What Is Best Term Or Universal Life Insurance?
Posted January 28, 2010 – 4:38 am in: term life insuranceWell remember you will hear that ‘universal is best’ only from those who will profit from getting you to buy it from them.
Insurance agents will almost always tell you to buy some kind of permanent life insurance. They get more commission from that and they will go to great lengths to sell you on its alleged benefits. Just see the post above from a licensed agent who profits handsomely from this and you’ll see proof of what I’m talking about.
The truth is….you can buy a lot of term insurance for the same amount of money that will only buy a little universal life.
Or better said…you can buy plenty of term insurance and invest on your own what you didn’t pay to the insurer and agent in the form of fees, profits and commissions.
But you have to be diligent. Make certain you buy long enough term. They now have 20 and in some cases 30 year level premium term coverage. And, there are so many insurers selling this that there are plenty of quotes, lots of competition and decent prices.
It really comes down to what do you really need insurance for? It should NOT be used as an investment. Period.
It should be used to replace income lost by your loved ones if you should die prematurely.
Accordingly as you age and your kids grow and you pay for college and the house gets paid off….then your need to replace income for that diminishes and you don’t need as much life insurance.
A smart consumer would buy a lot of insurance at a young age when there are more years of potentially missed income to account for…..but an older smart consumer knows that they can scale back on some insurance if things are all in order and use the excess money to invest wisely or increase your standard of living.
5 Comments
As the other answerers have noted, it depends largely on what you’re looking for in a life insurance policy. Term life insurance generally provides the most coverage for your dollar, but it is a type of temporary insurance that you might outlive and therefore not collect on. Universal life, as a permanent insurance plan, will be in effect as long as your premium payments are met. Plus, you can generate additional cash value that accumulates the longer you have the policy.
I’ve linked to articles from CNN, The Motley Fool, and MSN that might be helpful to you in comparing and contrasting life insurance plans. The other answerers here have done a good job in explaining the differences between the two types of insurance. Remember that there are other permanent life insurance options besides universal life. Traditional whole life plans have premium rates that do not change, unlike universal life rates that are tied to interest rates.
You can check out the latest rates and coverage options at MostChoice.com, and speak to locally licensed insurance agents without cost or obligation.
You can find MostChoice here:http://www.mostchoice.com/life-insurance…
Hope this helps,
Barnes@MostChoice
Hi, your friendly insurance guy here again!
EDIT – Another poster, two or three messages below mine, seems to think I’m some kind of thug out to rob you. He’s wrong. As I say in this post, Term is the least costly option and other forms have the advantage of permanence. Yes, they cost more than term. Yes, the broker typically gets paid more when you purchase permanent products. No, that’s NOT the reason to mention them to a client. And unless and until those other posters who keep bleating about term insurance are prepared to pay your family hundreds of thousands of dollars because you died a day AFTER their vaunted Term policy expired, they should probably rethink their opinions of term insurance as the “be-all, end all” product.
***Warning, long (but educational!) post***
Term Life Insurance and Universal Life Insurance are two very different animals, and each has a specific, useful purpose.
Term insurance is most useful if two specific conditions exist:
1. You want the lowest out of pocket cost possible.
2. You are absolutely sure you will only need coverage for a specific period of time.
An example would be wanting life insurance to cover the cost of a mortgage. A term policy with a face value equal to the mortgage with a term period equal to the mortgage duraction works well for this situation. In other words, if you have a $200,000 mortgage, 30 years long, getting a $200,000 face value 30-year term policy will make sure your family can pay off the mortgage.
Another good case would be would be wanting to provide for a child’s education. A 25-year term policy purchased at the birth of the child will do this well. It will be in force just long enough to cover a period of time in which a child can go to college and maybe some grad school.
When the period of time for which a term policy was originally purchased expires, one of the following occurs:
1. The policy ends. The insured has no more coverage and will have to be re-insured, including new medical tests. All premium dollars are lost. It’s usually not that painful to lose it all because, as I mentioned, term coverage is cheap.
2. The policy ends, as in item 1, but the insured gets the premium dollars (or some portion of them) back. This is called Return Of Premium Term Insurance. It usually costs between 50% and 150% more than a standard term policy.
3. The insured continues the policy, at which point the premium cost skyrockets. I’ve seen $500/year term policies expire and cost $10,000/year to continue.
Term insurance is not meant to be a permanent solution. I’ve heard it described this way:
“Buying Term Insurance is like wetting your pants. Sure it relieves you, but after a while you have some major changing to do.”
Universal Life has a different purpose. It is a form of permanent insurance. Properly configured it can be set up to give you a set amount of coverage, or a steadily increasing amount of coverage, that never goes away. It can also be issued at much higher ages than term insurance can be. It also has cash accumulation properties. It is NOT an “investment.” No term, universal or whole life insurance policy is, even though some have characteristics of one. At most they are cash accumulation vehicles. Universal Life also cost more out of pocket than an equivalent face value of Term Life Insurance.
Situations in which Universal Life is appropriate include:
1. Wanting coverage that you know will be in place when you die even if that is a long, long time from now.
2. Wanting insurance when you are past the age when Term is readily issued.
3.Wanting cash accumulation that includes life insurance properties, such as ability to transfer wealth across generations in a speedy, tax favored way.
The downsides to Universal Life are:
1. Costs more than Term insurance.
2. If it is incorrectly configured it will not be permanent.
3. If you withdraw the cash value from it, the permanence can be jeopardized.
To avoid the risks of items 2 make sure you have an insurance rep who knows how to set a UL policy up correctly. To avoid the problem of item 3 make sure your UL policy has two accounts: One to maintain the policy, and a separate one to use for cash accumulation. An example of a policy of that sort is MassMutual’s UL Guard. It has a guaranteed no lapse provision, and can be set up with a separate accumulation account. Other companies have good policies with those qualities as well.
To determine whether Term or Universal is right for you, ask yourself these questions:
1. How much face value do I want?
2. How long do I want the policy to remain in effect?
3. How much can I continuously budget for this coverage?
Regarding item 1: It is always more important to get the right face value than it is to get a particular type of insurance no matter how neat that type may be. Believe me, if you die, your beneficiaries won’t be asking what kind it was. They’ll be asking things like “Was it ENOUGH to save the house, put the kids through school, etc”
Regarding item 2: if you only want the insurance in force for a certain time period, Term is probably the way to go. If you want coverage that you know your family will receive the benefit from no matter what, Universal may be the better choice.
Regarding item 3: Buying insurance you cannot adequately budget for will only lead to you cancelling it, leaving you without coverage of any sort and putting your family or business back at risk. Buy what you can afford. Remember:
1. Having SOME insurance in place is better than having NONE.
2. Having ENOUGH insurance in place is better than having LITTLE in place because you could not afford as much of a more expensive type.
3. Having some PERMANENT insurance in place to cover expenses you know you will have, like funeral costs, is better than winding up with nothing in place because you have 100% TERM.
In general, I break this down for my clients like this:
If price is the biggest single consideration, go with Term.
If you can afford a bit more, go with UL.
If money is no object, ask about Whole Life.
For many clients a blend is the right pick – say, $50,000 or so of UL to give permanence to the amount needed for “final expenses” and cover the remaining need with term.
Remember, Remember, Remember, though:
Get the right AMOUNT before any other consideration. If you need $1,000,000 of face value and can afford that with 20-year term, but not with UL, GET THE TERM so your family will have enough if you die. Yes, UL has some great features. Yes, it can do a lot of things Term can’t. It’s not worth sacrificing “having the right amount” to buy it.
Feel free to contact me with questions.
It depends on what your objectives are for the purpose of insurance. Are you using it strictly to protect your family in case you were to die or do you want to use it as an investment vehicle?
Let’s take a look at the differences. Term insurance is, by definition, temporary insurance. Each year, a premium is paid to cover the risk of death during that year. Term insurance has no cash value. The only way to collect anything is to die during the term. If death occurs, the beneficiary generally collects the face amount (death benefit) of the policy, free of income tax.
Guaranteed level premium term has premiums that are designed to remain level for a period of 5, 10, 15, 20, 25 or even 30 years.
On the other hand, Universal Life Insurance works like this: premiums are credited to the policy as they are paid. Most plans deduct certain administrative charges from the premium before crediting the balance to the policy value as net premiums. Each month, the insurance company deducts certain amounts from the policy value to cover the costs of mortality (death benefits), as well as for any riders and/or supplemental benefits. Also, each month, interest is credited to the policy based upon the cash value in the policy and based on a current declared interest rate as determined by the insurance company. This rate can and will change periodically.
With Universal Life, most policies also have a decreasing surrender charge which is deducted from the cash value if the policy is surrendered. This feature allows the insurance company to recover certain expenses which are associated with the issue of the policy. The surrender value is the cash value less any applicable surrender charge.
Finally, term life insurance is much less expensive than a universal life policy. For example, a 40-year old man in perfect health can get a 20-year term life insurance policy with a death benefit of $500,000 for only $355 per year. A univer life insurance policy would cost him at least $3,000 per year.
Remember, if you’re buying life insurance to protect your family in case something were to happen to you, it would be wise of you to buy a product that you will be able to afford and not lapse the policy.
You can get free quotes on term or universal life insurance policies from them and decide for yourself according to your needs.
“http://www.jdoqocy.com/email-1961891-…
20 year term, with renewable & convertible endorsements.