Universal Life Insurance
Find the Best Universal Life Insurance for Your Client
Life insurance products can be a great way for your clients to plan for the future. In many cases, life insurance is the most cost-effective option to guard against the repercussions of an unexpected death of a loved one or business partner. It also functions as a valuable asset for retirement and estate planning. When properly managed, life insurance provides peace of mind for your client and their loved ones.
Finding the right life insurance policy for each client’s situation is not simple. Term, universal, whole, and group insurance are the four primary types of life insurance policies. Each of these types of insurance policies has distinct advantages and disadvantages. One powerful option to explore is universal life insurance.
What Is Universal Life Insurance?
Universal life insurance policies are permanent life insurance products that include a cash value savings component. The cash values savings component is an additional premium above the cost of the insurance. In other words, the amount you pay into the policy gets split between the premiums required to maintain the policy and a cash savings account. That savings account works similarly to a traditional savings account and accrues interest. It accumulates additional cash value over time. Each universal life product has a different way of determining the crediting interest rate, so understand the differences. That understanding will determine which product best fits your client’s needs.
What are the different types of universal life insurance?
Guaranteed Universal Life (GUL)
With a guaranteed universal life insurance policy, you pay the minimum required to maintain a guaranteed death benefit. GUL is similar to term life insurance, except it extends longer than the typical 10–30 year periods used with term life.
Fixed Universal Life (FUL)
Fixed Universal Life policies are known as current assumption universal life. With FUL, you pay into a cash value savings account. The cash value savings account has a fixed interest rate set by the carrier. These crediting rates can change and fluctuations are usually minor. For example, a policy acquired at a 5% rate may fall to 4.75%.FUL is the first generation of universal life and operated with few moving parts.
Indexed Universal Life (IUL)
An indexed universal life insurance policy is similar to a FUL policy. However, the credit rating is tied to an index. Most IUL policies use the S&P 500, a stock market index based on the 500 largest companies listed on stock exchanges in the United States. Indexed universal life plans currently constrain the crediting rate between a ceiling of about 10–12% and a floor of 0%. It means it can pay out more interest than FUL without carrying the risk of losing money that you have already earned, making IUL is an attractive product for long-term gains, such as 25 years or longer.
Variable Universal Life (VUL)
A variable universal life insurance policy follows the same concept as FUL and IUL but brings the highest risk and highest reward potential. With variable universal life, there is no floor on the interest rate. It can go negative during a downturn, just like the stock market.
How is universal life insurance different from other types of life insurance?
Universal life insurance plans are less expensive than whole life insurance but come with fewer guarantees. UL policies are also more flexible than whole life policies because you can pay premiums out of pocket or you can pay with returns on the cash value investment. You can start and stop premium payments without losing coverage.
Universal life insurance policies are more expensive than term life insurance. They maintain the guaranteed death benefit for life as long as the policy is managed. Universal life insurance also offers the option of paying more than the premium, thereby increasing the cash value.
What are the benefits of universal life insurance?
Most permanent life insurance policies have inherent tax advantages such as a tax-free build-up of cash values and tax-free distributions via policy loans. Universal life insurance policies are attractive for the cash savings component built into them. Payments made, in addition to the cost of the insurance, can be invested without being taxed. Those payments are put into an account that will accrue value over time. The interest you make with universal life insurance can be used to guarantee the policy for life. Gains are not counted as income and can be removed with no tax implications. Unlike qualified plans, such as IRA or 401k, there is no required minimum distribution later in life.
The tax benefits of universal life insurance policies make them attractive for life insurance retirement planning. UL plans are highly likely to generate cash value over time, which can be leveraged in a variety of ways as long as the policy is in force.
Is universal life insurance right for my client?
Finding the right life insurance policy for a client depends on the specifics of their situation, including their goals, income, net worth, health, and family needs. It is also helpful to know your customer’s risk tolerance; this will help determine which type of UL policy is the best fit.
Universal life is not for everyone, as it has advantages and disadvantages just like every other type of insurance. UL plans include a surrender period, typically around 10 years, during which there is a penalty imposed if a policyholder withdraws money. Because of this, UL is best suited for long-term investment.
Frequently asked questions about universal life insurance
Does universal life insurance expire?
Yes, they do. Plans usually mature at age 100. Some companies now offer maturities up to the age of 121.
Do employers offer universal life insurance?
No. Only group life insurance plans are offered by employers.
How much universal life coverage should you have?
A financial advisor can do a needs analysis to help you determine how to meet your needs.
Is there ever a good time to cash out a universal life policy?
If a client needs the money, they can always cash it out, but it is best to consult with a financial advisor before doing so.
How do I find the best universal life insurance policy for my client?
The purpose of life insurance is different for every client. When searching for the right universal life insurance policy for your client, you need to look at their specific situation. Consider their goals, insurability, finances, health, and lifestyle. The best Brokerage General Agencies will work closely with the financial advisor to design the best solution for a client.
An insurance brokerage agency also provides a broad range of products and carriers that meet your clients’ needs, coupled with a competitive commission schedule.
How do I find the best universal life insurance broker?
There are a few ways to find high-quality universal life insurance brokers. One approach is to ask around your network for referrals. You could also connect with NAIFA, a highly trusted nonprofit association for insurance brokers and financial advisors.
You can also do your research by contacting several insurance brokerage firms in your area. We recommend looking for these qualities in a broker:
Responsiveness and attentiveness. Are they knowledgeable regarding the products and solutions available? EMG calls this the analysis and design phase.
Back-office support. What happens after an application is submitted? EMG handles the implementation. This is a critical and often overlooked service, but it may be critical to get the right offer.
A good team instead of just a good salesperson. Make sure that the service is as good as the pitch.
Investing in the business. Do the owners invest back into the agency or focus on paying themselves?
You can also learn a lot about the agency by calling them up and asking pertinent questions, such as:
- How long have you sold universal life insurance?
- Have you had any complaints with the state?
- Who are your primary carriers?
- What are the carrier ratings?
- What types of products are the affiliate carriers selling?
Do your homework. Most importantly, visit the agency. Do an onsite visit and speak with the owners in person.
EMG can help.
As a brokerage general agency, EMG handles everything from submission to the commission. Our relationships with over 30 carriers allow us to help choose the best carrier for your client based on the purpose of coverage, underwriting circumstances, and type of product. We will walk you through the process and have the ability to design solutions to the unique needs of each client.
Our dedicated sales team offers customized proposals and case designs for each of your clients, along with product alternatives and comparisons.
We have access to carrier underwriters who will review a client’s specific medical situation to determine possible ratings.
You will have access to a dedicated case manager that will follow your case from submission to final approval and placement.
This highly personalized approach gives us the ability to tailor solutions to each client. Connect with us by phone, online, or in-person, or schedule a consultation with your sales director today on how to grow your business.