Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
Video Transcript: What is universal life? Universal life insurance was invented in the '80s. It's a combination of buying term and investing the difference. It has different crediting methods which could be interest rate, could be indexing, or could be separate sub-accounts. Those will give you 3 different ways to accumulate cash.
If you're looking for death benefit and it needs to be permanent, you need to make sure that the universal life contract that you choose has guaranteed death benefit for the period that you need. The cash accumulation ideas, whether it's interest rate or whether it's indexing or separate sub-accounts, those will bring some accumulating cash and it could be used for some retirement supplement plan to augment your 401k.
Insurance Adviser - Broker, SC Insurance Services, Oahu, Hawaii
WHile Steve's answer above is correct I think it's important to understand that Universal life is only permanent as long as the continuing increase in "cost of insurance" is covered. That means that while some cash value may accumulate after the first several years, as the insured ages the cost of insurance increases and that cost is passed on to the insured. So if the insured doesn't increase the amount they pay into the policy it will automatically take from the cash value to pay the difference. When the cash value is gone and the premiums are no longer sufficient to cover the costs, the policy will lapse. So basically Universal insurance is an extended term policy that has potential for cash value as long as it is sufficiently funded.
.JPG){kind=avatar}
If you're looking for death benefit and it needs to be permanent, you need to make sure that the universal life contract that you choose has guaranteed death benefit for the period that you need. The cash accumulation ideas, whether it's interest rate or whether it's indexing or separate sub-accounts, those will bring some accumulating cash and it could be used for some retirement supplement plan to augment your 401k.