Universal life insurance is a variant of life insurance. With a universal life insurance policy, you have flexibility regarding the payment of premiums. You also get to choose how your insurer will invest your cash value. The two common types of universal life insurance are indexed and variable universal insurance. The main difference between these two policies lies in how they manage the policy’s cash value.
Here’s detailed information on this topic.
How Does Indexed Universal Life Insurance Work?
With an indexed universal life policy, the growth of your cash value is hinged on how an index performs. Insurers usually offer a selection of indices, like NASDAQ 100, Russell 2000, and S&P 500. Depending on the terms of your policy, you may opt for more than one.
How Does Variable Universal Life Insurance Work?
With an indexed life insurance policy, your cash value is invested in grouped investments. These investments are akin to mutual funds, and you’ll receive their fees and performance history before you decide on how much of your cash value you’ll invest in each.
How Does Guaranteed Universal Life Insurance Work?
Guaranteed life insurance policies don’t have a cash value element. They are essentially akin to term life policies, with the policy term ending on the death of the insured person.
When Does Universal Life Insurance Policy Mature?
Universal life insurance comes with a maturity date (usually when the policyholder gets 85 to 121 years old). Once a policy reaches its maturity date, the coverage ends and you receive payment. The payment can be a particular dollar amount or the death benefit, depending on the terms of your policy, but it’s typically equal to your policy’s cash value. However, this can be a problem if the policyholder lives past the date the policy matures and they’ve spent most of the cash value on paying insurance premiums. This means they can lose the coverage and get little in return. Furthermore, the remaining balance will be taxable and thus you’ll lose one of the key benefits that life insurance provides. The risk of living past maturity is especially higher if you got your policy before 2009, when the policies relied on older mortality tables.
Post-2009 policies are typically based on the updated 2001 CSO (Commissioners Standard Ordinary) tables. With the current table, the probability of mortality is calculated to the policyholders’ age of 121. If yours is a pre-2009 policy, you should consider getting a maturation extension before your plan expires.
Can You Extend the Policy’s Maturity?
Some universal life insurance policies include provisions that extend the insurance policy’s maturity in case the policyholder is still alive on the date of maturity. In such instances, the death benefit will be paid after the death of the insured person it’s past the initial policy maturity death. The policyholder’s beneficiaries will therefore receive the payment tax-free. Therefore, you should consider the extension options in case you think you might outlive your policy. However, if yours is a modern plan that covers policyholders up to when they’re 121 years of age, this shouldn’t be an issue.
At Donald Weiss Insurance Services, we will help you get a life insurance policy that suits your budget and insurance needs. Contact us today.