Universal life insurance is a combination of a few things.
A whole life insurance that pays out upon death
An underlying fund with cash value that is often non-guaranteed and subject to the performance of the funds
A leveraged facility whereby the bank lends the life assured monies
Point one is straightforward, upon death, the policy pays out cash to the beneficiaries, creating an immediate estate whereby there is no lengthy liquidation process. As such, it hits the main objective of this instrument, to ensure easy cash transfer for the next generation.
Point 2 is where you get to choose your options. Often, universal policies tie the returns of the policy into a fund which is invested. While there is usually a guaranteed component, often, the non-guaranteed component makes up a significant stake of the death payout. As such, the risks needs to be addressed before implementing the plan.
Point 3 refers to the option whereby the life assured wants liquidity of his net worth as he is still alive. As such, instead of committing the entire $5 million dollar cash asset, he borrows $3 million, puts up $2 million and creates an immediate $5 million dollar estate upon death from day 1. The longer the policy term, the more the interest rate would affect the value of the policy going forward.
The crux of all three points is that universal life is a vehicle for succession planning. It is an integral vehicle in all legacy estate planning as often, other assets are hard to liquidate, hard to understand and hard to transfer. The legal restrictions are very much lifted through the structure of universal life.
Hope this answers and helps!
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Universal life insurance is a combination of a few things.
A whole life insurance that pays out upon death
An underlying fund with cash value that is often non-guaranteed and subject to the performance of the funds
A leveraged facility whereby the bank lends the life assured monies
Point one is straightforward, upon death, the policy pays out cash to the beneficiaries, creating an immediate estate whereby there is no lengthy liquidation process. As such, it hits the main objective of this instrument, to ensure easy cash transfer for the next generation.
Point 2 is where you get to choose your options. Often, universal policies tie the returns of the policy into a fund which is invested. While there is usually a guaranteed component, often, the non-guaranteed component makes up a significant stake of the death payout. As such, the risks needs to be addressed before implementing the plan.
Point 3 refers to the option whereby the life assured wants liquidity of his net worth as he is still alive. As such, instead of committing the entire $5 million dollar cash asset, he borrows $3 million, puts up $2 million and creates an immediate $5 million dollar estate upon death from day 1. The longer the policy term, the more the interest rate would affect the value of the policy going forward.
The crux of all three points is that universal life is a vehicle for succession planning. It is an integral vehicle in all legacy estate planning as often, other assets are hard to liquidate, hard to understand and hard to transfer. The legal restrictions are very much lifted through the structure of universal life.
Hope this answers and helps!
Click here to find out more about me!