Ed Rempel, a CFP and CMA, is a regular guest writer here on Million Dollar Journey. Today, he has written an informative and opinionated article regarding Universal Life Insurance. A must read for those contemplating different types of insurance. This is Part 1 of 2.
There is a saying in the insurance industry – “If the only tool you have is a hammer, then every problem looks like a nail.”
There should be a comedy show about many insurance seminars. Insurance advisors are trained to:
- "Create a need (for insurance) and then fill it.”
- “What we do is find a scab and then pick it.”
Universal life (UL) is one of those products that I believe is vastly overused. It takes a bit of work to invent a need for it, but with some practice, it is often sold anyway.
My opinion is that universal life, for most people, amounts to paying for insurance you don’t need so that you have the option to limit your investment choices.
First of all, what is universal life insurance? Essentially it is term for life plus the option of buying investments in your policy.
We can all understand term insurance. We buy a 20-year term. If we are still alive after 20 years, then it was a complete waste of money. But that is what we normally want – for insurance to be a complete waste of money. It is the cheapest insurance and while we are alive, we know our loved ones will be looked after financially if something happens to us.
Term for life, usually called “term 100” means you pay a flat premium for life. It is more expensive because it will pay out some day, as opposed to term for 10 or 20 years which most likely will not pay out. In fact, term 100 usually pays out if you reach age 100 even if you are still alive. Then you can have a great party!
Universal life with a minimum premium payment is term 100. You can choose a higher premium and the extra amount is used to buy investments in the policy.
Stay tuned for Part 2 tomorrow…