Potential policyowners may consider UL for any life insurance need. Initially, the insurer and policyowner may configure a UL policy’s death benefit and target premium level to resemble virtually any type of life insurance policy from annually renewable term insurance to single premium whole life. However, because of policy costs, UL generally is best suited for long-term coverage needs. For short-term (less than five to ten years) needs, a nonrenewable term policy generally will be more cost-effective.
- UL is indicated whenever policyowners desire the ultimate in flexibility in life insurance. Policyowners whose circumstances change can later reconfigure the policy by changing their premium payments and/or the death benefit.
- UL is extremely popular in the family market. For example, young parents with growing families and modest incomes can acquire UL policies that they initially configure with low premiums and high death benefits to resemble traditional renewable term policies. As the parent’s incomes grow, they can increase premiums to build tax-sheltered cash within the policy. At later times when they need cash, such as to pay for a child’s education, they can reduce premium payments or stop them altogether and use the cash values to help pay the school expenses. After a time, they can increase premiums once again to build cash values. Similarly, if the amount of death protection that they need changes, they may decrease or increase the death benefit. However, increases in death benefits usually will require evidence of insurability.
- UL also has become extremely popular in the business market where flexibility often is essential. UL has become the preferred vehicle in all sorts of business applications including split dollar plans, funding for nonqualified deferred compensation plans, key person insurance, funding vehicles for buy-sell agreements, and even in insured qualified retirement plans.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM