Universal Life Insurance
Many Americans find universal life insurance appealing because it attaches a tax-deferred savings account to the same policy. Universal life insurance offers a “one-stop shopping” experience for insurance-savvy individuals. Over time, cash value grows at a fixed interest rate, and part of your premium is deposited into the tax-deferred portion of the account. You then have the option of attaching your account to a stock market index.
There are several other advantages to a universal life policy. The most important is flexibility: you can increase or lower premium payments as circumstances change. These policies allow you to invest a higher portion of your money in your account when the stock market is performing well and to reduce premiums when it is not.
This type of policy also accrues non-taxable cash value. You can take cash out when you need it. When enough money has built up in the account, you no longer have to pay premiums. The account becomes self-sustaining, which is an excellent advantage if you plan to have the policy for a sustained period of time.
As with many things in life, there are downsides, too. A universal life insurance policy is generally suited for those who wish to have coverage after retirement. It takes time for the policy to accrue a large cash reserve. You need to carry the policy for an extended period of time to ensure that there will be cash to utilize. Cancelling a policy usually results in a surrender fee, which is often a percentage of the savings in your account. This type of account also mandates that you keep track of the stock market (and, concurrently, the policy’s cash value).
The nature of this kind of policy is complex and flexible. Accordingly, its premiums are expensive. In fact, they may be three to four times more than those of a term policy. Even though part of the premium payment goes into a tax-deferred account to grow, are there other options worth considering?
Discuss all of your options with a qualified insurance agent who has plenty of experience handling universal life insurance policies. Depending on your lifestyle and goals, this may be the policy of choice for you.
