All Life Insurance Tips - Universal vs Term life Insurances?

Universal vs Term life Insurances?

My wife and I just bought a Universal life insurance policy. We each have $100,000 in coverage. After talking to my parents, who are 59 and 58 years old and have term life, we think we are paying too much per month for premiums. Our agent showed us and told how the premiums we pay will partially go into a savings account and collect interest. This looked like a good thing and that is why we went with the Universal coverage. He also told us that the premiums for term would keep going up as we got older. My parents pay a combined $65/month for there life insurance (with $150,000 coverage each). My wife and I pay a combined $125/month. After talking to my parents and reading up on the difference between universal and term, it seems that the money that is suppose to be in a "savings account" with universal, might not be all it's cracked up to be. I know they gaurantee you a certain interest rate, but that is only if they perform and make the profits that they need to. My question is will there really be as much money in a "savings account" as the agent showed us, or will we cash out at the end and only get a few hundred dollars? Can you explain the difference a little better for me? Thank you very much for your time.

Public Comments

You don't mention your age, but I'm guessing it's around 30. The short answer of the difference between universal life and term life is cash value. The advantage of cash value is that the universal life has the ability to grow a tax deferred and probably tax free return (I say "probably" because it is possible to not have the tax free return, but I doubt you would have any problems with that.) With the cash value, you have the opportunity to keep your life insurance policy for your whole life. I don't know the length of term for your parent's policy, but their policy will increase in cost over the years and by about age 70 it will be so expensive they will not be able to keep the policies. Therefore, all the money they paid in term premiums they lose (effectively, they "rented" their insurance for 30 or 40 years instead of "buying" their insurance.) The universal life does have "guaranteed" accumulation of cash value based on the current cash value and the premiums paid. That's regardless of how the company performs. If the company performs better, then you get more than the guarantee. Most companies have paid more than the guarantee every year. You can check with your company to see if that's true with them. If you buy $100,000 20 year term, you will probably see the cost at around $20/month each. That's a lot less than the $65/month each now, but in 20 years it will double and in another 20 years it will go way above doubling. So, think of your universal policies as policies you will have for the rest of your life unless you decide you want the cash. After 20 years and more you will probably receive all of your premiums back plus some return if you decide to cancel the policies. I don't know what the agent showed you as the effect of the cash value in 30 years or whatever, but it is likely a reasonable expectation. In other words, you can reasonably expect to have the cash value he/she showed you. It may be less; it may be more. I know there are many entertainers on the radio such as Dave Ramsey and Suzie Orman who say "Never buy permanent life insurance. Only buy term." This is *not* a good recommendation for everyone. It is a good recommendation for some, neutral recommendation for others and *bad* recommendation for still others. I don't know your specific situation, but if you are in good health, in the 30-year-old range, can afford the premiums without having to skip dinner and the company is a well-known, grade-A insurance company, you probably should keep the policies. My advice, if you meet those items just mentioned, is to keep the policy and plan to pay even a higher premium when you can (I know this sounds dumb right now). But when your 60 you probably will not be making premium payments anymore and will have the life insurance well past age 100 if you live that long. I have many clients who wished they had purchased a permanent policy when they were in their 20s or 30s instead of term. I don't have any clients who are past the age of 60 and thought they had made an error when they purchased their permanent policies 30 or more years ago. You don't want a "good rate of return" on your life insurance. To have that, buy a 1-year term policy and get in an accident after your first payment - but that's not a plan any of us want. What you should want is a plan where you pay a little more now, build cash value and then quit paying on the policy when everyone else is complaining about the cost of their life insurance going up. Remember I don't make anything off of your policies and am giving you advice as if you were sitting in my office. If you want more information,You can refer to this blog which show you an article about Affordable Term Life Insurance Quote and Term Life Insurance Quote : Affordable Term Life Insurance Quote Online: http://affordable-termlife-insurancequote.blogspot.com How to get The Best Term Life Insurance Quote ARTICLE http://term-life-insurancequotes.blogspot.com Affordable Term Life Insurance Quote VIDEOS http://affordable-termlife-insurancequote.blogspot.com/2009/05/where-to-get-affordable-universal-life.html The Best Term Life Insurance Quote VIDEOS http://term-life-insurancequotes.blogspot.com/2009/05/term-life-insurance-quotes.html Definition from Answer.com http://www.answers.com/topic/term-life-insurance Hope that helps, post back if need be- regards- Richard Man U
This very same question was asked about a month ago, just about word-for-word, by RALPH. My answer was chosen by voters as the best. Are you and Ralph one in the same?
Frank's answer is right on target. All those poor individuals heeding Suze Orman's advice about purchasing term vs. permanent insurance in 20 or 30 years will want her head on a chopping block! CA licensed - 10 years mob442ins@yahoo.com
What the agent also failed to mention about Universal life insurance is that is an annual renewable term insurance that has savings attached to it. While your premiums may remain level in the beginning, the internal cost of your insurance goes up every year. In some point of time, you will have to pay more premiums to keep the policy enforced. If you don't, the insurance company will take the difference from your cash value (which your agent labeled as "savings"). Eventually, this policy will lapse. If you ever look through your policy with a table that list the value of your cash value over time, I bet you will see the word "lapse" near the end of that table. You are better off buying a 10 year or 20 year or 30 year level term and investing the difference. I don't know your financial situation, so I don't know how long you need life insurance. Of all the hundreds of clients I have, not a single one of them need life insurance forever. If you had $500k saved by the time you retire, all your debts is paid off, and all your kids are grown adults, why would you still need $100,000 life insurance policy?
Do you need lifetime protection? How much are you willing to spend on life insurance? Would you be interested in using your life policy for investment purposes? Answering these questions is a good departure point for choosing the type of policy that best matches your needs. Both term and universal life insurance policies have their pros and cons which you should measure against you personal needs in order to make an informed decision. Term life insurance If you are young, have a limited budget and short-term need for protection, this is the best insurance option you have. Advantages of term life policies * Premium rates are the cheapest on the insurance market. * For a really low price you will provide your family with full protection. * You can choose a coverage period in accordance with your particular situation and objectives, such as until your children grow up or until you have paid your mortgage off. * You can always convert to a whole life policy without evidence of insurability if, along the way, you decide that you need permanent coverage. Disadvantages of term life policies * Term life is an "all-or-nothing" policy, that is, benefits are only received if you die while the policy is in force. If you outlive the policy, you do not get any of your premiums back. * It is hard to predict the future. If, at the end of the policy you find that you need to extend it, that would not be possible to do at the original premium rates. * It can be prohibitively expensive to renew a term life policy if your health has deteriorated or you have reached a certain age. Universal life insurance This is the best insurance option for someone who wants to combine flexible-premium permanent protection with an investment opportunity. Why choose universal life? * You can adjust your premium payments in accordance with your financial situation. In situations when your budget is tight, you can decide to make minimum premium payments, or use the cash value, to keep the policy in force. * You can also increase or decrease the face value amount. * The cash value account serves as an investment account, which is credited with a guaranteed minimum interest rate (usually 3 percent). * You can choose to pay extra towards the cash value when the market conditions are favorable - this way you will reap the benefits which are tax-deferred. What are the drawbacks of universal life insurance? * Like any other type of cash-value insurance, the cost can be rather steep. * Universal life insurance passes the investment risk on to you: if the interest rate plummets, you risk losing some of the accumulated cash value. * If you choose to make the minimum premium payments, you will not accumulate any cash value, thus ending up owning an expensive term policy.