Is Universal Life Insurance right for you? I have a problem when people call me and tell me they are paying $50-100 monthly for a Universal Life policy because they bought it for an investment or retirement. Someone told them it was a good way to force-save, or it was a way to pay for Junior’s college expenses. Then they tell me their income (usually not very high) and that they are not contributing to a retirement plan. This only compounds my frustration. If your income is not high, you should think twice; however, those making less money are the best targets for “investment” life insurance.

Universal Life offers a tax-deferred buildup of cash value. Some in the highest income bracket may consider this an “investment-type” policy. Suppose you buy one for investment purposes, overfund the contract, and let the cash grow on a tax-deferred basis. Also, if the initial current or projected interest rate is at, let’s say, 8%, ask for an illustration that uses 6 or 6.5%. Base your premiums on the lower projection. That gives you some fudge factor if things don’t hit projections.

At some point (much later on), you may be able to get cash via loans or withdrawals and still get a tax-free death benefit. Again, this is advanced financial planning. This strategy is for high-income people with substantial investments and savings who have maxed out all available tax-deferred retirement options, including 401 (k) s and IRAs.

If you are not in the top income bracket, here are some financial planning suggestions: (trust me on this – I learned the hard way).

The first three suggestions will keep most people busy for some time.

Universal Life can be a good choice if you seek level lifetime coverage without anticipating cash value growth. You are simply getting a guaranteed death benefit in the future for a fixed cost. If this is what you want, I have no problem with it, although I would prefer you max out your retirement plan options first. Also, if you buy it, plan to keep it. If you cancel this policy early, substantial surrender charges will be assessed against your cash value.

As mentioned above, the newer contracts offer better lifetime guaranteed-premium coverage than the 1980s and 1990s versions. Be sure you are paying the lifetime guaranteed premium, as many policies offer lower premiums but don’t guarantee them for life. Don’t find yourself in the same situation as those described above. This is not always clear. Everything will be listed in the proposal you will have to sign. Read everything. If you apply, request copies of the policy delivery receipts to be faxed before the final meeting with the agent. When the agent arrives, there will be little time to examine everything before they want you to sign and leave. If you get stuck, fax me a copy of the proposal, and I will tell you what you get. We offer this service free of charge. If more research or company contact is needed, our fee is $225 per hour with a two-hour minimum.

If you already own a Universal or Variable Life policy, you get an “Annual Report” each year. You glance at it – it’s a bunch of columns of numbers that make no sense. You then file it away with the other previous years’ reports and forget about it until next year. You need to get it out and read it. Fax me a copy, and I will go over it with you. Next, you must ask the company for a “mid-stream” proposal. Some companies call it a “mid-point,” “current,” or “in force” proposal. You want to get that report if you have a lot of money invested. It’s free for the asking. It is a snapshot report that says, “Here is where you are today, and here is where you will be in the future.” The report will have numbers for this year's projections of future values. There should be 2 or 3 sets of columns – usually to the left, it should say “Guaranteed Values.” It will list the death benefit, accumulated value (funny money), and cash surrender value (real money). The columns on the left will show a “Guaranteed” interest rate. These columns represent the worst-case scenario and assume the company is paying the minimum interest and charging the maximum admin and mortality charges.

There may be a middle set of columns saying “mid-interest rate.” This is set up like the “Guaranteed” columns, but this group shows a mid-point interest rate scenario (between the guaranteed rate and the current listed rate). The third column shows the same data but uses the current interest rate and current charges that the company assumes it will charge in the future.

If you see any zeros in any of the columns going out into the future, it’s time to pay attention, as the policy may pre-decease you. You need to look under the “death benefit” column. Suppose the zeros start in the Guaranteed “death benefit” column. In that case, this means that if the company falls back to the pre-stated guarantees in the policy immediately and stays there for the duration of the policy, it will lapse on you in the first year you see a zero in that column. That means your “bucket” is empty. This is probably an unlikely scenario, but it’s something to pay attention to as time passes. If the zeros are listed in the “mid-point” or especially the “current” “death benefit” columns, problems may be fast approaching. Here you need to decide to start putting more money in – surrender the policy and get the remaining cash value out – possibly exchange the contract for a better, more current contract – let the policy die (no pun intended). Today’s contracts are better, but it depends on how much money you have in the contract. If you plan to put in more money, you need to do it as soon as possible. Once the bucket starts to empty, it does so in a hurry. 

Questions? Comments? Suggestions? 1-800-542-5530 – admin@americaquote.com

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