Universal Life Insurance
You’ve accomplished much in life. Your success means that your financial needs are very different from most people. You need insurance coverage of a different purpose, not so much as to provide for your family’s expenses but to manage your wealth and estate. You will need financial solutions that will preserve the assets you have taken a lifetime to build to ensure harmony of your family and descendants. At the same time, you want to enjoy your wealth. Universal Life Insurance can be a big part of the solution.
Universal life Insurance
Universal Life Insurance is a form of ‘interest sensitive’ type whole life insurance provides death benefit mean for high net worth individuals, as the cover is usually higher. It is meant for estate distribution and wealth management purpose.
The internal policy charges and interest crediting components in Universal Life Insurance are specifically broken out separately in the policy. The single or regular premiums are invested in an account, like a bank account, to earn interest at a declared rate.
These plans give you flexibility in the sense that within certain limits, you can choose the amount, method and timing of your premium payments.
A monthly deduction is deducted from the policy accumulation value. This determines how the policy values develop.
There is also flexibility in the death benefits in that you can change the death benefit as you wish subjected to the charges.
The death benefit may no longer be available if the cash value or premium payments are not enough to cover the cost of insurance. However, you can add guarantees to the policies, where if certain premium payments are made for a given period, the policy will remain in force even if the cash value drops to zero.
History of Universal Life Insurance In Singapore
Universal Life Insurance is registered in Singapore and approved by the Monetary Authority of Singapore (MAS). Universal Life Insurance has been popular overseas for more than 30 years. In recent years, there has been exponential growth in ULI take-up from high net worth offshore clients in Singapore. Now, there is increasing interest from high net worth clients purchasing these policies from companies licensed in Singapore.
This strong demand has lead to many local insurance companies introducing Universal Life Insurance over tha last 2 years. Personally, I am more comfortable with established companies that have offered Universal Life Insurance for decades as the longer period of claims experience mean that the policy interest rate and charges are more stable and less subjected to change.
Features of Universal Life Insurance
Target Market – It is targeted at high net worth clients, in both local and offshore markets.
High levels of permanent coverage – The coverage is high at about minimum US$400,000 and can be up to US$50 million
High entry age – Universal Life Insurance is targeted for estate and wealth management purpose. Universal Life Insurance enables high entry age of 21 up to 89 years. Most plans only allow applicants up to the age of 60
Premiums – The premium can be single or regular or a big sum followed by smaller regular premiums. The premiums are invested in an account, like a bank account.
Insurance Charges – A monthly deduction to cover the cost of the insurance protection, as well as other policy charges, is deducted from the policy accumulation value. The established companies also guarantee a ceiling on the insurance charge that they deduct.
Interest Crediting – The Universal Life Insurance account earns interest at a declared rate, which may change over time. Most Universal Life Insurance guarantee a minimum interest rate, which is usually better than interest rate paid on bank savings or deposits.
For Universal Life Insurance, interest is credited to the balance in the account unlike a unit-linked policy, where the fluctuating unit price is used to calculate the cash value.
Cash Values – The premiums and charges determine how the policy values develop. You can withdraw money from the account, as long as there is enough money in your cash value account to cover the costs. Universal Life Policy offers high cash values from day one if the policy is funded by a single premium or the first lump sum is substantial.
As the Universal Life Insurance account is in cash, it means that only the insurance charges deduction can affect your cash values. Financial market volatility does not affect the cash value, hence there will not be a case where the cash value “drops” in value.
Flexibility – As long as the cash value and incoming premiums is enough to cover the charges, you can have flexibility on premiums and death cover. You have the option of changing your premium payments and also the death benefit as you wish.
Policy Lapses – The death benefit may no longer be available if the cash value or premium payments are not enough to cover the cost of insurance. This is also true with all Insurance Link Policy insurance most consumers are familiar with. However, you can add guarantees to the policies, where the policy will remain in force even if the cash value drops to zero.
Currency Denomination – The plan is usually denominated in US Dollars. There are Singapore Dollars policies available
Tax-free cash value returns – Whatever the amount invested, your cash returns will be free from taxation. This can be useful tax planning tool for foreigners.
Diversification – Universal Life Insurance can be structured as a low risk capital preservation investment strategy.
Riders – I have not come across any companies offering riders to cover critical illness, accident and other risks. However, that does not guarantee that there is no companies out there offering riders.
