other policies: In terms of benefits, term life insurance policies provide the best bang for your cash. As a result, if you want to maximize the benefit your loved ones receive, universal life insurance might not be the ideal option.
- Hands-on: You must actively check your cash balance with universal life insurance policies, especially if you use the account cover premiums. Otherwise, you risk exceeding your account balance and having your coverage lapse.
Your age, health, budget, and aspirations determine the best life insurance coverage for you. If you’re uncertain about the kind of life insurance that would be best for you, go to an insurance specialist who can guide you.
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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