Pros - You can change the premium month to month, if you want to, as long as it is within certain parameters. Also, it does have a cash value component in addition to getting coverage.

Cons - It can be expensive "term insurance." Fees increase year after year. Lots of "moving parts" that makes it more unpredictable. Have not performed the way that many insurance agents predicted.

If you really want to know how to use insurance in a way that nearly all insurance agents don't know about and can really enhance the other investments you are doing, get a hold of Dale Clarke. I send all of my clients to him since he shows them how they can make more money than most investments could ever make.

Links:

• http://www.fireyourfinancialadviser.com/about-us.html

Chris M. also suggests this expert on this topic:

• Dale C.

posted September 8, 2009

It really depends on what you are comparing it to.

If you are comparing it to term life insurance:
Con - It is more expensive
Pro - It will not end, as long as you pay your premium the coverage will be in place.

If you are comparing it to variable life:
Con - There is not as much earning potential
Pro - Safer investment and is guaranteed

There is really much more to each of these, this was just a highlight. In reality anyone that is looking for life insurance should talk with a broker and discuss what their needs are because there is no clear right or wrong way. Often times I find the best coverage is a combination of different products to satisfy a clients needs.

Links:

• http://www.tolfservices.com

posted September 9, 2009

Hi Ken,

Pros:
somewhat changeable premium within limits.
insurance will pay someday for sure.
may have cash value that can be used for college funding, retirement, income.

Cons: fees and cost of insurance may impact investment returns.
more expensive than term ( but you really can't compare the two) and less expensive than whole life.
no guaranteed cash value.

To give and more pros/cons I'd really need to understand the issue you're trying to address.

posted September 9, 2009

Hi Ken,

Flexible premium.

If you don't build cash value in the early years it may not pay a death claim (because the policy may lapse before you die) - you paid premium for nothing.

Use conservative growth rates in the illustration. Pay attention to the guarantees.

JC Brandon

Links:

• http://www.JCBCapital.com

posted September 9, 2009

There are several types of UL insurance today, Current assumption, guarantee UL, variable and equity indexed so the prior responses are missing clarity between these differences.

But the basic and common pros are the flexibility of premium payments and death benefit, as well as possible cash value with loan options at very low net loan rates. Low entry insurance costs make this an attractive form of permanent insurance. Fixed and known policy charges.

Con could be the increasing COI charges, and to me this is the only thing that could jeopardize the contract from sustaining payout of death benefit, should the policyowner not be able to keep up with the rising cost of insurance charges.

posted September 10, 2009

The greatest pro of universal life is that the coverage will last as long as you want it to. Although term goes until age 95 in most cases, the premium beyond the guaranteed period isn't going to be cost effective and increase every year. Universal life will provide a level premium for or or until a specified number of years. The con by some people's view is that is cost more and if you're looking for the coverage to last for only a short period of time, then term is more cost effective.

posted September 10, 2009

Ken,

You've received some good answers, and I am not going to repeat what has already been said. I do, though want to expand on Richard's comments: To a large extent, his critique of UL life insurance makes a good point, except that he does not address the fact that the build-up of the balance of the investment account within a life insurance policy is income tax-free (at least for federal purposes - I am not aware that any state tax laws that impose a tax on this "inside build-up"). The payout of the policy at death (including the portion attributable to the investment account) is also income tax-free. If the policy is properly transferred to a well drafted irrevocable insurance trust, the proceeds of the policy are also excluded from the calculation of any estate tax.

Respectfully, I disagree with his suggestion that your family will always receive the benefits of the term life insurance policy. The term "Term Life Insurance" refers to a policy that ends at the end of a particular term of years - usually when the insured reaches a certain age, such as 65 or 70, so such policies only pay out if the insured dies before reaching the average life expectancy. In some cases, term is entirely appropriate, but in others, the expiration of the policy before the insured is not helpful.

Whether, in any particular circumstance, the build-up of the investment account inside a permanent policy (UL or otherwise) occurs more rapidly than if a comparable account were held outside of the policy depends on individual facts and circumstances, including expenses charged by the company, mortality charges of the policy (which are related to the age, gender and health of the insured), income and estate tax bracket of the persons who would otherwise be subject to income and estate taxes and similar factors.

One disadvantage of variable policies is that the amount of premium is not fixed. Within a range, the owner has the option of how much premium to pay. The problem is that people often choose to minimize the premiums, and this can lead to the policy being underfunded and eventually lapsing, as James Brandon has pointed out.

I definitely agree with Richard that some insurance agents illustrate a far rosier performance of the investment account that is warranted. However, a buyer can, and should, insist on a more realistic illustration (using perhaps 3-6% return net of expenses, rather than the 10-13% that I have seen illustrated in some insurance illustrations. Also, some of the newer policies offer guaranteed death benefits (for a price), in which case the actual return becomes less relevant. I also agree with Richard that the marketing of UL policies as back-up retirement or college savings plan really is not appropriate. Most cash value policies can be used in this way, but borrowing funds from a policy can cause the policy to become underfunded and lapse.

If there is otherwise a need for the insurance (due to financial or family circumstances) and if the numbers work (using more conservative estimated returns), then some sort of permanent policy (variable universal life, whole life, etc.) may make sense.

To summarize, the pros and cons of any particular type of insurance policy (or other investment) are very fact-specific. Determine your goals, and then buy insurance and investments that move you towards those goals.

--- Rob

P.S. I am not licensed to sell any type of investment or insurance product, and this message should not be taken as an endorsement for or against any particular insurance or investment product. I have been serving as trustee of a number of irrevocable insurance trusts for over 10 years and have had to deal with insurance policies in that context.

I.R.S. Cir. 230 requires that I inform you that no portion of this message constitutes a "covered opinion" and that it may not be relied upon by any person to avoid U.S. tax penalties or for promotional purposes.

posted September 10, 2009

Pro - you get a low cost premium that CAN be guaranteed until you're age 100. And, it usually costs less than other products that would also guarantee your premium until you're 100.

Con - it costs more than something that falls far short of age 100.

I wouldn't buy a fixed product without a guarantee unless you have a working crystal ball.

You have to define the need before you define the product. If you need coverage for 20 years then a 20 year term policy (from a company that's actually competitive in that market) would do just fine. But, if you want coverage forever then you can't make the square peg go into the round hole. Find the right peg for the right hole as there is no one product that is the answer for everything.

Hope that helps,

Jeff

posted September 11, 2009

In order to answer your question precisely several factors would need to be considered.

First off in comparison to which other product? Secondly why is the life insurance product being considered and for what purpose?

In general, Universal life offers flexibility in the premium outlay and sometimes in the face amount, as is the case for juvenile policies. Think of a universal life policy as a term policy that can accumulate cash value. I say can because there is a term policy within the universal life policy that basically covers the difference between the cash value and the face value. The term policy will be renewed every year at attained age, which means that every year more money will be paying for the term policy and less will go towards the cash value. At a certain point usually around 65 or 75 depending on the face amount and rating, the policy will actually begin loosening cash value. Since the cost of the term policy will exceed the premiums being payed. For example the cost of a 250,000 term policy with at the age of 35 would only be less than $300 a year, at 45 the same 250k term policy would cost over $1100, at 55 $2300, at 65 $6200, at 75 over $17,000. In the long term you will lose most if not all your cash value. What are the pros then, well some people like the option of being able to invest a large lump sum without defaulting to a modified endowment contract, then paying the maximums for several years, the initial years are the most important, compound interest kicks in, again tax deferred. When the face amount is no longer required, for example kids are grown and out of the house, the policy can then be surrendered and the cash value used for other investments. I personally do not recommend this approach, but I have clients that have discussed this with their lawyer and have chosen to take this path.

In my opinion it is a better alternative than a term policy with a refund of premiums.

I would suggest the slow work horse called Permanent Whole Life. If started as a juvenile or young adult can become a fantastic vehicle for building wealth for their heirs and can also be used in times like these as an emergency fund.

posted September 11, 2009

Pros. As long as you pay your premium, the insurance will be there when you die. There are guaranteed policies that will last until you are 120 years old. Term life insurance, which is usually much less expensive, usually expires some time around a person's age 70. These policies are designed not to pay out. They are huge profit makers for life insurance companies.
Cons. Universal Life is more expensive than term insurance and if only the minimum payments are made UL is not aninvestment. Sometimes these policies are sold as an accumulation plan and that is not the case.

posted September 14, 2009

Ken, I think the pros and cons relate better to your insurance needs. Universal life insurance is not the best solution for all clients. The problem of comparing it with other types of insurance, is that you are evaluating the product, instead of evaluating its application as a solution to the client's need.
I prefer to focus on the client's need and that way I can determine if universal life insurance is the solution for them.
Although every client is different, there are some needs resolved with UL insurance:
* Life insurance is very important for the client.
* The client needs flexibility in payment.
* The client needs to receive a better profit rate compared with bank accounts (at Mexico, UL insurance is so much a better option than a bank account).
* The client needs an investment without the minimum requirements and commissions asked by banks and other financial institutions.
* The client prefers to have transparent information of his/her insurance program through internet, to identify how much the insurance costs, how much is being accumulated and what profit rate is being obtained.

But again, the better way to identify pros and cons of UL insurance depends on your insurance needs, not so much UL characteristics.

I hope this helps Ken.

posted September 14, 2009