Universal Life Insurance
Whenever you hear the words Universal Life or UL Insurance it just means that the life insurance policy contains an investment component to the product. So you have the option between incorporating a minimum and maximum investment that you can build into your life insurance policy. Now, the tricky thing about this is that a lot of brokers don’t go into too much detail with Universal Life and will fail to tell you that there are actually two kinds of Universal Life insurance.
The first kind of universal life insurance is known as Universal Life Term 100. It’s basically a level cost insurance which means that your monthly premiums will stay the same for life, guaranteed. So its basically a guaranteed life insurance where the payment will never go up, it will always stay the same for life. We can use the example of $100 a month and your cost of insurance will stay at $100 forever. Now when the universal life aspect or investment component comes into play is after you make your $100 monthly payment you have the option of doing an additional investment. Like I said anywhere from minimum to maximum amount. So for example from $25 to $500 a month. And the reasons that it’s a big advantage is because the extra money that you’re putting into that policy actually grows tax free. Meaning that when it’s paid out to the beneficiary they’re never taxed. So you would be getting your life insurance death benefit paid out as well as your investment. And the government hasn’t changed its policy on this regarding taxes since the inception of the universal life product. This makes the universal life product a very nice option for people who are very what we call tax savvy.
The second insurance product, universal life insurance product, is called universal life YRT. YRT stands for Yearly Renewable Term. Its is not a guaranteed product. I am a big believer in educating my clients about these two different products. Because on the surface universal life insurance yearly renewable seem like its the same as the level cost term 100. They might even show the same monthly payment of $100 a month. Now the difference is that with YRT, or Yearly Renewable Term, basically your cost of insurance is not the same. It will go up as you get older. So as you get older that cost of insure will get higher. For example when you’re in your 30s, the cost of insurance might be $30 if your monthly premium is $100 a month, $70 would go into your investment because 70 plus 30 equals $100. Now as you get older because that cost of insurance will continue to rise, lets say when your 40 the cost of insurance now goes up to 40 dollars leaving you only 60 dollars towards then investement. As you get older your investment portion you’ll be investing less and less. And so the real problem is that, if your investment doesn’t pan out like it should in the early years, you might have to over fund the policy in the later years or it could possibly lapse.
Now, not to put a bad word against my colleagues who are in the insure business, but a lot of them don’t explain this product thoroughly, and I feel that it’s a very important product to explain to your clients, because recently, when the economy crashed, I saw a lot of clients who were very unhappy and came to me to — so to speak, clean up other brokers’ messes. I don’t normally recommend this product for families or couples with babies, it’s more recommended for the investor savvy business man who’s long-term goal is to take somewhat of a risk and possibly make a good profit long term while sustaining some life insurance coverage. But, I don’t recommend usually this product for people who are protecting their families.