Universal Life Insurance
Universal life is also a permanent life insurance product. The owner pays premiums that add to an accumulated value, and there is a death benefit if the insured dies. But, with universal life, premiums are flexible. The illustration indicates a suggested amount to pay in premiums, but the policy won’t lapse if a payment is missed. Instead, the owner decides when and how much to pay in premiums.
When you look at a universal life policy illustration, you see projections of future accumulated values and death benefits for each year. Remember that the illustrated amounts are not guaranteed; projections are based upon current costs of insurance and current interest rates.
For this reason, one type of universal life is called current assumption universal life. You generally pay the suggested premium, with the goal of keeping the policy for life. Depending on interest rates, the accumulated value might grow more quickly or slowly than first projected.
Most universal life policies, however, offer a guaranteed death benefit. This is called guaranteed universal life, or no-lapse universal life. With these products, you must pay the premiums, as illustrated, to receive the death benefit. While the most common use for life insurance in the estate plan is to provide the executor with cash to pay estate taxes, there are other instances when life insurance provides the best solution.
- Payment of administration expenses, typically ranging from 1 percent to 5 percent of the estate’s value
- Retirement of debt
- Payment of state death taxes, now that many states have decoupled from the federal estate tax system
- Payment of income taxes on retirement plans, deferred compensation, and annuities passed to non-spousal beneficiaries
- Maintaining the standard of living of friends and family
- Equalizing an inheritance when a family business is involved
- Providing an inheritance to children of a first marriage—consequently relieving tension between the new spouse and the deceased’s former family
- Replacing for the family a substantial gift to charity
Guarantees are based on the claims-paying ability of the issuer. Fixed insurance products and services offered through CES Insurance Agency.