#universal life insurance
Who it Benefits the Most
1. Parents with young children
A universal life policy can help parents to ensure continual provision for their children even when one or both parents pass away. The sooner parents begin investing in the policy, the more death benefit they will leave for their beneficiaries.
Getting a universal life policy while young qualifies you for lower premiums as you are considered generally healthy. The advantage of taking this policy while you are young is that even when you grow older, or if you develop a health problem, no change will be made to the amount of premiums you pay.
As mentioned above, a person s health status greatly determines how much premium they will pay for their universal life policy. Smokers are considered to carry greater risk due to possible development of health problems related to smoking. As a non-smoker, you can therefore secure lower premiums for your universal life policy.
4. People who want to leave endowments
If you want to leave a financial bequest or gift to say, a charity or church once you die, you can do so through a universal life policy. This can help you leave a lasting legacy among the beneficiaries.
Insurance Premium Information
Universal life insurance generally has three types of premiums:
1. Maximum premium. This is the largest amount of premium you can pay for the policy, which does not compromise its character as a universal insurance policy. If too much premium is paid, the policy is considered as a Modified Endowment Contract (MEC) and loses the tax benefits attached to it.
2. Target premium. This type of premium keeps the insurance policy active for the entire lifetime of its owner. Still, no guarantee is given that the insurance policy would be in effect for that long once the premium is paid. This is because universal life insurance does not offer any guarantee on the time length of an active policy irrespective of the type of premium paid.
3. Minimum premium. This is the lowest amount of premium needed to ensure the policy remains active for an additional year without accumulating cash value. However, if you continuously pay the minimum premium for a long time, you may lose your policy.
Pros and Cons for Universal Insurance
- Flexible death benefit and premium payments.
- Tax-deferred cash value or savings account. Your cash value will accrue a specific rate of interest tax-free.
- Upon the demise of the policyholder, the beneficiary gets the death benefit tax-free.