Universal Life Is Highly Creative Life Insurance

Of the three types of life insurance, Universal life insurance is the most complex of the three. However, it is also the most creative. But for whom is the questions that needs to be answerd.

Being neither whole life insurance or term life insurance, it can most nearly be described as a combination of the two. Put another way, Universal life is an Annual Renewable Term life insurance plus a cash value as offered by whole life insurance. Complicating any explanation of Universal Life Insurance even further is that, while the policy is in effect, the holder of a Universal Life Policy is allowed, with limitation, to vary the amount of the death benefit and also the timing and amount of premium payments. Sounds good doesn’t it? Yes it does, however there’s a catch but before we discuss that, for a bit more clarity lets take a look at an imaginary universal life policy with you as its holder:

The first place you want to go to on this pretend policy is the page that contains your policy number, name, coverage amount, etc. It doesn't really matter what else is contained on the page because the only thing your looking for is whether you have option 1 or option 2. Which could also appear as option I, II, or A,B. It really doesn’t matter how the policy shows it. The only thing that matters is which Universal Life Insurance option is shown on your policy because if you have option 1 then your beneficiary only gets the face amount of the policy. In other words, let’s say the policy shows $250,000 of coverage and $15,000 of savings, however when you die, your beneficiary only gets the $250,000. But, if you have option 2 then your beneficiary gets both the face and cash value.

Now, knowing that, the first question that should arise is why would someone choose option 1 over option 2? The explanation for that, and it’s one that’s usually never fully explained to the holder, is contained in the index where you will see a table that shows the cost of the insurance per $1000.00 of coverage. So now let's go to the index page of you pretend policy and let's take a look at how the cost goes up every year but the premium either does not go up at all, or, if it does, it doesn’t quite seem to quite catch up with the yearly cost. At this point, if you're still with us then you should be asking how could that possibly work.

It works thusly: Universal Life Insurance has the whole life insurance feature of cash value, but it is nevertheless an Annual Renewable Term policy, which is sometimes sold as a policy that ‘pays for itself’ and it does except as mentioned earlier there’s a catch. That catch is that eventually the monthly premium can't cover the cost of insurance and that’s when the company starts to take difference out of the policies cash value until such time when there is no more cash value left. By that point, the premiums are so expensive/exorbitant that continuing with the insurance has become prohibitive. Pretty neat, don't you think?

Understand, that we are not trying to talk anyone either in or out of getting Universal Life Insurance; we have simply presented a little understood basic of this type of insurance. However, Universal life has so many variables that one practically needs a degree to understand them all. Well, if not a degree than a really good accountant that can explain both the advantages and disadvantages of Universal Life.

In truth for those in the higher tax bracket, Universal Life Insurance can be a very good vehicle for asset protection and for its tax advantages, but it is a type of life insurance where one really needs to understand what they are doing. And if you don't understand it then you'd better have that really good financial advisor or attorney that does.

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