When it comes to shopping for permanent life insurance, you have several options to consider. One popular choice is Universal Life (UL) insurance. Let’s delve into what makes Universal Life insurance unique and how it might fit into your financial planning.
What is Universal Life Insurance?
Universal Life insurance is designed with flexibility in mind, allowing policyholders to adjust both their premiums and coverage amounts over time. This flexibility means you can increase or decrease the amount you pay, known as your “planned premium,” based on your financial situation and needs.
How Does It Work?
When you pay your planned premium, it is divided into two parts. The first part covers the cost of the death benefit and administrative costs. The remaining funds are placed into the policy’s account value, where they earn interest. This interest-earning component is a key feature of Universal Life insurance, as it can help grow the policy’s cash value over time.
Initial Premium Requirements
At the outset, a minimum required premium must be paid to activate the coverage. Initially, your planned premium typically covers the full cost of insurance and administrative fees, with any extra funds contributing to the policy’s cash value.
Increasing Costs Over Time
As you age, the cost of insurance increases. There may come a point when your planned premium is insufficient to cover the death benefit, administrative costs, and maintain the account value. When this happens, the additional premium needed to keep the policy active will be deducted from the policy’s cash value.
Impact of Interest Rates
When you first purchase your policy, you may set your planned premium based on the interest rates at that time. If current interest rates are lower than when you first purchased the policy, the cash value accumulation might not meet your initial expectations. This could lead to a depletion of the cash value if adjustments aren’t made.
Options to Keep Your Policy in Force
To ensure your policy remains in force, you might need to consider either increasing your premium or decreasing your death benefit, provided your policy allows for such adjustments. Relying solely on the cash value to cover the difference can result in your policy lapsing when the cash value is exhausted.
Annual Review and Statements
It is imperative that you review your policy annually. Insurance companies send out an annual statement detailing your current cash value and indicating whether your premium payments are sufficient to maintain the policy. If you have any questions about your statement, contact your insurance company or agent for clarification.
Seek Professional Advice
Understanding the intricacies of Universal Life insurance can be challenging. By understanding how Universal Life insurance works and regularly reviewing your policy, you can make informed decisions that help you reach your long-term financial goals.
If you’re interested in learning more about Universal Life insurance and how it might benefit you, consider reaching out to RoseMark Advisors, the financial planning division of AMAC. We can provide personalized advice and help you navigate your options. Give us a call at 888-730-6565.
This article was written by Ashley Morrone.
I was a licensed insurance agent for 45 years prior to my retirement in 2021. I was licensed in commercial, personal and life. What I quickly learned about all products as an independent insurance agent was that there is little difference in insurance companies and banks. Neither is in business to represent the consumer fairly and all contracts are written for the benefit of the company and not the consumer. Additionally all contracts are written in legal jargon and practically impossible for the consumer to understand no matter how smart he may be. The bottom line is to be sure you use an independent agent that’s not tied to a particular insurance company for all his benefits. That’s not to suggest that there aren’t many fine capable agents that work directly for one specific carrier. However, the forms in the policy are never determined by anyone but the insurance company and their representatives have no say what so ever no matter how good a person they may be. We live in a ruthless business world today where the consumer is the pawn. Get an independent agent that makes no money from the insurance company unless he is she writes a policy for you. Simply put, the agent receives no commission from the company or any other benefit’s unless a policy is written. That approach means the agent is sensitive to your needs rather than what’s good for the insurance company. Universal Insurance products are different to understand and navigate long term without a competent agent that his allegiance is to the buyer.
I understand the need to know what this article is about but the article information failed to make it make sense beyond the words that adjustment has to be made to make sure the goal ( coverage for costs that occur after we are dead) of having this insurance. My complaint with that comment is that it places too much emphasis on the person who gets the insurance to predict those costs. Plus the article doesn’t take in the fact that whenever one does these “adjustments” to cover the cost of rising prices, that premium costs do go up sometimes radically. I do have a couple of small plans but I should have only one, I had to add insurance because I wasn’t going to pay for insurance whose benefit disappeared and I should especially based on the number of years I have paid for the insurance receiving interest on the value of the plan beyond the total amount of the insurance. The insurance companies don’t want us to know this. How about a followup article on this topic with more information?