Universal Life Insurance Estate Planning

Sim Gakhar knows there are several different forms of life insurance that are available on the market today. One of the more popular options for customers is a universal life insurance policy.

When it comes to estate planning, this type of policy can be essential to ensuring your loved ones are taken care of should the unexpected happen.

Life insurance in estate planning

Life insurance is critical when it comes to estate planning. When someone passes away, families are often left with unsettled debt, estate taxes and funeral expenses.

These monetary expenses are important to settle debt such as a mortgage or other property debt that the deceased has incurred.

Having to worry about these issues can be burdensome enough for a family. Having a life insurance policy eases some of the burden on the family with a monetary sum that’s able to be used to take care of all these concerns.

What is universal life insurance?

A universal life insurance policy is a cash value policy. Payments on the policy go to the premium, but any payments over the price of the premium go directly towards the cash value of the policy.

This extra money also has the benefit of accruing interest at a rate similar to what current market rates are at the time. If this interest rate is tied to stocks, bonds, or other rate index, it is considered an indexed universal life insurance policy.

Even if a payment is not made, the policy is debited each month with a cost of insurance charge that includes any fees associated with the policy.

Benefits of universal life insurance

Universal life insurance has an upside to it. In this form of life insurance policy, the premium rate is said to be “level,” which means it does not change over the course of time. This level premium that doesn’t change is often sought by those seeking a predictable payment every month that is also stable.

Universal life insurance provides a death benefit to a designated beneficiary should a death occur. This allows a monetary value to be dispersed according to the terms of the policy, and can be used for estate and funeral expenses.

Not only does it provide a death benefit, but there are living benefits as well.

What can universal life insurance be used for?

In the planning of your estate, a universal life insurance policy can come in very handy. It gives you and your family benefits such as:

Takes care of outstanding debts.
Income replacement for spouse and children.
Funeral and medical expenses.
Estate replacement and liquidity.
Continuation of a business.
Trust
An alternative to a life insurance retirement plan or Roth IRA.
An alternative to whole or term life insurance.
Maximizing pension and annuity.
Protection from creditors.

Loans and from universal life insurance policies

Loans and withdrawals are a couple of the living benefits that are available with this form of the insurance policy. At a specified interest rate, a loan can be provided against the policy by the insurance company.

This interest rate is charged to offset the insurer not gaining the benefits of the investment. Loans are secured by the account value of the policy.

One of the perks of a loan is that the principal does not need to be paid back, only the interest. If the interest isn’t able to be paid however, the policy can lapse.

Taking out a loan on the policy is a convenient option in case of emergency, but reduces the life of the policy and the cash value doesn’t grow as expected.

Withdrawals from universal life insurance policies

Tax-free income can be withdrawn from this type of policy also as long as it doesn’t exceed the total amount of the premiums. Withdrawals can also be taken out against any cash value that the policy holds. This is a preferred option over taking a loan in most cases.

Withdrawals, just like loans, affect the cash value of the policy over time. The investment isn’t as large as it was, therefore the interest earned isn’t as great. This issue can however be addressed by lowering the death benefit of the policy. These factors need to be considered before taking any money out.

What are the types of premiums for universal life insurance?

There are three different types of premiums associated with universal life insurance policies. These include single, flexible, and fixed premiums.

A single premium is a large lump sum payment made in the initial stages of signing up for the insurance policy. As long as the cost of insurance charges haven’t drained the account, the policy stays in effect from this payment.

Fixed premiums are payments made periodically that include a no lapse guarantee. Most of the time the payments exist for a shorter time than the policy being in force.

This fixed premium only occurs if it is tied to a guarantee. If there isn’t a guarantee then the premium becomes a flexible one.

Flexible premiums allow the policy holder to change the details of their policy if they wish to do so. By changing the premium, the benefits such as the death benefit for instance can go up or down based on a rising or decreasing premium.

Flexible premium universal life insurance can be purchased with a large initial deposit, allowing for the luxury of the monthly payments to not be regularly paid.

Conclusion

Universal life insurance is just one of the policies that Sim Gakhar can advise you on. There are several different options available for you and your family. When it comes to planning for your estate, the best course of action is to be prepared. We can help assist you with this process.

Universal life insurance can be there just when you need it. It relieves some of the stress and burdens that a death can have associated with it. Sim Gakhar wants to ensure that you are well taken care of should the unexpected occur. Contact us if you have any questions!