Canadian Money Forum banner

Universal Life Insurance. Yay or Nay?

7K views 47 replies 11 participants last post by  ian 
#1 ·
Hi everyone, I am about to talk to the financial broker who sold me this Universal Life Insurance I had for almost 4 years now ( Admittedly, I was one of those ignorant people who signs this kind of stuff without full knowledge of what was written in the contract) Here's what is in the insurance policy:

PLAN : Univeral Life
TOTAL ANNUAL PREMIUM : $508.16
TOTAL MONTHLY MINIMUM PREMIUM : $ 42.35
PLANNED PREMIUM : $125.00 Monthly
DEATH BENEFIT OPTION : Sum Insured
MONTHLY ADMINISTRATION FEE : $12 payable to Insurance Age 100
PROVINCIAL PREMIUM TAX : 2.00% from each deposit made to your Accounts. This percentage will not change unless required by gov't legislation

PLAN TYPE : Single Life
COVERAGE EFFECTIVE DATE : April 1, 2013
LIFE INSURED : JMB Age 25, Male, Non Smoker
SUM INSURED : $300,000
MINIMUM MONTHLY PREMIUM : $42.35
COST OF INSURANCE OPTION : Yearly Renewable Term


I believe the investment part is invested in Market Indexed Accounts under American Equity Index and Canadian Equity Index both at 50%.

The reason I was shaken from my laziness into looking stuff like this was there was another broker who looked into my portfolio and said that BMO insurance has high Management Fees and made me looked into this line in my insurance policy to which I believe my broker never mentioned to me as far as my memory is concerned. Here is what it says "THE MAXIMUM DAILY BMO MANAGEMENT FEE ON EACH MARKET INDEXED ACCOUNT IS 0.0089 AND IS GUARANTEED AS LONG AS THIS POLICY REMAINS IN FORCE

My gut feels right now is I am into something not really for me as of right now. I am 29 y/o with 50k annual salary with wife who doesn't have stable income right now and with a 2 year old child. Living with parents right now so saving a lot from there till we buy our own house. I also have a current car loan with still 22k to be paid.

Any thoughts or suggestions what I should ask the broker when I talk to her regarding my policy?

My wife and son has same UL insurance with BMO under the same broker with 125 and 50 monthly payment respectively.
 
See less See more
#6 ·
Sounds like you have coverage of $720,000 for the 3 of you. Why?
They way she sell it to me was part of it goes to to investments. She said that I will only pay for 20 years my portfolio will build a fund value which can pay for the monthly premiums for the next years to come after paying for 20 years.

It seemsyou are also making savings deposits of $198.36 every month. Why?
How did you come up with 198.36/month? sorry i wasnt able to follow you there
 
#4 · (Edited)
Hi everyone, I am about to talk to the financial broker who sold me this Universal Life Insurance I had for almost 4 years now ( Admittedly, I was one of those ignorant people who signs this kind of stuff without full knowledge of what was written in the contract) Here's what is in the insurance policy:

PLAN : Univeral Life
TOTAL ANNUAL PREMIUM : $508.16
TOTAL MONTHLY MINIMUM PREMIUM : $ 42.35
PLANNED PREMIUM : $125.00 Monthly
DEATH BENEFIT OPTION : Sum Insured
MONTHLY ADMINISTRATION FEE : $12 payable to Insurance Age 100
PROVINCIAL PREMIUM TAX : 2.00% from each deposit made to your Accounts. This percentage will not change unless required by gov't legislation

PLAN TYPE : Single Life
COVERAGE EFFECTIVE DATE : April 1, 2013
LIFE INSURED : JMB Age 25, Male, Non Smoker
SUM INSURED : $300,000
MINIMUM MONTHLY PREMIUM : $42.35
COST OF INSURANCE OPTION : Yearly Renewable Term


I believe the investment part is invested in Market Indexed Accounts under American Equity Index and Canadian Equity Index both at 50%.

The reason I was shaken from my laziness into looking stuff like this was there was another broker who looked into my portfolio and said that BMO insurance has high Management Fees and made me looked into this line in my insurance policy to which I believe my broker never mentioned to me as far as my memory is concerned. Here is what it says "THE MAXIMUM DAILY BMO MANAGEMENT FEE ON EACH MARKET INDEXED ACCOUNT IS 0.0089 AND IS GUARANTEED AS LONG AS THIS POLICY REMAINS IN FORCE

My gut feels right now is I am into something not really for me as of right now. I am 29 y/o with 50k annual salary with wife who doesn't have stable income right now and with a 2 year old child. Living with parents right now so saving a lot from there till we buy our own house. I also have a current car loan with still 22k to be paid.

Any thoughts or suggestions what I should ask the broker when I talk to her regarding my policy?

My wife and son has same UL insurance with BMO under the same broker with 125 and 50 monthly payment respectively.
WOW!!! Did you ever get conned into this one! Paying those kind of monthly premiums and a kickback to the agent in management fees $144 a year to age 100 (if you live that long) as well as 2% to the provincial gov't on the premiums?
That to me is a RIPOFF! I guess you were overwhelmed by the agent when all those numbers were spewed out at you?

Here's the reality my friend...At AGE 29 and unless you are in poor health with a life threatening disease..
my suggestion is to buy TERM INSURANCE for $200k (4 times your current annual salary) and walk away from this highway robbery!
Why do you need life insurance on your child?
 
#7 ·
WOW!!! Did you ever get conned into this one! Paying those kind of monthly premiums and a kickback to the agent in management fees $144 a year to age 100 (if you live that long) as well as 2% to the provincial gov't on the premiums?
That to me is a RIPOFF! I guess you were overwhelmed by the agent when all those numbers were spewed out at you?
I believe so, I blame myself for getting myself into this. I signed without giving the effort of understanding what I was getting into in the first place. The agent told me I will only pay for 20 years and that will build a fund value for my portfolio that can cover the monthly premiums thereafter. She showed me a table with a projected net return rate of 8% where the fund value grows bigger as I age.

Here's the reality my friend...At AGE 29 and unless you are in poor health with a life threatening disease..
my suggestion is to buy TERM INSURANCE for $200k (4 times your current annual salary) and walk away from this highway robbery!
Why do you need life insurance on your child?
That's what I am planning. To buy term and invest the rest (though I still need to work on investing part). Again, the reason I got my child same insurance was the premise of paying only for 20 years and my son will be insurance carefree after as the fund value can pay for the monthly premiums in the subsequent years.
 
#8 ·
Again, thank you all for you honest feedback and suggestions. Should I talk to my agent now and cancel everything and just get a term life insurance for myself and my wife now? I've read that life insurance and investments are not good in the same portfolio unless I've maximized my RRSP and TFSA with all the management fees that comes with it.

At this age, I am still learning about how everything about finances work. I know it may be late but it's not too late for me. This is why I am here in this forum to learn from all of you guys here. Thank you. This means a lot to me.
 
#9 ·
Again, thank you all for you honest feedback and suggestions. Should I talk to my agent now and cancel everything and just get a term life insurance for myself and my wife now? I've read that life insurance and investments are not good in the same portfolio unless I've maximized my RRSP and TFSA with all the management fees that comes with it.
... no, don't mention this to your "financial" " broker" (sounds more like an insurance salesperson than anything else) yet about cancelling your UL policy. Find out first what term life you're replacing it with - ie. get some quotes for how much insurance you're getting for the (monthly) premiums you have to pay. You should be able to get some quotes online ... eg. term4life.com or something like that. But before you do that too - do not have some life insurance from your work place eg. group insurance which is primarily term. This should give you some basic coverage that should complements your own and that of your spouse/child. Then next step is find out what penalty you would have to pay to cancel your UL policy (ie pull it out and read the fine print) -this info should be in there. And THEN after you made a decision (final) to purchase the term policy, you call your broker and say ciao (bye) to her and the UL. Otherwise she's going to talk you out of buying the term and stay with the UL.

Btw, how many brokers were you dealing with on your finances that muddled-up with life insurance? quoting from your first post above:
... The reason I was shaken from my laziness into looking stuff like this was there was another broker who looked into my portfolio and said that BMO insurance has high Management Fees and made me looked into this line in my insurance policy to which I believe my broker never mentioned to me as far as my memory is concerned .. .
[/QUOTE] At this age, I am still learning about how everything about finances work. I know it may be late but it's not too late for me. [/QUOTE] ... you're correct that it's never too late to learn. Welcome to the forum ... there're a lot of smart guys (sans me) around here who would be happy to help you. Just hang around and ask the questions.
 
#10 ·
Should I talk to my agent now and cancel everything and just get a term life insurance for myself and my wife now?
Yes and No. Yes, get rid of that junk and buy term insurance to protect your family. No, definitely do not call that same agent to buy your term insurance. That agent works for herself. You want one that works for you. Not always easy to know in advance but I think you already know where your last agent stands on that measure.

I can't help you with the agent recommendation but if you tell us where you live, maybe someone else can.

One last note. DO NOT CANCEL your current policy until the new term insurance is in place. You will have a new 2 year contestability clause against non disclosure of pre-existing conditions on the new coverage, so since you currently are insured without anymore contestability you want to disclose just about anything and everything that might be an issue. If you went to the doctor because of a sore toe, let them know and let them decide if it is serious or not. Contestability is a clause where if you had a pre-existing condition THAT YOU KNEW ABOUT, even if you did not think it was serious, you have to tell the insurance company or they will void the policy if you die in the 1st two years. All life insurance policies have this clause.
 
#16 ·
Yes and No. Yes, get rid of that junk and buy term insurance to protect your family. No, definitely do not call that same agent to buy your term insurance. That agent works for herself. You want one that works for you. Not always easy to know in advance but I think you already know where your last agent stands on that measure.
Yes, will do exactly like that.

I can't help you with the agent recommendation but if you tell us where you live, maybe someone else can.
I live here in Spruce Grove Alberta, Canada

One last note. DO NOT CANCEL your current policy until the new term insurance is in place. You will have a new 2 year contestability clause against non disclosure of pre-existing conditions on the new coverage, so since you currently are insured without anymore contestability you want to disclose just about anything and everything that might be an issue. If you went to the doctor because of a sore toe, let them know and let them decide if it is serious or not. Contestability is a clause where if you had a pre-existing condition THAT YOU KNEW ABOUT, even if you did not think it was serious, you have to tell the insurance company or they will void the policy if you die in the 1st two years. All life insurance policies have this clause.
Thanks for the heads up. Just to clarify, once I get to get my new insurance all i have to tell them was what I told my agent before plus any condition I had thereafter right?
 
#11 · (Edited)
Thanks for your clarification. Don't feel at fault for having this coverage. I know of many who got sold into whole life or UL policies, including myself at about your age. Like you I finally realized it was not a good deal for me while it is a very good (and profitable) deal for the salesperson and the insurance company. The insurance business has been around for a long time, so the selling methods are refined and convincing. It can be difficult to argue with a well polished, knowledgeable salesperson who 'wants to help make sure your family is looked after'. They aren't crooks, they are sellling you a product and they are earning a living, but they aren't giving you the best value for your money - that is up to you.

With a wife and child you definately want insurance coverage, sufficient that they would not face undue hardship if you were to die. But you can get that coverage for much less than $300/mo. Check out https://www.term4sale.ca/ to get some idea of the prices. You could be paying closer to $45/mo for $300k of coverage (b.1988, term to age 70).

The general consensus is to keep your life insurance and investment products separate - products that mix the two (i.e. UL, WL) benefit the company not you. Buy term life insurance to insure youreslf and buy investments to invest.
I suspect the 20 year paid up policy that you mentioned is an 'illustrative' case which depends on certain future investment performance (or a reduced coverage amount), i.e. it is not guaranteed at $300k. Remember also that $300k in 20 years may not be much coverage net of inflation.

You may want to get some term life estimates online and then tell your agent you want to change to term life for you and your wife. Be prepared for some compelling arguments for not changing, but remember it is +$200/mo of your hard earned after-tax money at stake. If they won't help, you have to be prepared to cancel your policy - after getting term coverage elsewhere. Or you may just want to line up term insurance elsewhere and then cancel your UL outright. It depends on your past relationship with the agent.

Do you know whether your employer offers a group term life plan? They sometimes have good pricing.
 
#17 ·
Thanks for your clarification. Don't feel at fault for having this coverage. I know of many who got sold into whole life or UL policies, including myself at about your age. Like you I finally realized it was not a good deal for me while it is a very good (and profitable) deal for the salesperson and the insurance company. The insurance business has been around for a long time, so the selling methods are refined and convincing. It can be difficult to argue with a well polished, knowledgeable salesperson who 'wants to help make sure your family is looked after'. They aren't crooks, they are sellling you a product and they are earning a living, but they aren't giving you the best value for your money - that is up to you.
This is the best way to put it I guess. It's just sad they make a living this way.

With a wife and child you definately want insurance coverage, sufficient that they would not face undue hardship if you were to die. But you can get that coverage for much less than $300/mo. Check out https://www.term4sale.ca/ to get some idea of the prices. You could be paying closer to $45/mo for $300k of coverage (b.1988, term to age 70).
I checked it out. This seems to be a good site. Just not exactly know the meaning of some of the terms there like how would you describe your health and minimum life company rating.

The general consensus is to keep your life insurance and investment products separate - products that mix the two (i.e. UL, WL) benefit the company not you. Buy term life insurance to insure youreslf and buy investments to invest.
I suspect the 20 year paid up policy that you mentioned is an 'illustrative' case which depends on certain future investment performance (or a reduced coverage amount), i.e. it is not guaranteed at $300k. Remember also that $300k in 20 years may not be much coverage net of inflation.
I believe it is the illustrative case with a projected net rate of 8%.

You may want to get some term life estimates online and then tell your agent you want to change to term life for you and your wife. Be prepared for some compelling arguments for not changing, but remember it is +$200/mo of your hard earned after-tax money at stake. If they won't help, you have to be prepared to cancel your policy - after getting term coverage elsewhere. Or you may just want to line up term insurance elsewhere and then cancel your UL outright. It depends on your past relationship with the agent.
This is where I also needed suggestion from you guys how I would do it. The agent was an acquaintance of my father from work. Any idea how I would tell her that I want to cancel the policy?

Do you know whether your employer offers a group term life plan? They sometimes have good pricing.
I will check that out too. Thanks for bringing this up.
 
#19 ·
I recommend simple term insurance. Stay away from the Universal Life stuff. You should first determine what sort of life insurance coverage you already have at your job, before doing anything. You may very well already have some insurance, and it may be very cost effective to simply increase that. You should have some documentation from Human Resources regarding your benefits package. If not check with them to see what you have and what it would cost to increase it if possible.

I'm retired and have no form of Life Insurance now, but my company had very flexible options for it's benefits package. I increased my life coverage significantly over the basic coverage for a very small increase in payroll deduction when our kids were still at home. I scaled it back gradually before I retired. It ended when I retired since it was simple term insurance.
 
#20 ·
Curious pwm - you 'self insure' now?

Is that because a) you have no debt (?); there are no liabilities to insure per se and b) you have sufficient assets to help your spouse/family if a catastrophic event happened to you?

I've been listening to other successful retirees in recent years on this and it seems this is something they've decided on as well - avoid any life insurance in their senior years because they can keep more of their money in their pocket and they have no liabilities to worry about if something tragic happened. Enough cash ($25k or so) to cover final expenses and then that's it...
 
#21 ·
Yes to both a) and b). No debt, no liabilities. Both our funeral arrangements are taken care of and already paid for. Investment income and pensions would be more than enough to keep my wife going for as long as she could live.

No need for life insurance any more. I had it when I needed it, but not required now.
 
#31 ·
^
.. When it is right, it is fabulous and unmatched by any traditional investment products or other insurance products, because of its unique tax advantages, flexibility and hidden benefits that can only be provided by insurance.
... so are you saying that the gains from the investment tied with the policy are not-taxable? Is this one of the unique tax advantage or hidden benefit of an UL policy?

... So, if you have a real need for life insurance and you actually keep it till you die, you can see that you are actually benefiting from other people who are lapsing their policies
... how can that be when the insurance companies are reserving the lapse subsidies?
 
#35 · (Edited)
^ ... so are you saying that the gains from the investment tied with the policy are not-taxable? Is this one of the unique tax advantage or hidden benefit of an UL policy

Interesting point "Beav'....
here's what the FP has to say about this:

from; http://business.financialpost.com/personal-finance/taxes/insurance-can-be-taxable

By contrast, permanent insurance, generally universal or whole-life, is designed to last throughout your life and often contains an investment component allowing you to build up cash values inside the policy in a tax-sheltered manner. You have the ability to surrender your policy prior to death to access what’s known as the cash surrender value (CSV).

The CSV, however, is often far from tax-free, as Karl Kratochwil found out the hard way in Tax Court last month. He purchased a permanent life insurance policy in 1987 that would pay out a death benefit of $300,000 when he died. Because the premiums paid in the early years of his policy exceeded the cost of insurance in those years, a capital reserve was created within the policy that generated investment income, which remained tax-sheltered while inside the policy. Over 15 years, he paid premiums totalling $127,368.




... how can that be when the insurance companies are reserving the lapse subsidies?
lapsed insurance is non-payment of the premiums causing the policy to lapse. The holder of the policy (or a representative) has only so much time to contact
the insurance company in question and either make up the missing payments or cancel. if not, the insurance company keeps any investment portion.

Under the Insurance Act, certain parties, including a beneficiary, may pay premiums when the insured fails to do so — provided the payments are made within the late-payment grace period — to avoid the policy lapsing and being terminated for non-payment. This assumes the policy has not been intentionally cancelled.
 
#34 · (Edited)
so are you saying that the gains from the investment tied with the policy are not-taxable? Is this one of the unique tax advantage or hidden benefit of an UL policy
The gains on investments and the death benefit is all tax free upon death and tax deferred while the insured lives. In my opinion, I wouldn't even bother funding the investment side unless I wanted to have emergency access to money or wanted to have the premiums paid up at some point in time. The real gains from life insurance comes from the insurance death benefit. Those gains come from the tax free nature of the benefit as well as the addition of lapse subsidies. Those two provide a much higher after tax rate of return to the insured's estate.

... how can that be when the insurance companies are reserving the lapse subsidies?[/
Not sure what your question is here. The insurance company is setting aside some of the premiums in reserve to pay out the eventual death benefit. If the owner of the policy cancels it, the insurance company gets to keep it. However, what they actually do is reduce the premium requirements on all policies because of the assumption they will get money from policy lapses. This last part basically takes the money from the insurance companies bottom line and puts it into the estates of the people who keep their policies till death.

Here is an example and don't quote me on the actual rates of return. The example is to show how the rate of return is increased with lapse subsidies:

If you put $100 per month and it became $40,000 in 20 years you would have a certain rate of return. With traditional investments, if they increase their return that $40,000 become larger. With insurance they don't necessarily increase the future value, but rather take the lapse subsidy to decrease the monthly amount. So with the above example if the $100 premium is reduced to $75 and it still produces $40,000 in 20 years, your rate of return just went up. They are the same thing. If you wanted to, you could then buy $100 worth of insurance and get $53,320 in 20 years. Increase your premium by 33% and get 33% more death benefit.

I hope the above is not too confusing. My point is in the above example the insurance company knows at the start that the $75 WILL NOT create the needed $40,000 death benefit in 20 years. They are hoping that other people lapse their policies so that they get money from that to pay for the amount of money they will be short on the policies that go till death.

It's an actuarial shell game but they have been doing it for 100s of years and they are really good at knowing where the shell is and the rest of us have almost no idea.
 
#36 ·
I can think of a few situations where a permanent insurance policy makes sense at that young an age:
1) You are a young professional who has just started or is about to start making a lot of money (think young doctor). In this case usually you'd by the policy through a professional corporation
2) Your family is wealthy and you will be receiving/transferring a large estate. In this case, often times it would be the parents/grandparents purchasing the policy.

Unfortunately, from what you've told us this does not seem to be the case.
 
#38 ·
I think Universal Life works much better for people who have already built up a big nest egg. People who are now concerned about paying the eventual taxes that are levied when that nest egg transfers to the next generation or people simply trying to maximize their estate values. It seems to me that you have a lot of other things to do before you start on that issue, as do I, and about 85% of the Canadian population.

Yes. My posts can be confusing since the insurance business is quite confusing and I either write pages and pages of information to try to simplify it or try to get to the main points as simply as I can. I probably missed the mark but if it was easy to understand, many of those insurance companies would be hurting to find new customers.

Also, nothing I said has much to do with term life insurance. It is priced differently and is much more suitable for people who have the temporary need (20 to 30 years on average) to protect their income and consequently the people in their lives that they care about.
 
#44 ·
Think of insurance as a form of risk management. You are passing along the risks of what you cannot insure, on your own, to someone else (i.e., a life insurance company).

When at all possible, you self-insure since the money you pay someone else to insure your assets or cover your liabilities is money you could have kept (and grown) for yourself. Life insurance is therefore not for you, it's for your family.

There are times to have life insurance and times when you don't need it IMO. If and when you have 1) no liabilities and 2) enough income coming in when a catastrophic event (your death) will not harm the family's income needs, then 3) you probably don't need life insurance.

No idea if this is helping :(
 
#45 ·
There are times to have life insurance and times when you don't need it IMO. If and when you have 1) no liabilities and 2) enough income coming in when a catastrophic event (your death) will not harm the family's income needs, then 3) you probably don't need life insurance.
Personally I think this is why in addition to the excess fees UL isn't a great product for most people. It ties investments and life insurance together in a way, so that while you might be at a point in your life that life insurance doesn't necessarily make sense for you, you are tied to it because it's also your investment.
 
#48 ·
We always viewed investments and life insurance as separate items. We found the combineded products confusing and we believe that where there is mystery there is margin. We like it simple. So we did our best deal on a pure insurance product.

We stuck with term life, as much as possible when the risk was high. Our circumstances did not warrant whole life.
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top