When you think of life insurance you usually think of a death benefit. However there are a variety of life insurance policies to serve everyone’s needs. What if you’re in your 20s and need life insurance? A universal life insurance policy could be right for you. A universal life insurance policy is most suitable for people between the ages of 18 and 50. A universal life insurance policy is a life insurance policy with the savings option built into it.
The way this works is you can pay a set premium into the policy, and based on your age a portion of your premium will go to pay for a life insurance policy. The remainder of your premium goes into an interest-bearing account. In most cases the interest rate and a universal like policy will vary, but will not dip below a set minimum rate. You may also deposit extra money into this account. However Internal Revenue Service regulations prohibit any life insurance policy to have a cash value that accumulates too fast in the first seven years. This would trigger tax penalties as the policy would be considered a modified endowment policy. This does not affect the death benefit, but if you choose to surrender the policy for its cash value in the future, you would have to pay a tax penalty. For this reason you must consult your insurance agent to find out what is the maximum you can put into your policy for the first seven years.
Many universal life policies contain an option called a waiver of premium rider which will pay your premium in the event of your disability. This would allow you in an instance of a disability of just a few years, to continue to save while you’re disabled. Also, if your plan is to save $50,000 for instance by age 70, and you die prior to age 70, your spouse or children will still get the amount that you planned to save in the form of life insurance death benefit.
Let’s suppose that you made it to retirement. I must emphasize that this is not a retirement policy, but primarily a life insurance policy. However you can use the proceeds of the cash value to supplement your retirement income. All this can be done virtually tax-free. Let’s suppose you have $100,000 in cash value in your universal like policy. If you only paid in $80,000, you can withdraw that basis tax-free. The remaining $20,000 you can receive in the form of the policy loan which is also tax-free. If you would like, assuming the $20,000 cash value was enough to pay for your premiums, you could keep the rest in the policy and stop paying your premiums. The life insurance would continue on by deducting your premium from your cash value. This will continue on until the cash value runs out in the policy lapses. However if the interest you’re gaining on that $20,000 is equal to the cash value deducted, you will have life insurance coverage for the rest of your life without having to pay another premium payment.
A universal life insurance policy is not), and everyone should consult in insurance agent before making any decisions. I do not recommend buying any financial instrument online, as there is no one there to figure out whether the policy or instrument you’re buying is suitable for your needs.
You can get all the necessary details from your life insurance provider or you can even search online if you have a good understanding of insurance related terms and conditions.
