I’m 22 years old and quite frankly have no idea what life insurance policies are for…some just seem like a scam (term) to an extent. Whereas a universal seems better (from what I do understand, which isn’t much)
My mother called and needed some information so that she can pull a Universal Life Insurance policy on me. She said that she pays it, and if I die before the age of being able to pull it out, she gets the money. And if I don’t die before the age, I can have the money pulled out and use it. I am under the impression that it’s like a life insurance and a savings in 1, that doesn’t end like term insurance does. Any more advice I should know about this?
You have it backward. Term insurance is useful if you need life insurance, while universal life is a bad deal for most people.
The main issue with universal life is that the “savings” part takes up most of the premium, and it’s a terrible way to save money.
If you have a spouse or kids who need support if you pass away, and you haven’t saved much, term insurance is very important. But don’t spend hundreds each month on a savings plan earning just 1-1.5% when you could invest in better options.
Yes, term insurance ends if you outlive it, but that’s how insurance works. If you never go to the hospital, your health insurance wasn’t a waste; it protected you. If you don’t crash your car, car insurance wasn’t a bad deal either. Compare the premiums for term and universal life, and you’ll see a big difference.
You’ll get many responses praising cash value permanent life insurance. I strongly suggest reading about term insurance and some basic investing books.
The short version is that no trusted CFP or fiduciary would recommend cash value life insurance as an investment. Life insurance should mainly replace income for your dependents. Almost every other use is a way to get less money in the long run.
Buy term insurance and invest the rest. If anyone thinks I’m wrong, I challenge them to share the best insurance policy they know. I’ll show why it’s not a good choice.
Universal life insurance is a type of permanent coverage. You can build cash value in the savings part if you overfund it, depending on how the policy is designed. Most policies are set to be paid off in 20 to 30 years. With good return projections, you could have lifetime coverage.
Be aware that the plan has surrender charges for the first 10 years. Avoid withdrawing money during this time. It’s important to meet with your advisor every one or two years to make sure the cash value is growing as expected. Adjust your investments if needed.
Thanks for all the comments, but why pay something that goes away in for say in 10 years if I don’t die vs. if I were to save money in a bank account that someone else will be in will to access? Ex. Spouse, children, parents etc.
That’s a good point. Here’s why people buy term life insurance: I have a $4.5 million term policy on myself. I owe about $1 million on my real estate, including my home and commercial properties. My wife stays home with our two children, and I earn a good income for where we live in the US.
If I die tomorrow, my wife will receive $4.5 million. She can pay off the real estate, keep our kids in private school, and continue their sports and music lessons. She can also send them to college if they want and take vacations.
If I had only saved the $275 monthly premium in a bank account over the last seven years, she’d have just $21,000 and a few hundred thousand in my retirement. That won’t be enough.
Once my term ends in 23 years, I will have everything paid off, a fully funded retirement, and the kids will be out of the house. I won’t need life insurance then, except for complex legacy planning.
So, when you start a family, get plenty of life insurance—about 15 times your income plus all current and expected debts. Whole life and universal life insurance aren’t scams; they’ve been around for a long time.
Whole life, permanent life, or indexed universal life (IUL) insurance can be seen as life insurance combined with a savings account. This savings account typically earns around 4% to 5% interest.
As the cash value in this savings account grows over time, you can borrow money against it. The loan comes from the insurance company. You can use the accumulated cash value to pay off this loan if you choose.