Universal Life Insurance

Universal life insurance now offers "term-like" rates for your whole life. When buying life insurance in the past, most people chose term insurance because it seems to be the most cost-effective plan to cover a period of time when they need the maximum insurance. In the past, the longest guaranteed period offered by insurance companies was 30 years. Sometimes, depending on age, the maximum might drop to 20, or even 10 years.

When a life insurance need is indeterminate or lifetime, such as making sure your family will receive insurance proceeds at death no matter how old you are, the three main options were whole life, a combination of whole life and term, or universal life insurance. In order to guarantee rates to 100, one needed to pay approximately double what a normal projected rate might be for a whole life and term combination, universal life, or the guaranteed whole life rate.

Many companies have now come out with a universal life insurance plan with premiums payable to age 100 and coverage that stays in force until age 120, or longer. The rates are completely guaranteed and can never be increased, regardless of the interest rates paid by the insurance company, or the mortality charges. These rates are approximately the same as the universal life or whole life and term combination bought on a low cost basis.

How can the insurance companies magically guarantee plans that could never be guaranteed before? The answer is that the death benefits are reinsured by "reinsurance companies" which charge the insurance company the approximate equivalent of a guaranteed term rate to age 85.

In the past, when an individual bought a universal life insurance policy, that plan stood on its own and had to stay in force based on its own earnings and guarantees. The new program puts the risk on the reinsurer and they pool these policies with thousands of other people buying similar insurance. Therefore, if the average person lives to age 85, insurance companies will not only not lose money, they make money as they always do.

Recently, I have worked with a client, age 60, who wanted a 30-year term policy. This person had some medical issues and would be rated standard with most companies. The annual cost of 30-year term insurance was approximately $4,800 and the cost of term to 100 was $4,600. The term insurance built no cash value at all and the term to 100, based on a universal life insurance policy, built up substantial cash values. In this situation, it made no sense to take the term insurance when the universal life insurance was cheaper and provided cash values in the event the insurance was no longer needed.

When looking at your insurance needs, don't be afraid of the cost of permanent coverage. The new universal life insurance plans are almost magical in the way that they can guarantee rates to 100, compared to regular guaranteed level term insurance.

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Richard A. Eisenberg, CLU, ChFC, CLTC provides more insurance tips here. You can also reach him at (800)777-5765, or visit his Web site.