Choosing the Right Life Insurance Policy: Universal Life Addresses a Variety of Needs
Wednesday, April 29, 2009
Many financial advisors would agree that the foundation of a good financial plan is life insurance. The need to prepare financially in the event of an unexpected death is universal.
However, the financial needs of a family with young children and a large amount of debt are vastly different from those of a couple of empty-nesters looking forward to retirement.
Universal life insurance is a type of life insurance that addresses a wide variety of financial needs in addition to providing the protection of a death benefit. Generally speaking, universal life insurance provides policyholders with a death benefit, flexibility with how and when they pay their premiums and a way to accumulate cash.
Some universal life insurance policies emphasize guarantees in order to provide policyholders with additional security. Examples of such guarantees include:
- A guaranteed death benefit. This will ensure that your family is secure in the event of a death.
- Guaranteed premiums. This feature is ideal if you're worried about whether you will be able to afford premiums that increase as you age.
- The ability to choose your coverage period. Some universal life products offer a feature that allows you to shorten the length of time for which the coverage is guaranteed and lower the premiums accordingly. This can make your premiums more affordable. For example, if, given your family history, you think it is not likely that you will live to age 100, you can choose to pay premiums based on coverage to age 90.
Did You Know?
Universal life insurance policies can be purchased to cover an individual or multiple policyholders through a rider or a type of policy called "second-to-die" or "survivorship life." Such policies can be used to preserve assets and cover estate taxes.
With other universal life insurance policies, their ability to build cash value make them appealing. The beauty of many universal life insurance policies is that they offer a death benefit plus they accumulate cash value that grows tax-free. If you are concerned about having enough money to maintain your lifestyle, you can use the cash value to generate an income stream during retirement.
Some universal life insurance policies also offer a wash-loan feature, which allows you to take interest-free loans from the cash value without incurring a tax hit. The loans can be used to fund expenses such as college tuition or a mortgage payoff.
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