Tuesday, April 28, 2015

Benefits of Universal Life Insurance

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.

Disability Insurance: Why do you need it?

Injuries, long-term illness and accidents are a reality in any profession. It’s believed that in the US alone, a disability-causing accident, on an average,happens every second. Further, as much as 18.5% of the working American population, suffers from some form of disability that hinders their them from working. It is estimated thatnearly 25% of theworkforce in the US is likely to suffer from an accident, injury or illness that could disrupt their working life, wellbefore they are due toretire.

To offset this predicament, Insurance companies offer Disability Income Insurance (DII or just Disability Insurance) plan. DIIinsures the beneficiary’s core income against disabilities that will prevent him/her from undertaking the core functions of his/her work.

Contrary to expectations, most Americans are either unaware of or are not subscribed to any form of disability insurance, which would cover them adequately.

In September 2012, the Consumer Federation of America and Unum, an insurance company released a report that revealed some alarming facts. Among 400 disability insurance recipients surveyed: (source: US News Money)
  • As much as 85 percent said they had to stop saving money for retirement or cut back in other ways
  • As much as 60 percent said they had to skip or delay some kind of medical, dental or vision care for themselves or family members
  • As much as 40 percent missed a mortgage or rent payment
  • As much as 50 percent said they would have missed a payment if they hadn't received their disability insurance benefits
  • Nearly 33 percent reported seeking community or government assistance to pay for food
Disability insurance is an optional feature, and thousands of Americans face the risk of financial hardship by not having adequate disability insurance. To circumvent this calamity, the Federal Government has created a safety net, through the Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) which are a part of Social Security benefit scheme, and this helps all those who are uninsured or underinsured.

Some of the broader types of Disability Insurance are:
  • Individual disability insurance: Individuals working at companies that do not provide benefits, and individuals who run their own businesses generally prefer this type of disability insurance. If you seek higher monthly benefits, the premiums are higher, but the advantage with this method is that benefits are available for a longer duration. Also, the benefits are paid shortly after the claim for disability is made.
  • Disability insurance with a high-limit: In addition to standard coverage, you can go in for a high-limit disability insurance which covers nearly 65% of your income. You can claim additional benefits to the tune of USD 2000 at the minimum to a whopping USD 10,000, in a month.
  • Business overhead expense disability insurance: All those items that are tax deductible under business expenses are covered by Business Overhead Expense (BOE). Some of these expense items are mortgage payments, insurance premiums, maintenance costs, etc.
  • Workers' compensation: Workers' compensation is also an option whereby dependents of workers killed during employment receive benefits. However, workers compensation provides no coverage to those who were injured outside the line of work.
At the time of subscribing to disability Insurance, the following factors need to be considered and should be covered:
  • Non-cancelable and guaranteed renewable policy
  • Elimination periods and waiting periods
  • Own occupation coverage
  • Future purchase optionWhes
  • Cost of living adjustments
  • Retirement protection and lifetime benefits
There are complexities involved, which can be clarified on contacting an experienced insurance company broker or agent. When the odds of becoming disabled due to accidents, injury or other unforeseen incidents are very likely, disability insurance will be a safe fall back.