Update Sept. 01- 2010 All About "Universal Life Insurance" By Insurance Experts

Unlike term and whole life insurances, this policy blends term insurance and an investment account into one contract. Also its premiums can be increased or decreased, paid when due or at unscheduled dates, or stopped entirely and restarted at the owner's will provided the policy value is adequate to maintain the cost of the insurance.
This type of policy is adapted well to satisfy the changing insurance and investment needs of its owner.
(By Kyle J. Norton)

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Teaches You Surprising and Viable Strategies
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Exploring the Benefits of Universal Life Insurance
By Chris A. Harmen


There are many options to consider when choosing a life insurance policy. The first step in the selection process is to decide what type of policy to pursue. There are many conventional choices, but financial coordinators have now begun recommending a less typical type of policy known as universal life insurance. Universal coverage offers much more than just a policy. It acts to protect the family after the death of the insured, just like other policies. However, it is the unique features of the universal coverage option that make it different from most traditional options.
What Is Universal Life Insurance?
Universal life insurance is a type of policy that offers the owner almost unsurpassed flexibility and choice. These policies require an unprecedented level of involvement on the part of the policyholder because there is almost nothing fixed about them. They are based upon a cash value account, which the holder may add value to whenever he or she chooses. There is no specified rate at which funds must be added, nor is it standard practice to impose a specified minimum balance. Instead, the holder retains the complete right to manage the balance as he or she sees fit.
Traditional policies tend to lock the insured into an option for an average of 20 years, if not more. In contrast, universal life insurance offers the opportunity to monitor and change the plan every day if desired. Why Cash Value Is Important
Most experts consider the cash aspect to be the centerpiece of any universal life insurance coverage. The account is similar to an account that would be found at a bank, including its ability to gain interest. The cash value is controlled by the person who owns the policy; they can make withdrawals and deposits, just as with any standard savings method. This feature is found only in universal life insurance. Other plan styles do not offer these types of unstructured options.
Because these plans offer an account, owners have unparalleled flexibility. There are many functions included that go beyond a simple deposit or withdrawal. A user can surrender his or her policy, terminating it in exchange for the total sum cash value at that point, less any applicable withdrawal charges. Another option is to take out a loan from the issuing agency. It is essentially a loan against the cash value, but behaves much like a loan from any other common source. Finally, the plan can also be collateral for a loan issued elsewhere.
Paying For The Policy
The account attached to a given plan does not itself constitute a universal life insurance policy. Instead, it is like a dedicated selection of funds set aside specifically for payment of the plan. On a predetermined schedule, the provider will debit funds from that account in order to pay for a predetermined amount of coverage. The provider then sends a detailed and itemized bill to ensure that the owner understands exactly what he or she is receiving.
There is one potential drawback to this system. Because the amount is automatically debited from the account, the owner must keep careful track of the balance. It is possible for this type of policy to lapse because there are not enough funds in the account itself, meaning that the policyholder would suddenly be without coverage. Although an agent may keep some sort of watch over an account, the ultimate responsibility always lies with the policyholder. Of course, the limit on how much can be placed into the tax-advantaged account are very high, so one may deposit enough to have quite a substantial cushion. Proactive measures like this can greatly reduce the risk of sudden loss of coverage.
Who Benefits From This Type of Plan?
Unlike most other policies, universal life insurance offers a unique opportunity to combine investment and coverage. Universal life insurance provides the same package of benefits as any other type of plan, but it has the additional bonus of the tax-advantaged account. For this reason, many individuals choose to purchase a universal life insurance policy for the tax-advantaged investment plan-even though that is not the main purpose of the policy. Money can accrue interest and be withdrawn at will, making it a safe choice that has benefits.
In addition, forward-thinking individuals can use universal life insurance to protect a business in the event of their death. The policy can help keep the business afloat and enable it to benefit from the rest of the accrued money. The same is true for anyone who will leave an estate, as the funds can help pay off estate tax. And finally, starting a plan early in life is an excellent option for retirees. Planning ahead and depositing more than the minimum into a universal life insurance plan can be a great way to ensure security after retirement.
With an understanding of this unique policy, individuals can not only plan for the future, but also for the present as needed.
SEEK INDEPENDENT ADVICE. All information expressed in this article is intended to be general information only. You should not rely upon this general information to make legal, tax, investment, estate or financial planning decisions. No portion of this article is intended to nor does it provide legal, tax, investment, estate or financial planning advice. For this type of advice, you must consult an independent advisor.
Chris Harmen writes for Wholesale Insurance, a life insurance company that connects men and women with many different policy types, including universal life insurance.

Recommended Reading
Live Your Life Insurance
Teaches You Surprising and Viable Strategies
For Developing Prosperity Through
Your Life Insurance Policy

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Update August 16- 2010 All About "Universal Life Insurance" By Insurance Experts

Unlike term and whole life insurances, this policy blends term insurance and an investment account into one contract. Also its premiums can be increased or decreased, paid when due or at unscheduled dates, or stopped entirely and restarted at the owner's will provided the policy value is adequate to maintain the cost of the insurance.
This type of policy is adapted well to satisfy the changing insurance and investment needs of its owner.
(By Kyle J. Norton)

Recommended Reading
Live Your Life Insurance
Teaches You Surprising and Viable Strategies
For Developing Prosperity Through
Your Life Insurance Policy

A 'Fee-Only' Financial Planner's View of Life Insurance
By Lon Jefferies

When was the last time you met someone who introduced themselves as a "life insurance agent?" These days, even life insurance salesmen refer to themselves as "financial advisors." Yet, what advice do you think an insurance salesman will provide? Of course, they will recommend you buy life insurance. To make matters worse, the insurance industry has managed to take something quite simple and complicate it to the point where not even all the people who sell it fully grasp the implications of the product.

So what do Certified Financial Planners (CFPs) who don't collect commissions on product sales think about life insurance? When is purchasing life insurance appropriate?

CASH VALUE vs. TERM INSURANCE

Life insurance comes in many forms. Some policies slowly accumulate a cash value, meaning most of your premium goes towards insurance and a small portion goes towards a savings account. When you surrender your policy you may be able to collect this savings account. These products include whole, universal, and variable-universal life policies.

These policies are commonly presented as an investment. But beware! You should always think of life insurance as an expense. When you purchase insurance, you are buying something --peace of mind. Insurance is a way to ensure the financial security of the breadwinner's family until the family can accumulate enough investments to make insurance no longer necessary. For this reason, insurance is frequently a necessity for young families, and often less necessary for mature families.

Whole Life

Whole life insurance typically requires the owner to pay premiums for the life of the policy. The insurer guarantees that the policy's cash values will increase regardless of the performance of the company or its experience with death claims. With whole life policies, the interest rate applied to the cash value is predetermined and fixed.

Universal Life

Like all types of insurance, universal life pays a death benefit when the insured individual passes. Before death, however, the cash-value grows at varying rates depending on the ups and downs of interest paid on bonds and savings accounts.

Variable-Universal Life

Variable-universal life policies are similar to universal life policies, except the cash value can be invested in mutual funds (called sub-accounts) rather than at the insurance company's current interest rates. However, the fees on these policies can be extremely high and in almost every circumstance there are more efficient strategies.

Term

Policies with 100% insurance and no cash values are called term insurance. This is the type of policy most people picture when they think of insurance. You simply pay the premium and collect a benefit in the event of death.

Although there is no savings element to term insurance, remember you are buying insurance to ensure your family is taken care of if something happens to you. In most cases there are more efficient ways to save and plan for retirement than through the purchase of cash value insurance policies.

Insurance or Investment?

A phrase you may have heard when considering insurance is to "buy term and invest the difference." (You likely don't hear this from insurance agents because they are paid a higher commission on cash-value policies. The salesman's commission on cash value policies is often 90% of your first year premium.) To implement this strategy, buy low-premium term insurance from a highly-rated insurer and put the money saved from not buying a cash-value policy into a true investment account like an IRA, Roth IRA, etc. This provides your family with the protection it needs and an efficient way to save for retirement. Hopefully, over time, the investment account will grow and the need for insurance will be eliminated.

Most fee-only financial planners are proponents of the "buy term and invest the difference" strategy. However, there are certain occasions when a cash value policy may make sense. For instance, buying a cash value policy may be appropriate if your need is permanent, such as caring for a special needs child. Additionally, cash value policies may make sense if your need is certain, such as if you have the policy and are then diagnosed with a terminable disease. However, if you need a cash value policy, look for a no-load policy that doesn't pay the salesman a commission. This can cut your premium in half and you won't pay penalties when you withdraw your cash value.

Canceling a Policy: Prepare to Pay

Canceling a term policy is simple - just stop paying the premium. If you cancel a cash value policy within 10 years of purchase, you will generally pay a penalty (called a surrender charge) when you withdraw your cash value. If you cancel a variable universal life policy, you will also pay ordinary income taxes on the profits inside the policy. Chances are your insurance agent forgot to mention this.

Bottom Line

Insurance is clearly a complicated product, but for many, it is a necessity. However, remember that insurance agents are financially motivated to sell you insurance, regardless of your circumstances. Always speak to a fee-only Certified Financial Planner, who is never compensated based on the product recommended, to get an objective opinion of whether you and your family have adequate insurance coverage.

Lon Jefferies is an investment advisor representative with Net Worth Advisory Group, a fee-only financial planning and investment advisory firm in Salt Lake City, Utah. He specializes in developing custom financial plans, implementing investment strategies, and providing ongoing support and service in order to help clients reach their financial goals. He can be contacted at (801) 566-0740 or lon@networthadvice.com. Visit the Net Worth Advisory Group website at http://networthadvice.com and read Lon's blog at http://www.utahfinancialadvisor.blogspot.com.

Recommended Reading
Live Your Life Insurance
Teaches You Surprising and Viable Strategies
For Developing Prosperity Through
Your Life Insurance Policy

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