Month: January 2023

If you’re a risk taker interested in not only protecting your family’s lifestyle if they lose your income but also want to build on that income and enjoy it while you’re still alive, there’s a way to do both. You do it through a Variable Universal Life Insurance policy, aka a VUL.

What Is Variable Universal Life Insurance?

It’s a type of Universal Life Insurance that offers the benefits you’d find in a Whole Life policy with the flexibility a Universal Life Insurance policy offers.

Whole Life Benefits + Universal Life Flexibility + Choice = Variable Life

Whole Life Insurance provides lifetime coverage and built-in savings by building cash value off the interest from the insurance company’s investments. You make regularly scheduled payments at a locked-in rate and the company invests what you put into your policy however they wish.

They control how it’s invested. But because they’re assuming the risk, your cash value growth is guaranteed.

Universal Life Insurance also provides lifetime coverage and builds cash value. But it also offers adjustable premiums so you decide how you’ll pay your premiums and death benefits.

However, with more control comes more risk. While the insurance company still decides how to invest your cash value, you assume the performance risk.

This means you need to monitor your payments. If you lapse, you lose your death benefit and may owe more premiums to cover the administrative costs the insurance company depends on your premium to cover.

Variable Universal Life Insurance does all of the above but allows you to control how you invest your cash value. It’s riskier than the other two but builds wealth quicker than they do.

How Variable Universal Life Insurance Works

A Variable Life policy works a lot like a mutual fund. You have an array of investment choices in which to invest your cash value. You have your choice of stocks and bonds, ETFs, mutual funds, and a money market option.

However, your premium is handled differently. Part of your premium goes into a subaccount from which you manage your investments. One premium pays for your life insurance policy to protect your family, the other is invested into this subaccount to build wealth faster.

Your Variable Life account is tax-deferred and you can make tax-free withdrawals from it.

But remember, because you’re in the driver’s seat you assume all the risk. If the market underperforms, you miss a payment or you don’t pay back what you borrowed from the policy, you decrease or lose your death benefit altogether and may end up paying the insurance company to cover not only your policy’s administrative fees but also your subaccount’s management fees on top of that.

VUL requires more oversight than Universal. It depends on a variable market. It isn’t for everyone. It’s expensive and it’s risky. But if you’re willing to take on the risks, there’s a good chance you’ll reap some very lucrative benefits.

Index Universal Life (IUL) is a type of Universal Life insurance policy that, like whole life, provides lifetime coverage and builds cash value you can borrow against or reinvest if you keep up with your premium payments. And like other flexible Universal Life policies such as Variable Universal Life Insurance, it allows you to adjust your premiums and your death benefits to fit your needs.

How Index Universal Life Insurance Works

What sets Index Universal from Variable Universal is how its cash value is invested.

Unlike Variable Universal, Index  Life Insurance is tied to a stock market index such as the S&P 500. Your cash value grows along with the stock market but you’re protected against losses because it also relies on steady earned interest. Variable Universal Life Insurance has no safety net.

Just like Variable Universal, a portion of your premium goes to your insurance policy and the insurance company places the remainder in an index account. Its added fees, expense charges and administrative expenses make it more expensive than whole life.

You can borrow against your cash value, reinvest it, use it to pay your premiums, or withdraw it. If you borrow against it, the insurance company charges interest. And you must pay it back in full including the interest or what you owe will cut into your death benefit. If you withdraw it, the IRS views it as regular income.

Index Universal Life Insurance Pros and Cons

Obviously, the biggest advantage to having any life insurance policy is the ability to provide lifetime coverage for your family. But like anything in life, Index Universal Life Insurance has its pros and its cons.

Pro: It can build wealth quickly.

Con: It’s riskier than other types of permanent life insurance (although less risky than Variable Universal).

 

Pro: It provides greater flexibility allowing you to build coverage that fits your financial needs and goals.

Con: There are more fees, charges and expenses to pay.

 

Pro: Cash value relies on earned interest as well as stock performance.

Con: Some life insurance companies place a cap on returns.

 

Pro: It won’t decrease your Social Security benefits.

Con: The premiums are higher for older policyholders.

 

An Index Universal policy is probably a good fit for a moderate risk taker. The financial benefits can be much higher than any death benefit alone.

Online shopping has made everything, including buying life insurance, easier. You go online to find an instant quote for life insurance, you do a little browsing, and click on a tantalizing title promising it’s the “best place to get life insurance quotes.”

So you click.

The popup menu asks about your gender and date of birth. No problem, every insurance company needs to know that. Men and women have different life spans (men’s are shorter) and older people have higher mortality rates. This is standard information.

Some will ask if you smoke or not. Makes sense. Your health is part of the standard underwriting equation. And a few will ask about the state you live in because different states have different regulations.

But then it can get a bit more…invasive. Which isn’t necessarily a problem except that you’re required to answer every question before you get carrier options and quotes.

Let’s look at some companies and the questions they ask.

PolicyGenius

Before providing a list of carriers and a quote, PolicyGenius will ask questions about your employment (including the hours you work), your educational level and annual income, and your driving record.

Then you get the information you seek.

SelectQuote

SelectQuote asks some of the same questions as those listed in the previous section but will also inquire about any risky hobbies you may have, like skydiving and rock climbing.

They will then ask for your email and home address before they give you the quote. And we all know that’s so they can keep bugging you about buying from them long after you’ve moved on.

Haven Life

Before they ask you any questions, Haven Life asks you to create an account before they give you any details about what they offer.

Ladder Life

Now, Ladder Life wants to know everything but the name of your dog, including annual income, your children, your mortgage, risky hobbies, travel plans, drug usage (including marijuana), criminal history, driving record, weight change, how long it’s been since you’ve visited your doctor, your medications, any surgeries you’ve had, HIV status and will not proceed until you’ve given them your address.

PolicyWand

PolicyWand will ask what state you live in (which, as mentioned above, is because different states require different regulations. You don’t want a quote from a carrier who it turns out can’t do business with you). They will also ask about your gender and date of birth, your smoking habits and your general, self-rated health status, how much coverage you want and for how long you need it.

That’s it. You immediately get quotes from a host of companies. Actual quotes. Not a range of quotes. Actual quotes.

Now, it can be argued that the more information a life insurance company collects up front, the better the carrier match they’ll make. However, the fact is that asking so many questions up front can pigeonhole you into accepting an insurance policy based on what they think you need, rather than allowing you to decide what you need.

In short, asking so many questions before giving you quotes prevents you from seeing all the options open to you. And you’ve given them more information than you may feel comfortable giving in the process.

It pays to shop around for the best life insurance quotes online. But how much are you willing to give away to do it?

You may already know that permanent life insurance policies like whole life accumulate cash value. What you may not know is that you can increase that cash value quicker with a Paid Up Additional (PUA) rider.

Life whole life, a PUA rider is a type of guaranteed permanent life insurance you can add to a base whole life policy. A PUA accumulates cash value faster and increases your death benefit more than the base policy alone can. Dividends and guaranteed interest fuel its growth.

How a PUA Works to Enhance Your Whole Life Insurance Cash Value

You contribute funds to the PUA rider to pay off your policy premiums. Once the PUA meets the initial death benefit, the benefit amount continues to grow as part of your base policy.

All life insurance companies require a minimum PUA annual contribution amount. However, some life insurance companies allow you to contribute as much as you wish to accelerate its annual growth; others have an annual cap. And you must purchase the rider at the same time as the whole life policy.

Once you pay off your policy, the PUA dividends continue to compound. You can borrow against your policy to purchase a home or other investment, use the cash value to increase your coverage as you age without medical underwriting, or surrender the accumulated cash value for withdrawal tax-free.

The Benefits

To recap, the biggest benefit a PUA offers is its ability to build additional cash value. It also:

• accelerates the rate at which your whole life policy accumulates cash value
• increases your death benefit
• allows you to control how much you want to contribute and how often; thus, giving you control over growth rate (although there is an annual minimum)
• is guaranteed to grow through compounding dividends and interest
• is less risky than other wealth-building strategies
• eliminates worry about your payment schedule if you elect to have the cash value pay your premiums

Once your accumulated premium payments match your death benefit, you can:

• borrow against your policy to invest in a new home, education, etc.
• increase your whole life coverage without additional medical underwriting
• surrender the cash value you’ve accumulated and withdraw it tax free

The Downsides

A PUA is a rider only. You can’t purchase it as a stand-alone base policy. It must be attached to a whole life policy that pays dividends from the insurance company’s generated profits.

Older purchasers and those with health conditions will pay more and have less time to reap the benefits. That’s because the base policy carrying the PUA rider will start with a lower initial cash value and death benefit.

Despite its downsides, if used wisely, a PUA is an excellent wealth-building vehicle.

Shopping around for life insurance is about as fun as filing your taxes but it doesn’t have to feel like a tax audit.

All online insurance websites have a life insurance cost calculator to make getting a quote easier. You can do it on a laptop while watching the news.

But some life insurance companies make it damn hard to get to the quote.

Why All the Questions?

Your question is “How much coverage do I need?” Unfortunately, to answer your question we must ask you questions to gain context.

Vital contextual questions include the state you live in, for instance. Life insurance regulations vary from state to state, so it’s impossible to give you an accurate quote unless we know where you live.

Other fair questions include your gender, age, weight, and smoking habits. The older and heavier you are, the more you’ll pay. If you smoke, that’ll increase your premium, too. And males have a shorter life expectancy than females.

Can We Just Get to the Quotes?

But some questions are just too invasive for a “how can I help you” conversation. And most online life insurance sites ask for everything but the name of your cat before relinquishing a quote.

Here are some of the things they want to know before you ever see a popup with dollar signs and life insurance company names:

• Your employment. Yes, it’s fair to find out if you can pay the premiums. But what does that have to do with a life insurance quote? Some carriers also want to know how many hours you work.
• Your annual income. Again, a fair question. But why up front? If they’re weeding you out based on income, they’re not interested in helping you. They’re interested in finding out if they can make money off of you.
• Your mortgage. Another question to verify you can pay your premiums. But it’s more appropriate to ask it later.
• Your level of education. Why ask this? A person over the age of 18 with an eighth-grade education can qualify for life insurance.
• Your email address. We all know what that’s about.
• Your physical address – not just your state. Your house number and street name. If you give it, expect your physical mailbox to be full of enough offers to wallpaper your kitchen. And you never know who they’re selling it to.
• How many children you have. Beneficiaries are an important discussion. Again, more appropriately asked LATER.
• Travel plans. Yep. Travel plans.
• Other invasive but fair questions that should be asked later include your driving record, your drug use, the medications you’re taking, any surgeries you’ve had, the last time you visited your doctor, your HIV status and any changes in weight. Again, all questions that can be asked LATER. If at all.

The reason PolicyWand’s EZ calculator is so easy is that we ask for only five basic pieces of information:

1. the state you live in
2. your gender
3. your date of birth
4. your opinion on your general health
5. How much coverage you need

DIY Life Insurance

If a laundry list of questions scare you off, grab a pencil and paper. There are a couple of formulas you can use to calculate how much you need for yourself.

The easiest way to find out how much life insurance you need is to multiply your current salary by the number of years you think you’ll continue to work. If you’d like to give DIY a try, check out more formulas.

But it shouldn’t be that hard. All you want is a quote. All you want to know is “How much insurance do I need?”

The way you get the answer is up to you. You can do it with invasive questions, you can do it yourself, or you can do it the EZ way. PolicyWand’s way.