27 April 2012 0 Comments

UL – Today’s Answer To Guaranteed, Permanent Life Insurance

I’ve taken you through the alphabet soup of permanent life insurance—NPWL, PWL, ISWL, VLI, ILI.  Now, for today’s most cost effective policy for guaranteed, permanent life insurance—UL.

Universal Life Insurance (UL)

Today’s Universal Life Insurance is not your grandfather’s Universal Life Insurance – or your father’s, for that matter. All UL policies are transparent, but the original UL policies provided lousy death benefit guarantees. When earned interest dropped below what had been projected, the policy would lapse without a substantial premium increase.  They were “trust me” policies.  Today, the best UL contracts have addressed that concern with an underlying death benefit guarantee when a minimum premium is maintained. When you couple that low guaranteed premium with UL’s flexibility, current interest and competitive mortality charges, no wonder it’s my favorite. Today, UL lifetime death benefit guarantees can be exceptional. I use the word “can” because these  guarantees are not included in all contracts.  If you want to sound like an expert, ask your agent if there is a “secondary guarantee.”

Secondary guarantees can be carried all the way to age 121; the guesswork is gone as long as the premium is paid.  If no more than the minimum guaranteed premium is paid these policies develop very little cash value, peaking in the mid years and returning to zero. However, one company’s policy builds guaranteed cash values endowing at age 121. You don’t buy it for the cash value, but given the choice of two policies with the same guaranteed premium, cash values become the determining factor.

UL policies provide great flexibility.  There is no fixed premium.  As long as the premium paid in any given year (if any) plus the cash value is sufficient to cover the fixed charges and cost of insurance for the net amount at risk (face amount less the cash value), the policy will continue in force.  Even if you miss a premium required to provide the aforementioned death benefit guarantees, those guarantees could be reestablished later by making up the premium and interest.

UL policies are also available on two people that pay a death benefit only at the death of the second insured person.  They’re called “Survivorship” Life or Second-to-Die policies and are generally used by a married couple for estate tax liquidity…more on that later.

Today, many insurance companies with the most competitively priced long term UL death benefit guarantees, are telling us they cannot continue to offer policies at these same low guaranteed premium levels.  If these long term guarantees are pulled from the market it will not affect previously issued policies, but don’t wait if you have a need today for permanent life insurance.

That’s it for types of permanent life policies.  Next I’ll discuss how to access policy cash values during your lifetime and then I’m on to why you might need these policies instead of term.

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