Universal life insurance is a powerful tool that can be used for many things if it’s set up and managed properly. Large companies have been leveraging the power of universal life insurance for some time, but it’s something smaller companies and even individuals can leverage as well.
Universal life insurance is a specific type of cash value life insurance with flexibility in both the premiums and the death benefit. The rates stay pretty consistent but growth can fluctuate from year to year. It’s also a tax-deferred investment opportunity for the insured.
There are several ways you may be able to leverage a universal life insurance policy to work for you.
Funding for large purchases
Through a concept called infinite banking, individuals and companies can leverage universal life insurance policies for major purchases. Basically, you purchase a universal life product, overfund it, and then borrow money back at a lower rate. That allows the company (or individual) to make a purchase and then repay their policy while still maintaining control over that money.
Alternative to a college fund
Another option is to use a universal life insurance policy for college savings instead of a 529 plan. A standard 529 college savings plan comes with restrictions regarding what schools you can attend and the types of educational expenses it can be used for. So what happens if your child wants to attend a trade school or they receive scholarships to cover their full tuition?
Instead of a 529 plan, you can overfund a universal life policy as a college fund. Let’s say your premium for the policy is $60 per month, but you put $200 per month into the policy. That extra money is growing in the life insurance product year after year. When it’s time for college, you can borrow that money from yourself and then pay it back however you want later. And you can use it however you want, including tuition, room and board, a reliable car, or other college expenses. The bottom line is that you have a lot more options with a universal life policy versus a restricted college fund.
Other uses for universal life
We’ve also seen businesses use a universal life insurance policy for key employee insurance while overfunding it to provide a retirement fund for that employee. Universal life can also be a great alternative to a Roth IRA for doctors, lawyers, or other individuals who make too much money to qualify for a Roth IRA. There are income restrictions on Roth IRAs but not on universal life policies, so it’s a great alternative.
You may be thinking this all sounds too good to be true or that you don’t have enough money to make something like this work. It’s true that using a universal life policy like this isn’t right for everyone. It does require having the funds to invest up front, but it can be a great option in a lot of situations.
As with any insurance or investment opportunity, it’s important to assess your entire situation and determine the best approach for your unique needs. Sometimes the best fit is a regular term life policy that simply takes care of your immediate needs, while other times a universal life policy with some flexibility is the better option.
Have questions about what life insurance policy might be the best fit for you? We’d be happy to sit down with you and discuss your options.