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Various Forms of Permanent Cash Value Life Insurance…
There is a great deal of misinformation about the different kinds of permanent life insurance. Here’s some straight skinny.
There are two basic types of permanent cash value life insurance: Universal Life (UL) and Whole Life. Each might have a role to play in your insurance and financial planning. Here is a very simplistic overview of these types of cash value life insurance as they are often proposed by agents and advisors who adhere to the principles articulated in Money for Life!
Universal Life Insurance…
UL is a modern invention. (c. 1980) UL places much of the risk associated with life insurance on the insured person and, generally, does not guarantee cash value accumulations in the policy owner’s account. A UL policy guarantees a rate of return on your accumulated funds. If you put enough money into your policy account – usually substantially more than what is called the target premium – there is a good chance funds will accumulate, but there is no inherent guarantee that they will.
In addition, UL often does not guarantee that the premium will remain level or that the death benefit will not decrease.
Universal Life Insurance: How not to…
UL is the most commonly recognized and most frequently sold form of cash value life insurance. UL is touted as “flexible” because it allows the insured person some control over the premium payments and the amount of the death benefit.
Many of the “benefits” that are promoted for UL end up being liabilities in practice. The ideal life-plans that are sometimes presented to you as a part of the selling proposition seldom - if ever - turn out the way they are idealized. The flexibility of the product ends up being relatively useless and the plan upon which it is based is unrealistic and unachievable.
Finally, UL is often presented as “less expensive” than other forms of cash value life insurance by advisors who are not Money for Life practitioners. This is seldom true. It’s easy to show a lower initial premium for a flexible UL policy. The problem shows up years later when the cost of the death benefit - which typically increases annually - and other internal charges by the insurance company exceed the “low” premium that was originally illustrated and the insured person is faced with paying much higher premiums or losing the insurance.
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