Universal life is more flexible than a whole life policy. flexible premiums, non forfeiture options, flexible benefit amounts, builds cash value like whole life may also be variable or not like whole life. Universal life policies are usually issued using the same requirements as a whole life policy. MIB clearing, usually physical by insurings choice
Whole Life has set premiums that never go up, guaranteed cash values, and will be around when you need it as long as you pay the premiums. It also has what is called non-forfeiture values. If you stop making payments and the policy has cash value you can: 1. Let the policy go on extended term which will provide the full face amount for a period until the cash value runs out. 2. Take a reduced paid up policy for whatever the cash value will buy. 3. Cash the policy in.
Universal Life has Flexible Premiums, you can change the amount you put into the plan. Flexible Death Benefit, you can change the death benefit, reducing it or if your health is good increase the benefit without having to purchase a new policy. Universal Life has a guaranteed interest rate, not guaranteed cash value. Since the premiums are flexible the danger is in under funding the policy which will make the policy lapse, even if you are making premium payments. Universal Life is basically term insurance with a cash value side fund combined into one package. If there is not enough cash in the policy side fund to pay for the term insurance the policy lapses. It is important to make sure you are properly funding the Universal Life policy by paying at least the Target Premium. Each year you will receive an annual statement showing the cost of the term insurance and the amount of cash in the policy. Have your agent review this with you at least every two years to make sure it is performing as planned.
As you can see, while the Universal Life has some attractive features, Whole Life is a safer more stable product.
Universal life insurance has two main types: guaranteed universal life and current assumption universal life. Current assumption universal life has two sets of rates, i.e. current company practice and contractual guaranteed rates. It also has three crediting methods: interest rate, indices and separate sub accounts using equities and bonds investments.
Participating whole life insurance has guaranteed rates with the potential to return unused premium to the policy owner called non-guaranteed dividends which are declared by the board of director of the insurance company.
That is a great question! Both whole life and universal life insurance policies are cash value building life long policies. Whole life is simple, you pay a set premium every month, and the policy lasts as long as you do, as long as you keep making payments. The death benefit is specifically stated. A universal life policy is not quite so simple. These policies are often marketed with promises of great value growth, and perhaps not so clearly explaining the risks or the things that have to happen to get that great gain. These policies are typically only guaranteed to last 20 years. The payments are given to you in a range, and can vary even from that range. The amounts paid in, the performance of the invested funds, and the cost of the insurance will dictate how long the policy stays in effect, and whether there is growth. I guess a good way to describe it to you is that if you were looking for a policy that you could buy, make payments on and forget about, buy a whole life policy. If you want a policy that could have great gains, that you can watch the performance of, and change the payments of, then buy a UL policy. I hope that helps, thanks for asking!
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
Here’s a simple model for you.
I am sure you know about term insurance. This is a product designed to give you the absolutely lowest premium for a certain amount of time. The premium and death benefit could be guaranteed from 10 to 30 years. No cash will be accumulated for your use. (Of course, that is one big reason why the premium is so low).
The problem we all face with term insurance is that once the guarantee period is over, the price typically skyrockets. I have actually see the premium increase tenfold at the time of renewal!
Now let’s suppose that you could have something that would act like “permanent term insurance.” The premium would be as low as can possibly be. No cash would be accumulated. But the price would never go up. You would have, in essence, a lifetime guarantee.
That, my friend, is called guaranteed universal life insurance.
Whole life insurance is very similar. Guaranteed premium. Guaranteed death benefit. Lifelong coverage. The big difference is that whole life insurance also emphasizes cash accumulation. It provides very strong guarantees on the cash.
So it costs a lot more than guaranteed universal life insurance.
It should be noted that providing a lifetime guarantee is only one of a variety of uses for universal life insurance. It is a flexible product and can be designed to accumulate cash as well. It can also be designed to accommodate a variety of premium payments.
But when the financial planning objective is to secure a lifetime coverage at the lowest possible guaranteed cost, there is no better product.
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Universal Life has Flexible Premiums, you can change the amount you put into the plan. Flexible Death Benefit, you can change the death benefit, reducing it or if your health is good increase the benefit without having to purchase a new policy. Universal Life has a guaranteed interest rate, not guaranteed cash value. Since the premiums are flexible the danger is in under funding the policy which will make the policy lapse, even if you are making premium payments. Universal Life is basically term insurance with a cash value side fund combined into one package. If there is not enough cash in the policy side fund to pay for the term insurance the policy lapses. It is important to make sure you are properly funding the Universal Life policy by paying at least the Target Premium. Each year you will receive an annual statement showing the cost of the term insurance and the amount of cash in the policy. Have your agent review this with you at least every two years to make sure it is performing as planned.
As you can see, while the Universal Life has some attractive features, Whole Life is a safer more stable product.
Participating whole life insurance has guaranteed rates with the potential to return unused premium to the policy owner called non-guaranteed dividends which are declared by the board of director of the insurance company.
I am sure you know about term insurance. This is a product designed to give you the absolutely lowest premium for a certain amount of time. The premium and death benefit could be guaranteed from 10 to 30 years. No cash will be accumulated for your use. (Of course, that is one big reason why the premium is so low).
The problem we all face with term insurance is that once the guarantee period is over, the price typically skyrockets. I have actually see the premium increase tenfold at the time of renewal!
Now let’s suppose that you could have something that would act like “permanent term insurance.” The premium would be as low as can possibly be. No cash would be accumulated. But the price would never go up. You would have, in essence, a lifetime guarantee.
That, my friend, is called guaranteed universal life insurance.
Whole life insurance is very similar. Guaranteed premium. Guaranteed death benefit. Lifelong coverage. The big difference is that whole life insurance also emphasizes cash accumulation. It provides very strong guarantees on the cash.
So it costs a lot more than guaranteed universal life insurance.
It should be noted that providing a lifetime guarantee is only one of a variety of uses for universal life insurance. It is a flexible product and can be designed to accumulate cash as well. It can also be designed to accommodate a variety of premium payments.
But when the financial planning objective is to secure a lifetime coverage at the lowest possible guaranteed cost, there is no better product.