Universal life insurance can offer an excellent tool to secure your own and your family’s financial future. For instance, many people have trouble making decisions about life insurance because nobody can precisely predict what they will need or have to spend decades in the future.
Indexed Universal Life Insurance Simplified
Indexed Universal Life (IUL) is like a special savings account mixed with life insurance.
Imagine you have a jar to save money, and you put money in it regularly.
The jar has two features:
Safety Net: If something happens to you and you pass away, the money in the jar will be given to your loved ones, it is life insurance otherwise known as LOVE Insurance. It helps protect your family financially if you’re not there to support them.
Growth Potential: The money in the jar can grow over time based on how well the stock market performs. But don’t worry, it’s not directly invested in stocks, so you don’t have to worry about losing everything if the market goes down.
Understanding UNIVERSAL LIFE INSURANCE
Universal life insurance combines flexibility, permanent life insurance, and savings. These qualities make this kind of life insurance an attractive tool for planning for an uncertain future. At the same time, the versatility of universal life insurance means that many people find it more challenging to understand than whole or term life.
On the positive side, you can benefit from the resources and experienced advisors here at The Insurance Hub. Our licensed professional will match you with the insurance companies and policies that best suit your unique goals and financial situation.
How Does Universal Life Insurance Compare to Term or Whole Life?
The most distinctive feature of universal life insurance includes its flexibility. For instance, people must pay a fixed premium for typical term or whole life insurance policies. The death benefit also remains fixed. In contrast, universal life offers more flexibility.
Very often, people can pay less for universal than for whole life insurance but more than for term life insurance. Both universal life and whole life insurance offer permanent, lifetime coverage and a cash account. Term life only stays in force for the term of the contract. The cash account for both types of permanent policies can also earn returns based on the contract and the account’s value.
How Does Universal Life Insurance Work?
- You choose how much money you want to put into the jar regularly, like every month or every year. This is your premium payment.
- Instead of putting the money directly into the stock market, the insurance company tracks a specific stock market index (like the S&P 500, which follows the performance of 500 big companies).
- If the index goes up, your jar’s value goes up too, and you earn interest on the money in the jar. However, if the index goes down, your jar’s value won’t decrease, so you are protected from market losses.
- You get the upside of potential gains when the stock market does well, AND you also have protection from losses when it performs poorly.
- Over time, your jar grows, and you can use the money in it for different things, like college, home down payment, paying off debts, or for your retirement. You have total flexibility.
The main goal of Indexed Universal Life is to provide a balance between life insurance protection and potential savings or investments.
Create Faster Growth by Overfunding:
You have the flexibility to put in more money than what’s required to cover the insurance cost. This extra amount is called overfunding. By overfunding your policy, you’re essentially adding more fuel to your savings “jar.” The advantage is that your money can grow faster over time since there’s more money available to take advantage of market gains. AND the growth is tax-deferred, meaning you don’t pay taxes on the gains when the money stays within the policy.
What’s your dream?
- Go to College: If you have children or grandchildren, an IUL can be a vehicle to save for their college education.
- Home Down Payment: You may be able to take out policy loans against the cash value for funding for your home down payment without triggering taxes or penalties.
- Enjoy a Debt Free Life: Pay off debts, such as credit card balances, student loans, auto loans, and more. Borrowing from your policy may incur interest, but it can offer a convenient way to access funds without going through traditional lenders.
- Supplement Retirement Income: As the cash value of your IUL grows, you can access it to provide additional financial security in your golden years.
- Create an Emergency Fund: In times of financial emergencies, you can borrow from the cash value in your policy to cover unexpected expenses, often a more favorable option compared to taking out high-interest loans or running up credit card debt.
- Tax Advantaged Wealth Accumulation: One of the key benefits of an IUL is the potential for tax-deferred growth; your policy can grow without being subject to annual income taxes.
- Estate Planning: IUL can be used as an estate planning tool to provide liquidity for your estate taxes or leave a legacy for your heirs; your beneficiaries receive their inheritance without the need to sell valuable assets like a family home or business.
- Long-Term Care Expenses: 70% of us will need Long-Term Care, but very few of us plan for it; the cash value in an IUL can be used to cover long-term care expenses if the policy includes a rider that allows for accelerated benefits for long-term care needs.
- Wealth Transfer: If you have substantial assets and wish to transfer wealth to your heirs efficiently, an IUL can be structured to maximize the value passed on to your beneficiaries while minimizing estate taxes.
- Legacy Planning: If you don’t end up needing all the money in your policy during your lifetime, the death benefit (the life insurance part) can provide a financial safety net for your loved ones or be used to leave a meaningful legacy.
It’s essential to remember that accessing the cash value through loans or withdrawals will impact the growth of your policy, and there might be potential fees or restrictions to consider. Always consult with a licensed insurance agent or financial advisor before making any significant decisions about your Indexed Universal Life policy. Insurance Agencies, like The Insurance Hub, can help you understand the specific terms of your policy and create a tailored strategy that aligns with your financial goals.
Is Universal Life Insurance the Best Type of Life Insurance for You?
The best life insurance policy choice depends on your unique financial situation, goals, and preferences. Features of universal life make this kind of life insurance a satisfying choice for people who want a permanent death benefit, asset growth, and best of all, long-term flexibility. In particular, the option to adjust premiums can help families manage their budgets in case their income, goals, or needs change.
For instance, younger people at the height of their careers may want to pay higher premiums to maintain the death benefit and build a cash account. Their budgets could still fluctuate because of promotions, unemployment, or the birth of a child, so they always have the option to pay a different amount. During retirement, they may outgrow the need for an enormous death benefit and prefer to pay lower premiums. Indeed, few people ever outgrow the need for the extra financial security that the cash account and its earnings can provide.
Many clients feel satisfied with their choice to buy universal life insurance. At the same time, some people find whole life or term life insurance more predictable and understandable options that better suit their needs.
Contact The Insurance Hub to discuss your vision for the future. Our experienced, licensed life insurance agents will explain options and help you shop for affordable policies that work well for your lifestyle, budget, and financial plans.