One of the biggest concerns with universal life (UL) is that the death benefit is not guaranteed for the life of the policy.
Most insurance policies terminate (mature) at age 95 or 100 and cash out at this time, leaving the insured to be self-insured. However, some companies are now starting to offer policies up to age 120.
When a policy matures or terminates, it leaves the client with the cash value, which is often less than the death benefit. This payment is also reported to the Internal Revenue Service (IRS), on a 1099 form for the amount of cash value.
This potentially widens the gap further between the cash value at that time and the death benefit of the policy.
Nowadays, a number of companies are offering and/or deferring the maturity of a life insurance policy beyond the age of 100. This is done through one of two methods – the death benefit guarantee or the no-lapse guarantee.
Death Benefit Guarantee
Provided that the required premium payments are made and no loans have been taken out, this guarantees that the policy will remain in-force. It also depends on the amount and timing of premiums paid, withdrawals taken, and any changes made to the policy.
The contract will remain in effect for the periods shown, if these premiums are paid exactly on the first day of each policy year and no loans or withdrawals are taken. The premiums for this option are usually not much higher than a policy without a death benefit guarantee.
No-Lapse Guarantee Clause
Under a typical clause, the policy is guaranteed to stay in-force for a number of years, if required premiums payments are made. This is called a no-lapse guarantee.
Even though it contains the no-lapse guarantee, this policy may provide non-forfeiture benefits – such as cash surrender value – that are less than those that would be provided if the no-lapse guarantee were issued as a separate policy. An example would be a term policy.
When considering the purchase of this policy, you should consider the value of higher non-forfeiture benefits versus the level of the premiums required to keep your policy in-force.
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Tony Steuer is an author and advocate for financial preparedness. Tony Steuer, CLU, LA, CPFFE, helps people make sense of the financial world in a way that’s easy for them to understand. His books including, “GET READY!,” “Insurance Made Easy,” and “Questions and Answers on Life Insurance,” have won numerous awards. Tony is the founder of the GET READY! Initiative which includes the GET READY! financial organization system, the GET READY! Financial Preparedness Club, GET READY! Podcast, and the GET READY! Financial Principles, a best practices playbook for the financial services industry. Tony served as long-term member of the California Department of Insurance Curriculum Board. Tony is regularly featured in the media including the New York Times, the Washington Post, Fast Company, and other media. He has also appeared as a guest on television shows, such as ABC’s “Seven on Your Side.” Visit https://tonysteuer.com/ to join the GET READY! Financial Preparedness Club and access free resources.