Here are four ways Universal Life policies can be beneficial:
Life Insurance Policies Build Cash Value
Cash value, unlike the death benefit, is one you can use while you’re alive to borrow against or to reduce premiums down the road. The cash value of a Universal Life policy accumulates at a tax advantage basis, which means the money you withdraw is not taxed until the amount you withdraw exceeds your bases (the amount you have already paid in.)
Replaces Your Savings Account
For the reason above, you can build up a nest egg for retirement. Policyholders should allow their policy to grow before tapping into the cash value for retirement income.
Lower Interest Rates than a Bank
Life insurance companies often offer cash-value loans at interest rates lower than a traditional bank loan. Of course, you’re not obligated to pay back the loan since you’re essentially borrowing your own money. However, it is important to note that any money you borrow, plus interest, will be deducted from the death benefit when you die.
Another tax advantage of this type of policy is the payment of dividends by many insurers. Dividends are generally taxed as gains. In the case of life insurance however, the IRS treats dividends as a return of premium and they are not taxable. While dividends are not guaranteed, some companies have paid them every single year for over 160 years. You can use your dividends in a variety of ways-you can take them in cash, leave them to accumulate interest, or use them to increase your policy’s face amount or death benefit.
Although Universal Life insurance is not considered to be an investment, there are certainly more benefits than using traditional banking methods and can become a part of your assets plan.
What are the benefits of universal life insurance?
Universal life insurance provides an additional level of flexibility over term or whole life insurance because you are able to adjust your insurance premium payments.
Additionally, any growth in your policy’s cash value is tax-deferred. This means you won’t have to worry about paying taxes on the growth until the time of withdrawal. At the same time, your policy has a minimum guaranteed rate of interest, meaning your cash value’s growth will never drop below a certain level. This way, you will have peace of mind knowing that funds will always be there if you need them.
Learn more about Universal Life insurance and see if it is right for you.