Agent Owner, Gilmore Insurance Services, Marysville, Washington State
Yes, universal life does generate a cash value over time. These values can be used for many purposes the insured has in mind. These cash values also support the cost of insurance charged each month so care should be taken in the management of your cash values. Withdraw too much value and you can possibly put the policy at risk because there isn't enough between the outside premium and the inside cash value to support the cost of insurance. This is a common problem with a lot of universal life policies. If a person decides a universal life policy is what works for them, they should realize they need to pay attention to the policy.
Guaranteed Universal Life has minimal cash value because it is designed to provide the lowest possible price on guaranteed lifetime coverage. Indexed Universal Life, on the other hand, is designed to provide possible large amounts of cash value. It does this by allowing policy owners to tie accumulation values to a stock market index. IUL can participate in the upside of the market without downside risk.
Universal Life has three basic components: 1) Insurance (protection), 2) Savings (accumulation) and 3) Expense (loading). Premiums cover the cost of insurance and expenses with the remainder going to the savings or cash value. This cash value (if any) can also grow by the interest rate credited to the policy.
Yes. Universal Life Insurance is designed to build cash value so that it will cover the cost of the insurance as you get older. In simple terms, its like owning a mobile home (which you have equity in) while renting the land underneath you (a cost that goes up over time). The more cash you put into it, the better the chance that the policy will remain in force when you need it most (at life expectancy).
Some Universal Life Policies, like Guaranteed Death Benefit Universal Life, may not have ANY cash value though and will remain in force because of the guaranteed premiums that have been paid. In this case, the insurance carrier gives the insured the protection to a set age regardless of performance of the policy (i.e. interest credited or performance of the funds) in lieu of cash surrender value.
Be careful if buying a UL policy as there are a lot of moving parts, but it can be a very useful product if you need flexible premiums and are unsure about your cash flow.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Universal life insurance requires cash value to remain in force. The annual cost for protection increases each year as you age. Without cash value there wouldn’t be any way to pay those increasing expenses. Because of its flexible nature and hoped-for better returns, some have callously thought that they can keep a universal life policy going at a relatively low premium. They are often faced with enormous increases required in order to keep coverage in place.
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Some Universal Life Policies, like Guaranteed Death Benefit Universal Life, may not have ANY cash value though and will remain in force because of the guaranteed premiums that have been paid. In this case, the insurance carrier gives the insured the protection to a set age regardless of performance of the policy (i.e. interest credited or performance of the funds) in lieu of cash surrender value.
Be careful if buying a UL policy as there are a lot of moving parts, but it can be a very useful product if you need flexible premiums and are unsure about your cash flow.