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Life Insurance Explained: Universal Life Insurance (Part 4 of 5)
Posted on March 4, 2008 at 1:42 pm
Filed Under Insurance Planning, Personal Insurance
We have looked at both Term Life Insurance and Whole Life Insurance previously and today we want to better understand how the two of them helped to create Universal Life Insurance.
In some ways, you can look at Universal Life Insurance as a “hybrid” product combining the best of both worlds when it comes to Term and Whole Life. With this type of insurance, the objective is to pay an Estimated Level Premium (ELP) that will stay level for life or the period of time you select. Inside of this policy are two primary components; namely the Cash Surrender Value (CSV) and the Insurance cost. Depending on how you structure this, you can use it to protect you and your family with a level Cost of Insurance option that is guaranteed for life, or you can use it to create wealth for yourself by over funding this policy and by using an Annual Renewable Term cost of insurance.
The reason this is considered a hybrid product is because the insurance industry has combine both a term insurance component with the ability to over fund your policy and thus create a cash value. The difference in this case is that the premium you pay is not guaranteed and is based on the success of your investment choice and of course the market.
Your Take-Away: This type of life insurance can used for someone who wants a level cost of insurance from now until death but who may want to take advantage of the tax shelter it provides or “pay it off” in a certain time period. The level cost of insurance is guaranteed within the policy, however it is important to note that your premiums are not. This can also be used for someone who may or may not have a need for life insurance but who has extra cash flow that are looking to protect their assets from the tax man or creditors.
Again, this form of life insurance can be a great vehicle for many Canadians, but it safe to say that this structure will not make sense for everyone. Each situation is different and understanding your options and financial status is key to helping you make the right decision on what “concept” or product is right for you.
Until next time, have a Terrific Tuesday.
Chris & Elisseos
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[…] Homeworker Insurance wrote an interesting post today onHere’s a quick excerpt We have looked at both Term Life Insurance and Whole Life Insurance previously and today we want to better understand how the two of them helped to create Universal Life Insurance. In some ways, you can look at Universal Life Insurance as a “hybrid” product combining the best of both worlds when it comes to Term and Whole Life. With this type of insurance, the objective is to pay an Estimated Level Premium (ELP) that will stay level for life or the period of time you select. Inside of this pol […]