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Thread: Universal Life Insurance. Yay or Nay?

  1. #11
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    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.

    Last edited by OnlyMyOpinion; 2017-03-18 at 05:21 PM.

  2. #12
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    Quote Originally Posted by jmbagsy View Post
    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.
    Universal Life/Whole Life etc etc..is a "sucker's pitch" for insurance companies to hand over some of your hard earned after tax income to them.

    They claim 8% growth? That may have been the case 5 years ago when you first bought it at age 25, but those interest rates are not guaranteed. Look what has happened to bank interest rates in the last 5 years.

    The "sucker pitch" I am referring to is the insurance agent skimming a percentage off the top of any monthly premiums you contribute for a "management fee"...nice for them but that money is not going to contribute to growth of the cash surrender value of your policy.

    What does the insurance agent have to do to manage it anyway? If its invested in 50% this fund and 50% that fund, it stays that way for many years,unless
    you follow the investment markets and call up the agent to revise the investment mix. Who's got time for that?

    In the meanwhile you are paying them $12 per month ($144 per year x 20 years) $2880 of your hard earned after tax money that could be going to your child's RESP for their education.

    Why waste this opportunity when the gov't kicks in a percentage of your yearly contributions to your child's RESP?
    I would be nuts to pay some flim-flam insurance agent for sitting on his/her butt and collection a management fee on my life insurance policy.

    Lastly, did you read your policy fully even the fine print as to what conditions they will pay out the face value of your policy or your wife's policy?

    Most bank insurance schemes have hidden clauses that can DENY PAYMENT if a known medical condition is apparent that could shorten your life even if the policy is in force.
    YES...that little gotcha ya" is what caught a few homeowners that had mortgage insurance with the major banks. It was even on CBC MARKETPLACE, a policy holder's widow was denied payment because the insurance company investigated the husbands medical history and determined that his condition (heart issue) was a PRE-EXISTING CONDITION
    and therefore a case for denying payment of the policy. They just returned the premiums paid WITHOUT INTEREST EARNED,had those premiums been invested even at the GIC rate.

    Investigate what it costs for term insurance (lets say 3 times to 4 times your annual salary first, as a principle income earner. Get a quote for your wife IF she is working and contributes to your family income for "around $100k". I wouldn't worry about life insurance on a 2 yrs child at this point.

    Sit down and calculate what it will cost YOU for these "Whole Life policies over 20 years, and how much GUARANTEED CASH SURRENDER VALUE will be in those policies after 20 years (Age 60?), and determine what the same premiums paid by you minus the TERM LIFE INSURANCE PREMIUMS for a policy equivalent to 4 X $50K ($200k)will earn in a HIS (high interest savings of some sort) and then make your decision.

    Assuming $42 per month ($508 per year in premiums paid? for your life insurance over 20 years =$10,160
    If you are paying $125? per month, then you are paying way too much for insurance!

    How much of those premiums MINUS AGENT FEES and 2% gov't tax will be used for the life insurance and the remainder to build up cash equity over 20 years?
    How much will the term insurance cost you over 20 years?
    How much will you save between the difference in life insurance policies?
    Last edited by carverman; 2017-03-19 at 08:38 AM.

  3. #13
    Senior Member kcowan's Avatar
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    Quote Originally Posted by jmbagsy View Post
    How did you come up with 198.36/month? sorry i wasnt able to follow you there
    It is the difference between $125 and $42.35 and grossed up to cover all 3 policies. That is what you are paying beyond the insurance portion every month.

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  5. #14
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    Quote Originally Posted by Beaver101 View Post
    ... 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.
    I already have the group insurance from work but I am not sure if there's a life insurance that comes with it. Mostly drugs and dental.

    Quote Originally Posted by Beaver101 View Post
    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.
    There is a surrender charge once I decided to cancel the policy. But since I got fund value over the years I was in it, I think I can get some of the money back once I cancel it. I may have lost money from this but im glad it will end now that i am kind of enlight

    Quote Originally Posted by Beaver101 View Post
    Btw, how many brokers were you dealing with on your finances that muddled-up with life insurance? quoting from your first post above:
    Just one, she looked into my policy and told me about the hidden high management fee in it and offered me a different UL under theirs to which I am smart enough not to bite her bait. But I am quite thankful to her because of that, cause that triggers me to start learning about how finances and insurances works.

    Quote Originally Posted by Beaver101 View Post
    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.
    Thank you again. Lots of great minds in here I am sure and mostly of the answers would be unbiased or doesn't have personal interest in them. Great find here.

  6. #15
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    Quote Originally Posted by jmbagsy View Post
    I already have the group insurance from work but I am not sure if there's a life insurance that comes with it. Mostly drugs and dental.
    Most group policies will have a life insurance component as well as drugs/dental and short term disability. Usually it's equivalent to your annual salary rounded off to the nearest thousand.
    this is in case something catastrophic happens to you while still in the employ of your company.

    There is a surrender charge once I decided to cancel the policy. But since I got fund value over the years I was in it, I think I can get some of the money back once I cancel it. I may have lost money from this but im glad it will end now that i am kind of enlight
    The surrender charge is based on what cash surrender value (if any), on your whole life/universal policy. Usually it is a percentage IF there is enough cash to close off the policy.
    Most of your monthly premium payments go to life insurance protection, and a tiny bit to build up a cash investment fund. In early years there probably is
    not that much in the cash fund.

    http://www.investopedia.com/terms/c/...endervalue.asp
    Last edited by carverman; 2017-03-19 at 11:45 AM.

  7. #16
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    Quote Originally Posted by OptsyEagle View Post
    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.

    Quote Originally Posted by OptsyEagle View Post
    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

    Quote Originally Posted by OptsyEagle View Post
    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?

  8. #17
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    Quote Originally Posted by OnlyMyOpinion View Post
    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.

    Quote Originally Posted by OnlyMyOpinion View Post
    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.

    Quote Originally Posted by OnlyMyOpinion View Post
    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%.

    Quote Originally Posted by OnlyMyOpinion View Post
    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?

    Quote Originally Posted by OnlyMyOpinion View Post
    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.

  9. #18
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    Quote Originally Posted by carverman View Post
    Universal Life/Whole Life etc etc..is a "sucker's pitch" for insurance companies to hand over some of your hard earned after tax income to them.

    They claim 8% growth? That may have been the case 5 years ago when you first bought it at age 25, but those interest rates are not guaranteed. Look what has happened to bank interest rates in the last 5 years.

    The "sucker pitch" I am referring to is the insurance agent skimming a percentage off the top of any monthly premiums you contribute for a "management fee"...nice for them but that money is not going to contribute to growth of the cash surrender value of your policy.

    What does the insurance agent have to do to manage it anyway? If its invested in 50% this fund and 50% that fund, it stays that way for many years,unless
    you follow the investment markets and call up the agent to revise the investment mix. Who's got time for that?

    In the meanwhile you are paying them $12 per month ($144 per year x 20 years) $2880 of your hard earned after tax money that could be going to your child's RESP for their education.
    You're pretty much right. It's like im paying a management fee to which I can pretty much do myself. Better pay myself for doing it.

    Quote Originally Posted by carverman View Post
    Why waste this opportunity when the gov't kicks in a percentage of your yearly contributions to your child's RESP?
    I would be nuts to pay some flim-flam insurance agent for sitting on his/her butt and collection a management fee on my life insurance policy.
    Regarding this, we already put more on our son's RESP recently.


    Quote Originally Posted by carverman View Post
    Lastly, did you read your policy fully even the fine print as to what conditions they will pay out the face value of your policy or your wife's policy?
    Yes, there is a surrender charge so probably we will get very little of what we have put in it for all years we had the policy. Still a better deal than continuing with them right?

    Quote Originally Posted by carverman View Post
    Most bank insurance schemes have hidden clauses that can DENY PAYMENT if a known medical condition is apparent that could shorten your life even if the policy is in force.
    YES...that little gotcha ya" is what caught a few homeowners that had mortgage insurance with the major banks. It was even on CBC MARKETPLACE, a policy holder's widow was denied payment because the insurance company investigated the husbands medical history and determined that his condition (heart issue) was a PRE-EXISTING CONDITION
    and therefore a case for denying payment of the policy. They just returned the premiums paid WITHOUT INTEREST EARNED,had those premiums been invested even at the GIC rate.
    Regarding this, I always make sure I tell them everything about my medical condition. Also, my agent told me that if i have a life insurance coverage that totals or more than the house i am planning to buy. I wouldnt be needing to buy a mortgage insurance. How's that work?

    Quote Originally Posted by carverman View Post
    Investigate what it costs for term insurance (lets say 3 times to 4 times your annual salary first, as a principle income earner. Get a quote for your wife IF she is working and contributes to your family income for "around $100k". I wouldn't worry about life insurance on a 2 yrs child at this point.

    Sit down and calculate what it will cost YOU for these "Whole Life policies over 20 years, and how much GUARANTEED CASH SURRENDER VALUE will be in those policies after 20 years (Age 60?), and determine what the same premiums paid by you minus the TERM LIFE INSURANCE PREMIUMS for a policy equivalent to 4 X $50K ($200k)will earn in a HIS (high interest savings of some sort) and then make your decision.

    Assuming $42 per month ($508 per year in premiums paid? for your life insurance over 20 years =$10,160
    If you are paying $125? per month, then you are paying way too much for insurance!

    How much of those premiums MINUS AGENT FEES and 2% gov't tax will be used for the life insurance and the remainder to build up cash equity over 20 years?
    How much will the term insurance cost you over 20 years?
    How much will you save between the difference in life insurance policies?
    Will do a sitting to do this. Thank you for giving an example. Appreciate it really much.

  10. #19
    Senior Member pwm's Avatar
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    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.

  11. #20
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    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...

    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

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