A guaranteed universal life insurance is also known as permanent life insurance. Guaranteed universal life insurance means a policy which will not expire, even if the money value has been nil for the duration of time. Given that, it would essentially act like a fractional term life insurance with the earliest term ending at anything approaching the time the policy matures, say at any age if the individual turns ninety, 101 or 121. This is certainly an excellent retirement strategy as life assurance coverage tends to be highly tax-deferred in nature. And so as the amount of your premium decreases each year, the tax-free returns grow each year until they reach the maximum payout amount.
There are two types of universal life insurance policies and these are the modified and the conventional types. The former features a lock-in period of anywhere between one to thirty years whilst the latter allows for a considerable amount of rise in the cash value during the lock-in period. With respect to the former, your premiums are generally paid according to the condition of your health at the date of application. During the lock-in period, the insurer has the right to periodically review your health conditions and take corrective action with respect to your premium payout. On the other hand, the conventional type features fixed premiums that increase over time with increasing age until the maturity date.
The benefit of universal life insurance policies lies in their ability to grow with you as you approach the end of your life. This is because the premiums are adjusted annually on the basis of what your beneficiaries will be able to pay in the event of your death. Furthermore, the insurer uses a portion of the cash value to pay any expenses incurred during the whole life time. And this leaves you with a substantially higher cash value at the end of your life compared with the conventional type.
However, the disadvantage of these plans lies in the fact that the rate of return is lower than that of the whole life insurance policies. Moreover, it is also important to note that the universal policy remains with the insurer throughout your lifetime, whereas the insured person dies during the validity of the plan. Moreover, the annuity payment and the premiums remain with the beneficiary, who in most cases is the individual who has been paying the premiums. Moreover, there is a possibility that the whole life insurance policies are tax deductible, which means that you could make a considerable sum of money by paying taxes on the lump sum obtained through investment. However, the disadvantage of these plans lies in their inability to guarantee any kind of income during the term of the contract.
The universal life insurance policies and the whole life insurance policies both offer guaranteed income during the lock-in period and in the absence of an accidental death. In order to determine the value of these policies, it is important to know how premiums are assessed. As the insurer pays all the premiums, the value of these policies is equal to the excess of premium payments over the premiums. However, it must be noted that in the whole life insurance policies, if there is any default in the payment of premiums, the insurer has the right to immediately cease payment and take over the investments. This means that the benefits of the policy will cease once the premiums are complete.
When it comes to comparing the value of the universal life insurance policies and the whole life insurance policies, it is important to note that the cash value account feature of the universal life insurance policies allows the insurer to convert the premiums into cash value. The lump sum paid as premiums may not be used for investments. Therefore, the value of the account must be based on the premiums being invested. As for the whole life insurance policies, the value of the accumulated cash may not exceed the premiums and the face value of the death benefit. The premiums are based on the current age at death of the insured. Thus, they start off as fixed premiums and are adjusted as the insured gets older.
In contrast to the universal life insurance policies, the whole life policies start off as variable premiums that may be adjusted as per the insured’s death benefit and as per the premium rate during the initial coverage period. The insurer may also end up paying more than the death benefit in certain circumstances. For instance, if there is an additional premium due at the time of coverage, the insurer has to make this additional payment. However, the insured has the flexibility to pay the premium even later, after the end of the policy.
In general, the whole life insurance policies and the indexed universal life insurance policies are both considered as permanent insurance plans. This means that, they are not meant to be terminated or cancelled and are instead fully enforced and should remain until the death of the last insured person. While the indexed universal life insurance policies can be ended earlier than the whole life policy, once the premiums have been paid in full and the death benefits have been earned, the plan can be ended.