Finally we have one of the most confusing products of all time, Universal Life (UL). Less expensive than whole life but with the ability to build cash, UL is a good fit for some clients. The "engine" that built cash values on traditional UL's for years was interest rates. Back in the 1970's and 1980's when interest rates were high, many agents who should have known better, sold UL's as investment vehicles. Years later, when interest rates dropped dramatically, the cash values inside those policies were being overtaken by the "cost of insurance", which rises as years go by. Basically, the policy will eat away at itself if the interest rate isn't high enough.
And to make up for the shortages, the premiums on your policy may increase. I met a gentleman who had taken out a policy in the early 1980's and since then his premiums had increased to nearly $300/month. On top of this his health had taken a turn for the worse over the years, with diabetes and heart issues now in the picture. He would have a very difficult time finding a new policy and was forced to keep the one he had.
I worked in an insurance office in the early 2000's and the owner threatened to fire anyone selling a UL. She was on the receiving end of angry clients who wanted to take a few hundred dollars out of their policies and it wasn't there. These policies had been in effect for years and there was nothing to show for it.
The insurance companies woke up to the dismal sales (no agent wants his head bitten off so they didn't talk to the clients about them) and devised a way to resurrect the UL. They took the "index" from an indexed annuity and used it to replace the interest rate. The Indexed Universal Life (IUL) was born!
In the life insurance community there has been debate for years on whether or not the IUL's are as good as they seem. The ones who don't like them are typically agents who have been selling whole life policies and see these policies as a threat to their income (see part 1 in this series). I worked for a very large life insurance carrier who forbade us from selling anything indexed and threatened us with termination.
The key to making an IUL work well is how it's structured. Assuring that it's funded properly will make all the difference in the world and can help down the road as a retirement supplement. And many top carriers of IUL's include riders like living benefits and critical illness at no charge. This means you can use your policy while you're alive, if need be.
A few years ago Patrick Kelly wrote a book titled "The Retirement Miracle" in which he explains how an IUL is a great savings tool for our later years. The video quality isn't that great but here goes..
Finally, as I mentioned in the previous post, the better alternative to a final expense policy (which is usually a whole life plan) is a Guaranteed Universal Life (GUL) policy. A GUL is like a traditional UL except it builds minimal cash value. However, it's guaranteed to stay the same price, like a whole life, until your passing. The obvious question is why would you want cash value in a final expense plan? You wouldn't. The premiums are much lower but be aware that the GUL is typically underwritten like any other life insurance policy, so if you're healthy, you would be doing better when it comes to price.
Hopefully, you'll have a better understanding of what each kind of policy can do and make a wise choice when purchasing protection, not for yourself, but for your loved ones. I realize that this is a lot of information so if you have any questions leave them in the comments section below. And stay healthy!
Chris Castanes is the president of Surf Financial Brokers, as well as a professional speaker helping sales people be more productive and efficient.
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