There are several different types of Life Insurance coverages, of which, Permanent Life Insurance is the preferred choice across the country, in comparison with term insurance.Permanent Life Insurance provides several benefits both during the policy holder’s lifetime and thereafter, to the dependents. Permanent Life Insurance is of two types: Universal Life Insurance and Whole Life Insurance.
Universal Life Insurance
Universal Life Insurance (ULI), otherwise known as “adjustable insurance”, is also known as flexible premium coverage. The main features of this coverage are the adjustable nature of the premiums, the balanced amount of protection and cash values, during the currency of the contract, and depending on the changing needs of the insured.
Some Features of Universal Life Insurance
- DeathBenefits: Upon death, the accrued value is exempt from income tax
- Direct payment to Beneficiaries: The policyholder can nominate, his / her beneficiaries (through a will or at the time of signing up for the policy), and specify that all the death proceeds be directly credited, to the beneficiaries. This eliminates the need to pay probate taxes. Further, these proceeds are protected from creditorsand from the courts of law (in case of litigation), in most states
- Deferred Taxes: A small part of the premium paid, by the policyholder every time,is invested as part of the “policy value”,after the actual insurance costs are deducted. This amount so accrued, earns interest, is allowed to accumulate,and the taxes thereon, are paid on a deferred basis
- Better Liquidity: In case funds are urgently needed, the policyholder can surrender the cash value.A loan against the policy can be taken; the interest rate on such a loan is low.
- Flexibility in Premium payments: The ULI policy allows for a flexible premium payment plan. Depending on the policyholder’s cash flow, accumulation versus liquidity,the policyholder can increase or decrease the premium paid (payable), or even skip a few premiums. Premiums can be skipped depending on the policyholder’s history of premium payments, the surrender value and loans taken, in the past, on this policy
- Flexible Death benefits: The amount payable to beneficiaries upon the policyholder’s death can be adjusted during his/her lifetime. This will reduce costs,such as premium payable and will simplify the coverage provided or changed, for the policyholder and his/her beneficiaries
- Updated Interest values: When the policyholder takes a loan on a part of the policy amount, the remaining amount continues to earn interest.The interest percentage remains fixed during the tenure of the contract, but remains in tune with the prevailing market value, thereby giving the policyholder the benefit of a higher cash value
- Updated Cost of Insurance: Similarly, the cost of the insurance death benefit, which depends on the insurer’s age, gender, and rate class will never be higher than the agreed amount in the contract. It can, however, from time to time change to reflect the prevailing market costs. This makes it more cost-effective for the policyholder
- Comprehensive Reports provided: Since all the parameters of a ULI are flexible, insurance providers, annually provide detailed reports showing the premiums paid, deductions made, interests accrued, loans taken and death benefits available. This helps the policyholder to assess whether the policy is meeting his/her needs or not
ULIs are very popular for the versatility of their features. They can be used to fund several needs of the policyholder; needs such as Income Replacement, Mortgage payments, Retirement Income, Charitable donations, Equalizing Inheritance to dependents, etc. An insurance company with adequate experience in ULI can guide you on the various options and flexibilities available, so that you canmaximize on the coverage and benefits availableduring your lifetime and thereafter, for your beneficiaries.