Universal Life Insurance As A Savings Plan?? Is That A Good Idea?
Ameriprise Financial is sellign me 400k life insurance policy that costs 200 per month. They say its like a savings plan because I can access 90% of the 200 per month at any time. Is this a good idea or a scam??
No, it’s a crappy idea. Life insurance is only a good investment for the insurance companies. It’s meant to be a risk management tool.
Look at your guaranteed return on your money. Oh, NO GUARANTEE?? Shucks. Look at your PROJECTED return. Look at what the DJIA has done over the past 20 years – it averages 10%. You’re better off buying an index fund than insurance, if investment is your goal. You’ll have about 10X as much money at the end of 20 years.
First let me say that any savings is better than no savings.
In general, I feel that universal life insurance and whole life insurance is a bad savings vehicle. When you say you can “access” 90% of the money what does this mean? I think you will find that you can pay interest to borrow your own money from the plan.
Get several quotes for term life insurance. You can then almost certainly invest the difference at better rates with a mutual fund, IRA or bank account.
BTW $400K death benefit for $200 per month sounds high, although the cost will depend on your age, medical history, tobacco use etc.
Hey Kevin, maybe we should meet.
It’s neither a good idea (in most cases) or a scam.
Get quotes for the same coverage using TERM insurance. Then save or invest the difference. The hidden costs of Whole and Universal Life policies usually make them bad investments. However, if you do not have the discipline to save and invest on your own, then sacrificing a few points of return may be advisable.
You must be over 40 for that rate.
IMHO…
Universal Life is only a good investment to the very young that can appreciate a paid-up plan that gains annuity by the time they are 34. Us older guys need to stick with term-life if we have anyone we care about.
I don’t think that is the best life insurance policy. I think you should shop around more. If you want to save money for retirement, I would suggest an annuity or some other type of investment.
Hi, your friendly insurance guy here again.
There are a few kinds of life insurance that include components that act as savings vehicles. Insurance is not, in and of itself, an investment. It’s against regulations for those of us in the industry to even describe insurance as an investment, as a matter of fact.
Here’s a brief description of the three forms of insurance you can use to sock away money:
1. Universal Life Insurance.
This acts sort of like a permanent form of Term Life Insurance and is coupled to an account that acts like a savings account. For reasons too lengthy to describe in real detail, if you withdraw money from that account, it typically turns the policy from a permanent policy into a very costly temporary one. That savings account is, in part, what keeps the policy in force. You can put extra money into the account, which is caled “over funding” it. If you do that it allows you to withdraw money without causing the policy to lapse early. I do not recommend using Universal Life Insurance as a savings vehicle because it is difficult to balance how much to take out with how much is needed to keep the policy permanent.
2. Variable Life Insurance.
Variable Life Insurance is sort of like an insurance policy that incorporates the “buy Term, invest the rest” concept. Some of hte premium goes into an account that supports the policy. Some goes into separate accounts put into market funds. Note that while I say this incorporates that concept, I am still not suggesting you consider this an investment. It is also a risky form of insurance because the death benefit value (the amount paid when you die) fluctuates with the performance of the separate accounts in the market, so your death benefit is, as the name suggests, VARIABLE. This brings risk back to you, the insured party.
3. Whole Life Insurance.
Expensive, permanent, and accrues cash value. If you want to save money and buy insurance at the same time, this is the way to go – assuming your cash flow allows for it and you have other savings vehicles, and soem investments, too.
Contrary to what another poster suggested, Whole Life insurance DOES come with GUARANTEES.
If you buy a $100,000 Whole Life policy, it is GUARANTEED to have a value of $100,000 at some point (usually age 100) at which time the policy is said to “endow.”
If you look at the illustration for a Whole Life policy you should see two columns of cash values – the guaranteed ones, and the non-guaranteed ones. The guaranteed ones will rise a bit at a time till they reach endowment age. The non-guaranteed ones will rise faster. That’s because they will include dividends from the insurance company when the company has a profitable year and can channel those profits back to the insured.
These dividends are considered to be a return of premium, so when they are added to the cash value of the policy, if you take them out they are returned tax-free in most cases.
To the poster who said, incorrectly, that Whole Life insurance has no guarantees, you were wrong. It does. At an absolute minimum the contract value will rise to the face value of the insurance policy over time, guaranteed. That’s one of the fundamental points of Whole Life.
Now, since that poster showed herself (I think it was a she) to be firmly in the “buy term, invest the rest” camp – you go show me how many investment products you can buy that guarantee a minimum value that will always go up every single year.
I’ll throw you a freebie – the place you can start looking is annuities, and the reason they can do that is because they are insurance company contracts.
It’s insurance company contracts, both in the forms of insurance and annuities, where one typically finds guarantees. The typical stock or mutual fund portfolio has no such guarantee. So please, before you give the readership here incorrect information, please double check. If you’d like an example if the GUARANTEED cash values in Whole Life insurance policies, call any Mutual insurance company like MassMutual, New York Life or Northwestern Mutual, or any broker for any of those companies who can show you in writing their guarantees.
I’m an insurance agent and I never sell ULs unless the client absolutely insists that’s what they want to buy. Read the fine print, ULs put the risk back on you in almost all cases. You purchase insurance to absorb the risk from you, that’s why I don’t recommend them.
As for buying term and investing the rest, the next person I meet who actually does it will be the first. Term is great if you have a large amount to cover and very little money to do it with.
I recommend Whole Life. The cash value is liquid to you, with a good rate of return, plus the added benefit of growing tax free and coming out tax free up to your basis. I use whole life in 95% of the buy/sells I do for business and 75% of the consumer life cases I write.
Look for agents who are also CFPs, you’ll get good answers and no hidden costs.
Good question! Good Luck!
Definately agree w/ Adoptive Father that $400/$200 is high. I can get a nice Whole/Term blend at $500 for around $125/mo. for a healthy middle age man.
Be happy to meet Adoptive Father, btw, I’m an adoptive father too!