Universal life is the category of insurance while IUL is a specific model. There are many different types of universal life, one of which happens to be indexed universal life. Learn about the different types of universal life insurance here.
Universal life insurance is classified as a “permanent” product. But because of the way these types of policies are structured, we think “permanent” is misleading. Find out more about how universal life insurance works here
Both universal and whole life policies enjoy a largely tax-free status. However, if the policy is surrendered, or lapses, the amount of money returned to the policy owner over and above the amount they paid into the policy, is classified as income to the policy owner and may trigger a tax liability.
Yes. the death benefit of all universal policies is considered tax free. However, a taxable situation could occur if the death benefit is above the gift tax exemption.
This is a common question which has been the source of a lot of confusion over the years.
The key lies in understanding the difference between death benefit and face value. These terms are often used interchangeably, but, when it comes to universal life insurance, there is a difference.
Payouts from universal life policies can be made in two ways. These two different ways are called option A and option B.
Under option A, the death benefit of the policy will equal the face value (minus outstanding loans, interest, and fees).
Under option B, the death benefit of the policy will equal the face value plus the cash value (minus outstanding loans, interest, and fees).
It is good to note that a policy set up to pay out according to option B is more expensive than option A.
A lot of people think overfunding a universal life policy is smart. But if one understands how universal policies work, one can see the danger of doing so. Find out how universal life policies work here.
An illustration is provided by the insurance company and “illustrates” the policy’s guarantees and projections. If you want to learn how to read an illustration for any policy, watch this course: How to read an illustration
An illustration can look intimidating to read, but once you know what to look for it’s pretty straightforward. Learn how to read an illustration here: How to read an illustration.
YES! Not only will this familiarize you with your policy; it will ensure you get what you want.
But just like in court where the judge wants the truth, the whole truth and nothing but the truth, you need to make sure you see the entire illustration.
Although agents are supposed to show you the entire illustration, many don’t.
Buying a policy when you haven’t seen, or understood, the entire illustration, is a good way to lose money. Learn how to read an illustration here: How to read an illustration.
That’s okay. It isn’t something you do every day. We’ve made a course to make reading an illustration easy. Watch the course here: How to read an illustration.
It might. Different universal policies work different ways. Find out how universal life insurance works here. How universal life insurance works.
Yes, some companies will allow you to change from option A to option B or vice versa. However, they may require medical information, as a universal policy under option B represents more risk than one under option A.
Option A (or option 1) as opposed to option B (or option 2) is one of two ways most universal life policies figure death benefit. Under option A, the death benefit will equal the face value of the policy (minus outstanding loans, interest, and fees).
Option B (or option 2) as opposed to option A (or option 1) is one of two ways most universal life policies figure death benefit. Under option B, the death benefit will equal the face value of the policy plus the cash value (minus outstanding loans, interest, and fees).
It is important to note option B is more expensive than option A as there is more risk for the insurance company.
Accumulated cash value is the money (cash value) inside your policy and represents the equity of your policy.
The surrender value is the amount the insurance company will refund you if you decide to surrender (terminate) your policy.
A surrender fee is a charge against your policy at the time of surrender. Universal Life policies usually have surrender fees for the first 10-15 years of the contract. These surrender fees may be equal to the total cash value of the policy.
A death benefit is the amount of money the insurance company agrees to pay your beneficiaries if you die while the policy is inforce. The amount of the death benefit may vary if you have outstanding loans, interest, or unpaid fees.