Universal Life Insurance origins from the United States of America and is gaining popularity in Singapore for the past few years. It is denominated in US dollar with financing options available. It is marketed by bank managers, independent financial advisors and insurance agents. The targets audiences are the affluent mass market and high net worth individual with high investable assets. It provides lifetime coverage with flexible premium payment terms.
Universal life insurance works very similar to investment link plan where the investment grows with a yearly insurance mortality charge. The differences are an interest crediting rate is used (non-guaranteed BUT with a minimum guaranteed rate usually at 2% to mitigate the downside risk) instead of market forces in the case of investment link plans. The current interest crediting rate is approximately at 4% p.a. for most insurers.
Our standard practice is to generate quotations with 3.5% p.a. & 3.0% p.a. quotations to simulate a fall in the crediting rate and evaluate how it affects the policy in the future.
Why universal life insurance?
Universal life insurance is implemented by individuals to achieve the following personal financial planning goals
- Legacy Planning
- Wealth Transfer
- Estate Preservation
Business owner / CEOs implemented this plan to achieve the following business goals at a lower cost
- Business succession planning
- Talent attraction/retention program
- Key man insurance
Important attributes of universal life insurance
- Crediting rate (we came across many bankers and insurance agents’ evaluation/comparison solely based on this factor, and we strongly feel that it is inappropriate)
- Initial charges
- Mortality charges (there is usually 2 tables: current mortality charges and maximum mortal charges. Pay attention to BOTH of them)
- Worst case scenario of minimum guaranteed crediting rate with maximum mortality charges
You can find out more on the universal life insurance options available in Singapore in our review section (coming soon!) or speak to us directly to see how we can achieve your person/business goals.
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Besides implementing a Universal Life Insurance, we recommend you read our article on “Financial simulation for your retirement planning”.