Universal life insurance can be a complex product. But it doesn't have to be. When you think about purchasing permanent life insurance this product is one you have to consider.
What Is Universal Life Insurance?
Universal life insurance is a product that is able to insure you for your lifetime. The cost can vary greatly from one policy to another (even with the same carrier) depending on how it is structured. There are several kinds of universal life insurance (UL):
Guaranteed Premium UL- In this type of policy, the premium and the face amount will remain level during the life of the policy (as long as premiums are paid on time). These can be setup so that the policy lasts to age 95, 100, 105 or 121, or another age if you wish. They can also be set so that the policy amasses minimal, if any, cash value. When structured this way, they are going to be the least expensive permanent policies available.
Indexed UL or Equity-Indexed UL- The cash value in these policies can be tied to different stock indexes, such as the S&P 500, Nasdaq, etc. How the index performs will determine your returns. Your money is not actually invested in the index, just tied to it for interest accounting. You can't lose any of your cash value, but it can grow!
Variable UL- This policy is considered a security and is only available for purchase through a broker-dealer. This is a high risk product and should only be bought by a sophisticated investor.
Some Factors Affecting the Premium Are:
- Your underwriting rating- This rating is affected by many factors, some of them are your age, build, medications, health history, family health history and more.
- Cash accumulation- Do you want to have the policy earn cash value ? If so, you will pay a higher premium.
- Do you want a guaranteed death benefit?
- Do you want guaranteed level premiums?
- Do you want riders- such as waiver of premium or accidental death benefit riders? They will add to the premium too.
Some Pros and Cons:
- Pro- the policy will last for your lifetime with a level death benefit and face amount.
- Pro- with minimal cash value, guaranteed premium universal life will be the least costly permanent policy available.
- Con- the policy is more expensive than term insurance. Only a small percentage of term insurance is paid out, however permanent policies have a much higher payout percentage and so cost more.
- Con- It's extremely important to pay your premiums on time. The guarantees structured are dependent on payment in a timely manner. If you miss a payment or are late, it can affect the guarantees and your premium could increase.
What is Guaranteed Premium Universal life insurance?
In this video Lenny will explain how Guaranteed Premium Universal Life Insurance works. And of course he will talk about the universal life insurance pros and cons!
Guaranteed Universal Life Insurance Policies Requirements
The type of life insurance you purchase will depend first on your needs. If you need coverage for your lifetime this type of universal life policy will be the least expensive.
As I mentioned earlier, this product requires full underwriting. You will be required to have a paramedical exam. An examiner will come to your home or office and take a complete medical history. They will take your height, weight, and blood pressure. You may need an EKG, and if so, they will bring the machine. There is NO disrobing. They will draw blood and you will give a urine sample.
Then your application, exam information and laboratory results will go to an underwriter at the insurance company. They will determine if they need more information. If so, you will be asked more details, and /or your doctor records will be requested. (The insurance carrier or your agent will order these.)
They will run a motor vehicle report and check your driving record. If you have multiple speeding ticket, or a DUI, you may have difficulty getting insurance coverage.
The insurance company will order your MIB (medical information bureau) record. If you have previously applied for life insurance there will be a file. If you were declined or rated up, there will be a code telling the current insurer to find out more information. There are no details in the MIB.
Using all of this information, the underwriter will make a decision about your insurability and decide on your rating. The better your rating, the lower your premium.
We have had cases where our internal underwriter has gone to the insurance carrier and made a case for a better rating than we received. Many times we are successful in getting a better rating. Unfortunately, not always!! As agents generally cannot talk to the case underwriter, this is a nice benefit of using an agent with an independent in house underwriter.
The Bottom Line
We hope this article helps you to understand the Guaranteed Premium Universal Life Insurance pros and cons. We find that this policy is often able to fit the needs of most of our clients who want permanent coverage. The guarantees make this product very desirable, and the lower cost doesn't hurt either.
Hi. I'm Lenny Robbins at LifeNet Insurance Solutions coming to you today from a rainy Seattle and I'd like to talk with you about a permanent type of policy known as a guaranteed premium universal life policy. This is one of the two major types of life insurance that is designed to stay in effect as long as you live.
The benefit to this type of policy is that it is designed with a premium that will never change as longs as the premium is paid in a timely fashion. So you can always be aware and comfortable with the fact that you will not have increasing premiums at a time when the coverage is most needed. The negative or the con of universal coverage is that it is designed without cash value so that you will not be able to withdraw money from the policy if you need additional cash.
However, you will find that premiums are generally substantially lower than it might be in a whole life policy. And in fact, today most companies are not in the whole life business any longer because of the ability of this type of universal coverage to meet most needs. And we find that it allows people to pre-plan effectively as they get older.
So whole life insurance is just more expensive, not done any longer by most carriers. Universal coverage is clear, easy to understand and best of all, it's easy to compare one carrier against another to see where you're going to get your best value.