Universal Life Insurance versus Term Life Insurance

How old are you and when to you purchase your original term life insurance policy/how many years left?

If you buy a universal life when you are 22 versus 40, your premium will be lower. So if you have had your term life for awhile, it is going to cost you more to get the same coverage than if you started that coverage when you were 5-10 years younger (depending how your life does it and if they still have age bands most don't anymore)


Be careful because most agents make a commission percentage based on your policy. For a number of companies it is form 30-50% (at least mine) for the initial year then anywhere from 2-6% renewal commission yearly.

That means if he either isn't your original agent or trying to make more, he will get a year where if he even resigned you to the same priced but new policy would see an approx 25% increase in commission which in reality is increased further when considering the premium rates go up. He will benefit from making this change. Just saying




I work in insurance and I'll explain how life insurance companies make money

On a life insurance policy, an insurance companies makes the majority of their profits based on investing your premiums. They are required to set aside reserves based on state mandated ratios to cover losses.

After their reserve ratios are met and commissions are paid out, all the excess money is set aside in investment accounts and invested to increase the value of the money. That is why it is possible to buy ROP (return of premium) riders which if you don't die on term for instance, they will pay you back all the premiums you paid. They make the money off the compounding interest of your premiums.

If you lapse your policy, say you decided "I have enough in savings and if I died my family could live on it" they get to pocket all your reserves built up for payment and your premiums. If you paid long enough it is the ideal situation for the insurance industry. Pay for 20 years, lapse policy, then die in the 21st. Company pockets profits and pay out nothing


So you need to figure out what you believe is worthwhile to you.


Questions when buying life insurance-

-What/who are you buying it for?
-What fits my needs?
-How much do you need?


1- Most people buy it for family but which part of your family factors into the next question

2- Based on your retirement savings and what you have built up + what you expect to have at the end of your term life, will you have enough to cover your family if you were to die 1 day after your term was up or 5 days? How much are you willing to bet on that fact?
Could you build up to that point by reinvesting the difference in the costs?


3- I am not going to advise you on how much you need but just see 2

What happens when my term runs out at 56 and I have to get a new term policy/premium. At that point does the cost I have saved going term outweigh the amount I have saved up in the UL policy and having the UL policy at a set premium. Until 65 rather than term and premiums until death.

He brings up the point of what he is paying now for term at 55 and that he has to pay that until death. Where the UL you only have to pay premium until 65. We have three small kids and my wife doesn't work.

He brings up the point i can take money out of it down the line tax free.

Ya its like having life insurance on your kid. Your kid is a money sink, and life insurance is supposed to replace support, not convert the body into a cash equivalent.

quote:

---

my agent is pushing hard to move to UL

---

quote:

---

taking the difference from the term and UL premium and investing it wouldn't be an educated action for me, meaning i would have no idea what i was doing

---

Sounds like your agent is in position to take advantage of that.

I don't mean that in either a good or a bad way necessarily.

(1) Regardless of your insurance decision, I'd encourage you to learn more about investments, and/or seek professional advice. Increase your capabilities and confidence in that area. It will serve you well in the long run.

(2) Analyze your long-term plans/goals/expectations. If you'd anticipate being able to "self-insure" by your mid-50's, TL is probably your best bet. "Self-insure" meaning you'd have enough savings/assets to cover all of varied needs when you die.

(3) As you've said, TL is much less expensive. However, if you're going to burn through the money you'd save via TL, than UL might well be the way to go despite its costs. At least with UL, you've got a cash-value policy you could draw on later.

It's a personal decision, but that does not mean there is no right or wrong answer. To the contrary, it's a decision almost always having a right or wrong answer based on your personal situation. Just takes a little self-knowledge and analysis to figure it out.

So Universal Life is a good choice if you are irresponsible and/or a dumbass? Any other situations where it may be the appropriate choice?

quote:

---

So Universal Life is a good choice if you are irresponsible and/or a dumbass?

---

quote:

---

Any other situations where it may be the appropriate choice?

---

Not for me, but I'm sure there are. E.g., Perhaps for someone starting a family later in life, with relatively higher term costs?

To all:

When did you start purchasing life insurance? How much coverage?

I'm 24 and wife is 29 with a baby on the way.


Which companies can be trusted? It seems on the surface it would be full of scams.


Through work I think I have a 10k policy that would cover a funeral.

quote:

---

When did you start purchasing life insuranc? How much coverage?

---

31 / $1.2 Million Term / $75 per month through Amica

Ever since graduating college, I carried the 2-4x income group life policy offerred through employers. But I wanted to tack on a policy that would outlast a change of employers or especially being unemployed. Before we had kids I just wasn't too concerned about it.