Universal Life Insurance

Universal life insurance is also referred to as adjustable life insurance. Are you interested in "regular universal life insurance" or "variable universal life insurance"? Regular universal life insurance is associated with savings, and safety, where one's submitted premium is not at risk of loss in the stock market. Variable universal is a different animal, where one's submitted premium, if the client chooses market sensitive investments within his or her contract, is at risk of loss in the stock market. Remember that with permanent life insurance, some of your premium is invested by the insurance company, and some of the premium payment goes directly towards the cost of providing the life insurance. Features of universal life include:

• Flexible premiums. After you pay an initial premium, universal life insurance provides flexibility in paying your premiums. For example, if the portion of submitted premium is growing, you can pay future premiums from this growth or buildup in value

Of course, the investment performance of the insurance company, in terms of regular universal life insurance, determines how much flexibility you have to modify your premiums. With variable universal life insurance, you have the option to invest a part of your premiums in market sensitive investments, or if you choose, more conservative money market account that will earn a stable, positive rate of return. Insurance companies also offer universal life insurance with a guaranteed minimum rate of return.

• Cash value feature. A portion of your premiums accumulate a cash value. This cash value is held in an accumulation fund. You can withdraw the cash value from a universal life insurance policy. You can also claim it as an asset when you apply for a loan. Any withdrawals from the accumulation fund are deducted from the policy's cash value.

While the submitted premiums of a regular universal life insurance policy are generally restricted to safe, low-yielding investments, a variable universal life insurance policy lets you invest a portion of premiums in riskier investments such as stocks and bonds. Variable universal life is a hybrid. It combines the flexibility of universal life with the investment opportunities of variable life insurance.

• Death benefit. With universal life insurance, your beneficiary receives a death benefit when you die. Your beneficiary generally does not owe federal income taxes on the death benefit. Death benefits are also free from probate costs and can be protected from creditors in case of bankruptcy. Because of these features, universal life insurance is often used in estate planning.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

Equity Indexed Universal Life Insurance

The dynamics of the last few years have resulted in a new approach to permanent life insurance. Consumers like the higher return potential of linking cash value growth to equity markets, but some of them didn't like the possibility of losing cash value if the market went down. To meet these needs insurance companies developed equity indexed universal life. Equity indexed universal life shares the coverage and premium flexibility of other universal life policies. However, the crediting of interest is unique. Typically, cash value increases are linked to positive changes in a stock market index, such as the S&P 500. If the index is higher at the end of the policy year than it was at the beginning of the year, this will be reflected in an increase to the cash value of the policy.

What if the index goes down? If the index stays flat or declines the cash value is protected, as the lowest credit the policy can receive is a guaranteed interest rate of 1, 2, or 3%. This is the attraction of equity indexed universal life. When the index goes up, the policy owner shares in the increase. If the index goes down, the policy earns a guaranteed interest rate of 1, 2, or 3%.

It should be noted that the cash value will not reflect all of the increase in the index; as such protection from declines in the stock market index will have a cost. A safe strategy, protecting the cash value of the policy from market loss, and providing guaranteed a minimum return. Also, as your policy is said to be linked to a market index, you do not actually own any stocks or mutual funds. There are no dividends or capital gains associated with your equity indexed universal life policy.

Equity Indexed Universal Life Offers

• Tax-deferral of interest earnings
• Tax-advantaged insurance protection
• Equity indexed linked returns
• Cash value protection against market declines
• Guaranteed minimum annual returns
• Annual lock-in of earnings
• Premium flexibility
• Cash value access

How Interest Is Credited
Let's say that we have a cash value of $10,000 and a minimum interest rate of 2%. We'll further assume that we receive 50% of the calculated index gain for the year. At the end of the year the calculated index gain is 20%. The cash value would earn 10% for the year (20% time 50%) or $1,000. So, our cash value would now be worth $11,000 ($10,000 plus $1,000). But what if the market dropped 10% the following year? The locked-in cash value of $11,000 would be unaffected by the market decline and would earn 2% or $220 ($11,000 time 2%) leaving a cash value of $11,220.

Equity indexed universal life products may use one, or a combination, of the following methods to determine amounts credited to the cash value:

• Participation Rate - A percentage of the increase in the index that will be used to determine the amount to be credited to the cash value.
• Spreads or Asset Fees - A stated percentage that is deducted from positive increases in the index.
• Caps - A maximum annual increase to be credited to the cash value.

Why Would I Consider Equity Indexed Universal Life?
Equity Indexed Universal Life is for people that need life insurance and desire permanent protection. They want greater flexibility and greater control than is available with traditional insurance. In addition, EIUL owners:

• Like the opportunity for higher potential interest with equity linked returns
• Don't like the volatility and risks of VUL
• Want the certainty of knowing they'll earn at least a minimum return in both good times and bad

Equity Indexed Universal Life is offered as a flexible premium personal insurance plan with premiums paid monthly, quarterly or annually. EIUL is offered for estate planning purposes as survivorship life, and is available as a single premium insurance instrument.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.