If you are shopping for life insurance, you have plenty of options, and one of them is universal life insurance. It is permanent, with coverage lasting a lifetime while building actual cash value. The payout, which is usually paid to your beneficiaries, is called a death benefit, and it is tax-free. With universal life insurance, you have the flexibility to either lower or raise your premium within some limits.
This flexibility is particularly important because if your financial needs change, you can adjust your premiums as well. For instance, if you change your job and your salary increases or your kid joins college and your financial responsibilities increase, you can pay the premium amount you are comfortable with. From the moment the policy is in effect, universal life insurance offers death benefits that can help cater to your family’s financial needs, and the cash value comes in handy while you are still alive. You can even borrow cash against it and pay your premiums with it or surrender the policy once you have retired in exchange for money.
How Does Universal Life Insurance Works?
One of the questions you will often hear people ask about universal life insurance is this: is cash value included in death benefit? As mentioned earlier, universal life comes with a cash value element, separate from the death benefit. When you pay your premium, part of it goes to the death benefit and administrative fees, and the remaining goes to the cash value. The cash value continues to grow depending on the annual interest rate. So, what happens to cash value in a universal life policy at death? When you die, your beneficiaries will receive the death benefit as per the contract, but the remaining cash value goes to the insurance company. However, you can still make use of the cash value while still alive.
Ways You Can Use your Cash Value
When shopping for life insurance, of course, your first thought is how you benefit or what are advantages of universal life insurance? You will also want to know your options to make an informed choice. So here are a few ways you can use your cash value.
Boost The Death Benefit
With time, your cash value will accumulate, and if you do not intend to use that money yourself, you can opt to leave a bigger death benefit for your loved ones. Just contact your insurance company and let them know you want to make a trade. You would like a higher death benefit in exchange for your cash value. This way, your beneficiaries will get a bigger death benefit, and the cash value will not be wasted.
Use it to Pay the Premiums
Once your cash value has accumulated, you can use it to cover your premiums. This is referred to as “paid up.” However, in this case, you need to be careful that the cash value does not go to zero, as that can cause your policy to lapse.
Borrow Against That Money
You can take a loan from the insurance company against your policy once the cash value has accumulated. You can choose not to pay the loan as you are borrowing your own cash. However, note that the amount you borrow plus interest will be deducted from your death benefit when you die.
Withdraw The Cash
Your financial needs might change at any time when you will need cash. You can withdraw part of your cash value or all of it. However, talk to your insurance agent as this method might affect your death benefit.
What are Advantages of Universal Life Insurance?
Some of the advantages of universal life insurance include
It does not expire after a certain period, unlike term life insurance. As long as you keep paying sufficient premiums, your beneficiaries will receive the payout upon your death.
Accumulation of Cash Value
A universal life policy comes with the cash value aspect that accumulates with time. You can use this cash for many of your financial needs, including using it during your retirement,
The premiums are not fixed, unlike a whole life policy. If maybe you run into a financial need like the birth of a new kid, you can reduce the premiums for that time.
Anyone choosing to get universal life insurance is because they know they will benefit. It can be through peace of mind knowing that your loved ones are taken care of financially after you are gone or as a retirement plan. That is why if someone is not familiar with life insurance, they will ask what are advantages of universal life insurance. When getting universal life insurance, do your research, including talking to an insurance agent and reading the contract terms well. For more information about universal life insurance, contact Alpine Castle Lake Insurance today.