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The Life Insurance Blog

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The Two Sides of Universal Life Insurance

Oct 7, 2016 8:47:00 AM

Life insuranceMany people opt for life insurance coverage with a permanent life insurance policy as opposed to one that will expire in 10, 20, or 30 years. There are several choices in permanent life insurance, but one that provides the policyholder several options and a great deal of flexibility is universal life insurance. If you're searching for a life insurance policy that won't expire, here is some information about your universal life choices, the coverage benefits, and a few potential downsides.

Your Universal Life Insurance Policy Choices

Buying life insurance is a confusing proposition for many because there are just too many choices. Even if you decide that you want a universal life insurance policy, there are several types to choose from. For your life insurance comparison purposes, there is a standard universal life policy, a variable universal life policy, and an indexed universal life policy.

A standard universal life (UL) policy has two components, the death benefit portion that is similar to term insurance and a cash value component that accumulates at a minimum rate, with the potential for higher returns based on the insurance company's portfolio performance. A variable universal life (VUL) policy, also has a standard death benefit, but the cash value component can go up or down based on the policyholder's investment choices. Finally, indexed universal life (IUL) policies are gaining in popularity according to recent LIMRA numbers. These policies also have the standard death benefit, but the cash value is both tied to a major investment index and has a guaranteed minimum rate of return.

Benefits of Universal Life Insurance

If you opt to purchase a universal life insurance policy, most people either select a standard policy or an indexed universal life policy. As the IUL represents the majority of current policies, many are considering it the prefered permanent life insurance policy for several reasons.

One of the most significant advantages of IUL insurance is that the cash value component has excellent potential for growth. Even in a down market, you are still guaranteed a minimum rate of return, which minimizes your risk. Your cash value also accumulates tax-deferred, loans are tax-free, and the death benefit to beneficiaries is tax-free. There are no limits on annual contributions, and several available riders can make coverage even more attractive. Finally, a universal life policy often gives the owner flexibility to adjust the death benefit or use the cash value to make premium payments.
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Potential Downsides of Universal Life Insurance

There are a few limitations to universal life coverage, particularly IUL. There may be caps imposed by the insurer that limit your cash value investment gains, which could prove disappointing in a bull market. Fees are often imposed and vary by insurer, so this is something that you'll want to factor into your life insurance comparison shopping. Finally, if you decide to cancel your policy, you may end up paying taxes on any outstanding policy loans.

For those searching permanent life insurance policy options, most experts agree that the index universal life policy has many advantages. Even inexperienced purchasers have built-in protections for market fluctuations, which aren't provided by some other products. Contact us today with any questions or to start a quote now.