Do You Know Why Whole Life and Universal Life Insurance Is Not The Best Choice In Every Situation?
Summary:
There is a good reason why this is called “Life Insurance” and not “Death Insurance”. Simply one who has lost a loved one has one less thing to worry about “How am I going to live?”
Term life insurance: How does it work?
The least complex form of life insurance is called a term. A term life insurance policy provides coverage for a set period (e.g., a term you choose) for whatever benefit amount you select. When that period is over, usually 10-30 years, so is the coverage
Whole-life cash values are guaranteed
Has
a guaranteed premium, and the whole life also
provides guaranteed
cash value. As these values build throughout the policy, a loan or
withdrawal may be taken to cover future premiums, meaning your whole
life policy could even become a self-financing asset
Universal life cash values and premiums can fluctuate
In a universal life insurance policy, the cash value growth depends on the current interest rates associated with the specific type of policy. Universal life policies will all see different growth patterns. How much premium you pay into the policy and how much you tap into the cash value will also influence overall growth.
We don't sell life insurance we provide financial guidance
Derek P. Bliedung is a former Primerica licensee insurance agent who later started the Columbus Financial Success & Coach, to bring members of the society from financial hardship to financing thriving.
Introduction
Life insurance fills a unique role: when you're no longer able to be there for your loved ones, the life insurance company will deliver a tax-free check to your beneficiaries. While this money can never replace you, it can help them live the kind of life you hoped to provide.
What are the major types of life insurance?
All life insurance can give you financial confidence that your family will have financial stability in your absence. However, there are several different types of life insurance, and it's important to understand the benefits of each type based on your needs and how they compare.
Read more: What Are The Different Types of Life Insurance Policies And Their Pros & Cons
Term life insurance: How does it work?
The least complex form of life insurance is called a term. A term life insurance policy provides coverage for a set period (e.g., a term you choose) for whatever benefit amount you select. When that period is over, usually 10-30 years, so is the coverage. Term insurance can be an economical and temporary form of financial reassurance for many. Coverage can sometimes be renewed after the initial term period expires, although typically at a much higher cost, and in most cases, after a new required medical exam. Term insurance does not have any component of building a lasting financial asset, but it does provide a level of coverage until the term expires. If you like this article share it on LinkedIn or another social media.
Permanent life insurance: What is it, and how does it differ from the term?
The other primary type of life insurance policy is called permanent life insurance. Here, life insurance coverage stays with you as long as you're alive and as long as your payments stay current. Whether loved ones or a designated charity, your beneficiaries will receive a sum of money when you pass away, no matter when that occurs. There are two main variations within the permanent life insurance category: whole life insurance and universal life insurance.
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How do whole life insurance policies and universal life insurance policies compare?
Both permanent products are life insurance policies that can last your whole life, and in addition to the insurance coverage, both can build a cash value,1 which is money that you can use during your lifetime. 2 You can't outlive the guaranteed life insurance protection, 3 provided that you keep the policy in good shape by making sure that your payments are up to date. 4 A portion of each premium (the amount you pay for your policy) builds your cash value component.
Aside from these similarities, whole life and universal life have several differences. One variety might suit a different type of person better than the other, and ideally, you would consult with a qualified financial professional to figure out which is more in line with your needs. Here, we list a few considerations.
What are the key differences between whole life insurance and universal life insurance regarding cost?
Whole life costs a guaranteed level amount of money each month In general, a whole life insurance policy is best suited to the type of person who wants guarantees. A whole life insurance policy tends to cost more in the early years to support its guarantees.
You're buying a financial product that will provide an immediate death benefit and start building up into a permanent asset — and this comes along with several guarantees. These include guaranteed level premium payments, meaning that the payments you make each month (or year, if you prefer) won't ever arise. As the cost of living increases throughout the years ahead, you can be certain that your whole life insurance premium will remain identical every month and will never cost more.
Call or text today for an appointment at 614-282-3162 or chat with us on WhatsApp.
Whole-life cash values are guaranteed
provides guaranteed cash value. As these values build throughout the policy, a loan or withdrawal may be taken to cover future premiums, meaning your whole life policy could even become a self-financing asset. Although not guaranteed, you may also receive annual dividend payments from the insurance company if it's a mutual insurance company. Those dividends can boost the cash value assets even further.
Also, the cash value growth within the policy isn't taxed as income. The combined package — guaranteed death benefit for your loved ones whenever you pass away and cash value that grows in a tax-advantaged way — gives you the flexibility to handle life's unexpected events. Always keep in mind that accessing the policy's cash value may affect how much your beneficiaries receive after you're gone.
The cash value you build with whole life insurance is a financial asset and one you can access and use during your lifetime. You can borrow and withdraw from it to supplement retirement income, help offset college tuition costs, use it as collateral for a loan, and much more. Your cash value will grow at an interest rate guarantee from the insurance company, with potential additional growth provided by a non-guaranteed dividend.
Universal life cash values and premiums can fluctuate
In a universal life insurance policy, the cash value growth depends on the current interest rates associated with the specific type of policy. Universal life policies will all see different growth patterns. How much premium you pay into the policy and how much you tap into the cash value will also influence overall growth.
There is some risk associated with universal life because interest crediting rates, cost of insurance rates, and investment performance can change and will impact your policy. It's important to consider coverage with a company that offers a guaranteed interest rate. Speak with a financial professional to learn more.
If a universal life policy is underfunded — meaning the number of premiums paid is less than the current charges, the difference is then deducted from the cash value. Depending on your specific contract, your policy can lapse if the cash value falls to a certain point.
Call or text today for an appointment at 614-282-3162 or chat with us on WhatsApp.
It would help if you stayed in touch with your financial professional to ensure that you keep the account, and your life insurance coverage, in healthy condition. In the comments what insurance type would you want to get?
How do they differ when it comes to dividends?
A whole life potentially provides dividends
If you buy a whole life insurance policy from a mutual insurance company, you may receive annual dividend payments on your policy. These depend upon the insurance company's profitability that particular year and are not guaranteed. However, some mutual companies have track records of delivering dividend payments virtually every year with policyholders. Dividends can be reinvested into your policy to help build cash value faster. Over time, this can help grow your cash-value account.
Another financial tactic is to use dividend payments to buy additional insurance and increase the total "death benefit" (the amount of money that will be payable to your loved ones).
You may also use dividends and the additional coverage they purchase to pay all or a portion of your future premiums. Other options are to receive the dividends in cash each year or accumulate them within the policy and withdraw them later.
Note that loans and withdrawals from the policy can reduce the amount of money you will eventually leave to your beneficiaries.
Universal Life does not benefit from dividend payments
While universal life does enable you to benefit from interest rates when they're working in your favor (and lose value when they're not), in general, you do not receive dividend payments from the insurance company.
How do they compare when it comes to premiums?
The money you pay every month to purchase your life insurance coverage is called your premium. This premium is a fixed payment of a set dollar amount in a whole-life policy. In a universal life insurance policy, you can raise or lower those payments as you see fit, within the policy's limits.
Universal Life provides more flexibility in payments
The universal life option allows you to adjust to your life circumstances if you choose. Having another child, moving on to a different job, or one day taking out a loan to buy a business — all might be instances where a combination of protection and flexibility becomes important.
This type of policy might suit you if you envision significant income fluctuations or think that you may want the ability to vary your payments. Paying in less could eventually result in the need to pay higher premiums in later years to keep your coverage from lapsing. This option means that your premium payments could vary, providing flexibility to keep your policy in force your entire life.
Both whole and universal life insurance policies can be complex. Before deciding which type of life insurance policy is best for you, meet with a financial professional to check out the options and discuss what best fits your needs.
Call or Text for an appointment today: 614-282-3162 or reach out on chat with WhatsApp. Columbus Financial & Success Coach
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1 Comments
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