Insurance segment as a whole,-including General and Life, serves as a strong and significant index to the growth of resource build-up as well as socio-economic awareness felt in National economy. In recent times, this standout trend has been increasingly noticed in the US with more and more people being attracted by several re-vamped and re-oriented Life Insurance Scheme which are welcome departures from the conventional, close end ones, viz- Term Life Insurance cum Endowment Policy or the likes.
Life Insurance In US
As in several developed and so-called developing economies across the globe, the United States has always been and still is a bastion of Insurance activities. U.S. citizens, conscious and financially alert as they are, keep abreast of each and every move initiated in the Insurance segment. Accordingly, the Insurance agencies and corporate are also out to prove themselves, equal to the task of meeting the aggressive consumer demand. While adhering to the basics of consumer service, a myriad range of products has been launched keeping in view the proliferating financial needs felt in the consumer front. All U.S. citizens, including permanent residents, (Green Card holders), persons holding a work Visa, as well as international students are eligible for this purpose.
The widely popular Universal Life Insurance is a flagship scheme tailored to the dual objective of life coverage and resource build-up.
Universal Life Insurance
This has been a rather new product in U.S Insurance spectrum that combines the low-cost insurance coverage of conventional packaged in whole Life Policy schemes. The accumulated fund out of premium is gainfully employed in Investment schemes with an eye to creating a cash value generation. Universal Insurance Scheme (UL), thus, a variety of Flexible Insurance Policy facilitating a return build-up alongside premium fund. The contractual terms and conditions are not rigid ones, subject to alterations in consonance with the ever-changing needs of the Insured during the currency of the policy account. Primary post-death benefits meant for the incumbents of deceased policyholder, built-in savings elements as well as the premium stipulations can be re-assessed and modified during the lifetime of the Insured, so as to suit the changing circumstances turning up for him/her, bringing in various financial compulsions and obligations. But it differs from whole life schemes in that; it enables the policy holder to service premium payments out of the interest build-up in the savings component of the same policy account after a certain period. Again, unlike Term Life-coverage-cum-endowment policy, universal Life Policy is of a permanent tenure which doesn’t terminate with the death or maturity of the policyholder.
The scheme, which has already won widespread acclaim in U.S., lays down such unique features as:
- Premium amount paid in excess of the current cost of insurance in connexion with a given policy gets automatically credited along with interest to a value build up(or Savings) Account maintained by the Insurer in policy holder’s name;
- The rate of interest so credited is decided upon by the insurer, subject to a minimum of 2%.
- In the event of non-payment of premium in any month, the cost of insurance (COI), as well as any other policy charges due from the same client, gets debited from the same.
An Open End Alternative
Universal Life Insurance Policy is a revamped version of Term or Whole Life Scheme where a part of the risk of carrying death benefit is passed on to the policyholder. While the former is automatically renewed over the years with regular premium servicing, a Universal Policy is subject to renewal every year so long as the ‘backup’ cash value is maintained to cover the insurance cost. In other words, the latter is an ‘open end’ scheme which has no pre-determined maturity date which typifies Term Policies. It lapses only upon unavailability of value backup for the purpose of covering the primary insurance cost along with administrative charges.
The ‘lapse clause’ has since been slackened where premium payment is discontinued after a certain period. In line with the conventional ‘paid up policy’ principles, such partially serviced policies continue to remain in force up to a minimum guaranteed period even if it is run with inadequate or zero cash value. This seemingly overriding measure could be initiated because cash value build up in an individual account has become less consequential as the entire administration of UL is vested in ILIT (Irrevocable Life Insurance Trust) though its management lies with individual Banks. Creation of a capital pool has not only facilitated the costs incurred by them by them, but also help0ed meet exigencies in managing sticky and under-serviced policies cited above.
Aggregation of capital under a common precinct (ILIT) has helped UL widen its range of facilities so as to render the scheme more client-friendly. The security-oriented approach has changed drastically into a service-oriented one. Here are some of the unique facilities added to the gamut of service meted out by a UL Insurer:
- Debt coverage: The resuming financial liabilities of a deceased policyholder, such as Cash Credit Accommodation or debts in market are paid off by the Insurer;
- Income replacement: Surviving spouses and off-springs are taken care of by financial assistance;
- Continuity of children’s education policyholders: Uninterrupted educational careers for the dependent children are ensured;
- Tax settlement: pending estate-related matters such as tax etc., due to the deceased are settled;
- Estate Replacement: If the insured had donated his assets to for charity and opted for cash replacement out of death benefit;
- Key person Insurance: A company is provided coverage when a manager or similarly crucial employee dies;
- Funeral Expenses: Even the expenses incurred for the last rites (of the Insured) are paid by the Insurer.
There are many more attractive facilities which have rendered Universal Life Insurance a better alternative for the erstwhile whole Life Schemes.
Life Time Benefits:
Coming Back to what additional services you can enjoy from a Universal Life Policy, your options look as inviting:
- Loans- UL policies mostly come with an option to raise a loan on some prescribed values related to the policy. It is to be paid back with interest.
- Withdrawals- policies that are opened under IRS (Internal Revenue Service) facilities to administer Tax payouts are additionally eligible to interest-free withdrawals equivalent to the total premium paid and prescribed occasions and frequency.
Introduction of IRS concept has brought about a sea change in US Insurance segment. Many more innovations are in the offing soon. So, watch out and keep your fingers crossed!