The Rock Insurance Minnesota:
Universal Life Insurance Minnesota
What is Universal Life Insurance?
Term and whole life insurance had its issues in the early days, so in the 1970s universal life insurance was developed. The payment process works similarly to the others. That is, you pay premiums on a regular basis and when you die the company will pay out to your beneficiaries in accordance with the contract.
The way insurance works is that they take a percentage of each payment for themselves. The rest goes into the fund you’re leaving for your beneficiaries. Universal life insurance takes the money and pays into the company’s investment portfolio rather than a fund. If the investments do well, more is paid out to your beneficiaries.
This may sound like gambling, but most policies guarantee a minimum payout. This means your beneficiaries will get an agreed upon amount. If the portfolio does well, then your beneficiaries could wind up benefiting greatly. That said, you have no control over the investments made with your funds. The portfolio is managed by the company, and you accept the success and loss when you buy the policy.
Thankfully, most policies offered are quite flexible. While you have no control over how the funds are invested, you do have control over how much you pay, how often you pay, and other factors.
Just as an example, say you get a new job and have a sudden increase in income. You could choose to increase the amount you pay for each payment. That way you can build up a larger fund much more quickly. The reverse is also true. You can reduce your payment amounts and save money each month. You could even pull money out of the fund if you’re in serious need. This could have a number of other effects, however. You won’t accumulate value as quickly, and that can be risky when talking about insurance. If you were to pass away soon after a deduction your beneficiaries will be the ones who suffer.
That said, withdrawn funds are considered “basis first”. That means you won’t have to pay more in taxes unless you withdraw more than what you’ve paid in. If you withdraw more than that, the excess is taxed the same way as income.
If you plan carefully, it’s possible to set up a universal life insurance policy in such a way as to ensure the invested value covers the premiums. This would free you of the obligation to continue paying the premiums while still allowing the value of your policy to increase.
It can not be stressed enough that deducting from the value of the policy can result in multiple problems down the line. You could wind up paying exponentially more money due to taxes. If you take out a loan, withdraw policy values, or if actual investment returns decrease then you may need to pay more out of your pocket. This would ruin any self-payment set up. Also, keep in mind that a guarantee is only as good as the company making it. If the issuing company folds or restructures you could wind up with nothing.
Another lucky break, federal tax rules help to protect from some of that. As long as the policy doesn’t lapse before the insured’s death and isn’t a modified endowment contract then loans taken out will be free of taxes. This is due to the nature of the loan. It’s presumed the loan will be paid back, if not in life then out of the fund after the insured’s death. The more you withdraw, the more likely it is that the policy will lapse or something will go wrong and send your policy into a financial spiral.
Life insurance is just like every other insurance in terms of costs. The price changes depending on a number of factors. Older people may have to pay more, and the terminally ill may not be able to buy life insurance at all. Life insurance can be a difficult decision from a financial perspective. It’s hard to fathom your own death, and no one wants to think about what happens after their death. Policies can change due to federal and state laws, as well. That doesn’t make things any easier. There can also be charges if you cash out a policy prematurely. So once you pay into the policy, your money is there until the agreed upon time. And in the case of life insurance, that means your death.
However, don’t gamble with your loved ones. Life insurance is important. And for those who want flexibility in how their policies work, universal life insurance can work wonders. Contact us today to learn more about your options. We cover a wide area of Minnesota including Burnsville, Brooklyn Park, and Maple Grove.