Life insurance remains an essential financial tool for protecting your family and loved ones when you pass away. Universal life insurance (UL) offers a flexible premium and investment potential but also has some disadvantages. In this post, the team at Medical Profiles Inc will tell you everything you need to know about universal life insurance in Houston, TX.
Key Takeaways
- UL refers to a permanent insurance policy with flexible premiums and a cash value savings component.
- UL has no age restrictions on usage.
- Borrowing against a universal life insurance policy doesn’t have any tax implications.
- Premiums for UL policies grow, and the cash value component can cover the remaining premium amount.
What Is Universal Life Insurance?
Universal life insurance refers to a type of life insurance that offers a cash value death benefit in addition to investment potential and tax advantages. UL policies have flexible premiums with options for a single payment, lump sum, and recurring fixed payments. Universal life insurance also has a savings component with a cash value that grows over time.
How Does Universal Life Insurance Work?
One of the unique features of UL policies includes allowing you to adjust death benefits and premiums. UL premiums have two primary components: the cost of insurance (COI) and the cash value.
The minimum payment to keep the policy active covers the COI. The COI also includes extra costs like administration fees or mortality fees, which will vary by state, age, life insurance company, and risk.
The other component is the cash value. The cash value equals the premium payments that exceed the COI. As UL policy costs increase, the cash value can make up for any COI increases.
UL Tax Advantages
Like most life insurance, UL policies allow the cash value of the policy to grow tax-free. When you pass away, the death benefits can transfer to beneficiaries tax-free.
Additionally, you can take out loans against the policy tax-free. However, if you cancel the policy with outstanding loans, you may have to pay taxes on a portion of the cash value.
Universal vs. Term Life Insurance
Term life insurance is another kind of permanent life insurance. Term insurance differs from UL in two major ways. First, level term life insurance coverage covers a fixed period—usually 20, 30, or 40 years. Second, term life insurance does not have a cash value component. The death benefits become void if you die after your term insurance expires.
Pros and Cons of Universal Life Insurance
Below we list some of the key advantages and disadvantages of universal life insurance in Houston, TX.
Pros
- UL policies have flexible premiums, so you can adjust how much you pay.
- The cash value of your policy will grow, meaning that if you consistently pay above the minimum premium cost, you can substantially increase your money tax-free.
- Just like premiums, you can also adjust the value of the death benefit. You will likely need a paramedical exam to increase benefits.
Cons
- As you age, the cost of coverage increases until the premium alone won’t cover it. You’ll have to pay the difference if your cash value is not high enough.
- Cash benefits grow well when interest rates stay high but can falter when they fall.
- Unlike term insurance, you have to monitor your UL policy to maintain adequate funding.
Professional Paramedical Exam for Life Insurance Coverage
Medical Profiles Inc offers paramedical exams, including lab testing for life insurance and personal wellness needs. You can count on us to be there for all your needs!
If you want more information about paramedical exams for universal life insurance in Houston, TX, contact Medical Profiles call today at (832) 251-3926!
