Universal Life Insurance

Universal life insurance is a type of permanent life insurance based on a cash value. That is, the policy is established with the insurer where premium payments above the cost of insurance are credited to the cash value of the policy. The cash value is credited each month with interest, and the policy is debited each month by a cost of insurance (COI) charge, as well as any other policy charges and fees which are drawn from the cash value if no premium payment is made that month. The interest credited to the account is determined by the insurer; sometimes it is pegged to a financial index such as a stock, bond or other interest rate index.

Final expenses, such as a funeral, burial, and unpaid medical bills. Income replacement, to provide for surviving spouses and dependent children, Debt coverage, to pay off personal and business debts, such as a home mortgage or business operating loan, Estate liquidity, when an estate has an immediate need for cash to settle federal estate taxes, state inheritance taxes, or unpaid income in respect of decedent (IRD) taxes. Estate replacement, when an insured has donated assets to a charity and wants to replace the value with cash death benefits. Business succession & continuity, for example to fund a cross-purchase or stock redemption buy/sell agreement.

Key person insurance, to protect a company from the economic loss incurred when a key employee or manager dies. Executive bonus, under IRC Sec. 162, where an employer pays the premium on a life insurance policy owned by a key person. The employer deducts the premium as an ordinary business expense, and the employee pays the income tax on the premium. Controlled executive bonus, just like above, but with an additional contract between an employee and employer that effectively limits the employees’ access to cash values for a period of time (golden handcuffs).

Split dollar plans, where the death benefits, cash surrender values, and premium payments are split between an employer and employee, or between an individual and a non-natural person (e.g. trust).Non-qualified deferred compensation, as an informal funding vehicle where a corporation owns the policy, pays the premiums, receives the benefits, and then uses them to pay, in whole or in part, a contractual promise to pay retirement benefits to a key person, or survivor benefits to the deceased key person's beneficiaries.

An alternative to long-term care insurance, where new policies have accelerated benefits for Long Term Care. Mortgage acceleration, where an over-funded UL policy is either surrendered or borrowed against to pay off a home mortgage. Charitable gift, where a UL policy is donated to a qualified charity, or the policy owner names a charity as the beneficiary. Charitable remainder trust replacement, where a policy owner wants to replace assets donated to a Charitable Remainder Trust.

Estate equalization, where a business owner has more than one child, and at least one child wants to run the business, and at least one other wants cash. Life insurance retirement plan, or Roth IRA alternative. High income earners who want an additional tax shelter, with potential creditor/predator protection, who have maxed out their IRA, who are not eligible for a Roth IRA, and who have already maxed out their qualified plans.