Universal Life Insurance
Universal Life Insurance Comparison for Young Parents
Universal life insurance comparisons for young parents should center of factors other than just costs. Young couples should select the type of coverage, and features that correspond with common needs of families with children.
Young parents with growing families can compare four universal life insurance components:
* Application: college savings vehicle compared to 529 plans
Universal Life Insurance for College Savings
One of the key considerations for young parents contemplating any life insurance purchase ought to be how to fund college expenses for their children. Universal life provides several advantages to fund college expenses when compared to savings via a 529 plan.
Young parents have two considerations: how to protect their children’s secondary education in case of premature death by either parent, and how to save money for college at the same time.
There are two approaches: buy term and invest the rest in a 529 plan, or purchase a universal life insurance policy and meet both objectives simultaneously. Both approaches provide a tax advantaged method of accumulating resources for college. Consult your tax advisor on which method works best for your family.
The primary advantage of purchasing universal life policy for college savings comes down to who owns the asset. The cash value accumulated inside the policy belongs to the parent, while any 529 college savings represent an irrevocable gift to the child. Should your child decide not to pursue a college education, they get to spend the 529 money how they choose.
As second, often overlooked advantage, is the ability to continue your college savings regimen when one parent is disabled and unable to work. A 529 savings strategy does not work well if one parent gets sick or injured, and household income takes a hit. Can you continue making 529 contributions when income drops in half? You universal policy provides an option to protect your college savings contribution through a special rider. See below for more details.
Feature Comparisons Important to Young Parents
It is also important to compare universal life insurance features which many companies will build into the base policy: cash value accumulation, credited interest rates, and additional paid in premium are some of the common features young parent might compare.
Universal policies offer flexible premiums and death benefit amounts. Along with the flexibility comes cash value which earns tax deferred interest as the cash accumulates inside your policy. Your insurance agent will provide you with a full ledge illustration of projected cash values over time. Their underwriting will determine the proportion of premium allocated to your death benefit and cash accumulation.
Credited interest rates are important to compare as this will impact your cash accumulation and the stability of your policy over time. Each policy will have differing levels of interest rate guarantees and expectations.
Additional paid in premium allows young parents to accelerate the level of tax deferred cash accumulation inside the policy – subject to IRS limits and guidelines. The ability to modify your premium payments over time is one of the advantages, and a key component for the college savings option noted above.
Compare Universal Life Insurance Riders
Weigh the pros and cons of several universal life insurance riders as your second to last step. Some common rider options include guaranteed purchase option, long term care coverage, spouse and dependent term coverage, and waiver of premium benefit.
A long term care rider is a unique option allowing you to address three big concerns of most parents: what if I die early, what if I outlive my assets, and what if I wind up in a nursing home? The death benefit and cash accumulation answer the first two questions, and this rider addresses the last. Should you need extended care for activities of daily living, you can tap into your policy to cover a portion of these expenses. This rider is most popular with older couples.
Guaranteed purchase option allows you to purchase additional coverage with no evidence of insurability. This option allows young parents to start with a more affordable death benefit amount, and then increase the amount as income, and the number of children grows. Many contracts provide an option to attach spouse and dependent term coverage into a single policy. Contrast the advantages of adding the whole family into a single contract – simplicity and affordability. Insurers provide discounts the encourage combining contracts to save administration. This rider may work to your disadvantage if the primary insured has a health condition which increases premium across the contract.
Waiver of premium rider waives all premiums in the event that you become totally disabled. Many people get sick, lose their income, and drop their coverage to cut costs. Once returning to work, they may no longer qualify for new coverage. This rider addresses this concern, and represents another advantage over 529 plans for college savings.