A key component to financial planning is life insurance. The benefits of insurance include the protection of financial assets and goals. Life insurance can be used to protect a mortgage, a future college education, income replacement for a surviving spouse and family, or the death of an important employee.
Universal life insurance offers more flexibility than traditional whole life policies. The death benefit can be increased or decreased depending on current insurance planning needs. In addition, the amount and timing of the premiums are flexible. Universal life insurance is a type of permanent life insurance where premium payments above the cost of insurance are made by the premium payer. The amount of premium above the cost of insurance is applied to a cash value. The cash value is credited each month with interest and the policy is debited each month by a cost of insurance (COI) charge. If the universal life policy has a sufficient build up of cash value, the cost of insurance and any other policy charges can be taken from the cash value without a premium payment being made.
A universal life insurance policy can be a key component of an overall financial plan. The cash value of a policy can be used to supplement retirement or be used to fund an important financial goal such as funding a college education. One of the benefits of a life insurance plan is that the cash value grows tax deferred. This cash value can be accessed through loans and withdrawals. A loan is a non-taxable event and is not required to be repaid. However, interest does accrue on a loan and the loan will be deducted from the death benefit if not paid back. Withdrawals are taken out premiums first and then gains so it is possible to take a tax free withdrawal.
Universal life offers benefits that traditional whole life or term life insurance policies do not. These benefits may or may not make sense for an individual or business depending on each unique situation. At Clay Northam Wealth Management, we believe in educating our clients on all types of life insurance policies so that our clients understand their options completely including all benefits and associated costs. We have offices in Los Angeles County and Orange County to help with your insurance planning needs. Please do not hesitate to contact one of our offices for a thorough life insurance review.