Universal Life Insurance Essay

On the most elementary level, life insurance is a product designed to provide funds to the friends, family, or even business of an insured person upon the insured’s death. The most basic form of this product is whole life insurance. With whole life, typically level premiums are paid to the insurer for the lifetime of the insured until death, where the insurer pays a death benefit previously agreed upon. The death benefit is free of federal income tax in the US1, which is a great benefit to the beneficiaries. This sounds like a great plan for parents and grandparents, because they can know that their loved ones will have some financial stability if they die unexpectedly or even expectedly. The problem with whole life insurance isn’t the product itself, it’s the existence of universal life, term insurance, and other investment opportunities.

Term life

This cash value grows tax-deferred and can allow the beneficiaries to receive more than just the death benefit. There are many types of universal life policies. Indexed UL policies have the cash value invested in options on the S&P 500 and other indices-typically invested as a bull spread and a bond. Traditional UL usually pays a guaranteed interest rate. Variable UL policies allow the policyholder to chose different investments out of a package to put their cash values into.

Riders are another crucial part of universal life policies. While riders are available on many other types of policies, universal life is the most flexible and allows for combinations of other insurance types. For example, long term care insurance can be added to a Universal Life policy as a rider and is much cheaper than to buy long term care insurance as stand-alone product. A chronic illness rider allows for the policyholder to withdraw most of their cash value to pay for health expenses in the case of an illness causing a future life expectancy of less than a