# Universal Life Insurance. Yay or Nay?



## jmbagsy (Mar 14, 2017)

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.


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## OnlyMyOpinion (Sep 1, 2013)

Just to clarify (so I can compare with my own term life), between you ($125/mo), your wife ($125/mo) and your child ($50/mo) - you are paying $300/mo or $3600/yr premiums - is that correct? This is for $300k coverage for you, and maybe $300k for wife? perhaps $50k for child?


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## kcowan (Jul 1, 2010)

Sounds like you have coverage of $720,000 for the 3 of you. Why?
It seemsyou are also making savings deposits of $198.36 every month. Why?


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## carverman (Nov 8, 2010)

jmbagsy said:


> 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
> ...


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?


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## jmbagsy (Mar 14, 2017)

OnlyMyOpinion said:


> Just to clarify (so I can compare with my own term life), between you ($125/mo), your wife ($125/mo) and your child ($50/mo) - you are paying $300/mo or $3600/yr premiums - is that correct? This is for $300k coverage for you, and maybe $300k for wife? perhaps $50k for child?


I suppose this is correct. Part of it goes to insurance premium and part of it goes to investment.


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## jmbagsy (Mar 14, 2017)

kcowan said:


> 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.



kcowan said:


> 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


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## jmbagsy (Mar 14, 2017)

carverman said:


> 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.



carverman said:


> 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.


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## jmbagsy (Mar 14, 2017)

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.


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## Beaver101 (Nov 14, 2011)

jmbagsy said:


> 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.


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## OptsyEagle (Nov 29, 2009)

> 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.


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## OnlyMyOpinion (Sep 1, 2013)

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.


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## carverman (Nov 8, 2010)

jmbagsy said:


> 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?


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## kcowan (Jul 1, 2010)

jmbagsy said:


> 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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## jmbagsy (Mar 14, 2017)

Beaver101 said:


> ... 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.



Beaver101 said:


> 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 



Beaver101 said:


> 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. 



Beaver101 said:


> 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.


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## carverman (Nov 8, 2010)

jmbagsy said:


> 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/cashsurrendervalue.asp


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## jmbagsy (Mar 14, 2017)

OptsyEagle said:


> 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.



OptsyEagle said:


> 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 



OptsyEagle said:


> 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?


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## jmbagsy (Mar 14, 2017)

OnlyMyOpinion said:


> 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.



OnlyMyOpinion said:


> 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.



OnlyMyOpinion said:


> 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%. 



OnlyMyOpinion said:


> 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? 



OnlyMyOpinion said:


> 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.


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## jmbagsy (Mar 14, 2017)

carverman said:


> 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.
> 
> ...


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.



carverman said:


> 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.




carverman said:


> 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?



carverman said:


> 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?



carverman said:


> 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.
> 
> ...


Will do a sitting to do this. Thank you for giving an example. Appreciate it really much.


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## pwm (Jan 19, 2012)

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.


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## My Own Advisor (Sep 24, 2012)

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...


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## pwm (Jan 19, 2012)

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.


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## jmbagsy (Mar 14, 2017)

kcowan said:


> 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.


Thanks for the clarification. So it is the sum of all i pay for the investment part. That sure is a lot...


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## carverman (Nov 8, 2010)

jmbagsy said:


> 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.


Yup..as they say, pay yourself first. 



> 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?


IF it were me, I would get out of it asap, and go with term insurance. Make sure you get a term insurance policy before you cancel the other and
read the fine print thoroughly. 
Not only is the premiums cheaper for your age, but you can put some of the "surplus"payment into your child's RESP..the government puts in a percentage of what you put in each year...*much better investment for life *than life insurance on a 2 yr old child.
Are you paranoid that something will happen to your child before he/she reaches maturity? 



> 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?


Simple..your life insurance (assuming term here) will cover your mortagage indirectly. If you take out $200k or $300k of term life insurance, you don't need mortgage insurance. 
As far as developing a life threatening medical condition..that can come at any stage of your life, so not having any life threatening
medical condition at the time when you first buy the policy doesn't necessarily mean that 10-20 yrs later, some serious medical condition happens.

Even if you don't volunteer disclosure of this condition, the life insurance company *can and most likely will check with your doctor on what treatments*
you had over the years and possibly deny payment, requiring a lawsuit if your family (not you) wants to collect on the policy.

They are in the business to make a profit, not to pay out hundreds of thousands on policy holders that succumb prematurely due to some
unforseen health condition.....except of course accidently,nobody can predict an accident that can take your life.

In the event that something catastrophic happens to you, your wife will collect the face value of the insurance and pay all, or at least most of the mortgage off.


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## OptsyEagle (Nov 29, 2009)

jmbagsy said:


> Any idea how I would tell her that I want to cancel the policy?


As I said upthread, if you feel you need life insurance protection and would like term insurance you should obtain that coverage BEFORE you cancel your current plan, just to make sure you are not left without some protection.

As for the cancelation. You can send a letter directly to the insurance company's head office. Just state the policy number and date it and tell them you want to cancel it immediately and of course sign it and it is done. Make sure they have your current address in case their is some cash value that would come back to you. No need to talk to your agent. If you call them they may try to redirect you to the agent, but just tell them you don't want to go through them. They do that as a courtesy to the agent but are not married to using them. You are not the first customer who doesn't want to deal with their agent anymore.

Just so you know. Your agent will not suffer any chargebacks if the policy is 4 years old (chargebacks are usually only within the first 24months) and the renewal commissions, which are not much anyways are about to disappear on that policy anyways. So your agent has pretty much received all the remuneration they were going to and I doubt they would care less whether you keep it or not. The insurance company is in the same boat. Universal life policies are sold in the hopes that a customer keeps it for a while and then decides to get rid of it, hopefully before they die. The insurance company will probably keep almost all of the cash value via surrender charges and they get off the hook of paying out the inevitable death benefit. Sure they would have preferred you to keep paying for 20 years more and then go away, but they definitely want you to go away. Don't take offense. It is part of their business model.

Let's just say life insurance is a weird business. The companies are almost as happy to see a customer go away as they were to acquire them in the first place. Go away alive of course. That is critical to their profits...and it is their untold story. Anyway, with some of the crap they sell, it tends to work out perfectly for them.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> A
> As for the cancelation. You can send a letter directly to the insurance company's head office. Just state the policy number and date it and tell them you want to cancel it immediately and of course sign it and it is done. Make sure they have your current address in case their is some cash value that would come back to you. No need to talk to your agent. If you call them they may try to redirect you to the agent, but just tell them you don't want to go through them. They do that as a courtesy to the agent but are not married to using them. You are not the first customer who doesn't want to deal with their agent anymore.


Yup,that's what I did with my pre-arranged (expensive) funeral arrangement. After 9 years of having a policy with Foresters Insurance (that the funeral home put my one time payment in trust), I decided to cancel it and go for much cheaper funeral arrangements.

The way I see it, if your in the ground, you are in the ground, it doesn't matter how fancy others see your final arrangements, so might as well save the money, and use it to pay off bills etc.
I did contact the funeral home to have the release papers signed, the rest the insurance company sent me a check for the full amount. I just had to followup with couple of phone calls as to why they were so slow in sending me my refund. 



> Sure they would have preferred you to keep paying for 20 years more and then go away, but they definitely want you to go away. Don't take offense. It is part of their business model.


Yes it seems to be part of their business model, because the premiums you pay over say 20 years (240 paymnents) may only cover most (but not all of their final payment to your family),so they have to pay out the shortfall on what you paid vs what they have to pay out of their equity.

The longer you pay,the more they get from you to invest, but at the same time they take a big risk if you take out a $300k policy then happen to die within the first 5 years of the policy being in effect.That's why they have life expectancy tables (male/female/smoker/nonsmoker) and the premiums depend on your age and health situation at the time you take out the policy.


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## carverman (Nov 8, 2010)

carverman said:


> duplicate post


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## CalgaryPotato (Mar 7, 2015)

OptsyEagle said:


> 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.


To be honest, you'd be surprised how little these agent's know about the products they sell. A family friend got me into this deal when i was 18. As I got a few years older, and realized what a bad deal UL was, I explained that I wanted to cancel. When I showed him the math about how much I was paying in fee's he was shocked, because the fact is, they are never explained what lousy things they are selling. They are just taught the benefits, and how to sell it based on those.


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## carverman (Nov 8, 2010)

CalgaryPotato said:


> To be honest, you'd be surprised how little these agent's know about the products they sell. A family friend got me into this deal when i was 18. As I got a few years older, and realized what a bad deal UL was, I explained that I wanted to cancel. When I showed him the math about how much I was paying in fee's he was shocked, because the fact is, they are never explained what lousy things they are selling. They are just taught the benefits, and how to sell it based on those.


They are trained to sell and get a commission from the insurance company for every policy they sell. 

I find that hard to believe that he "didn't know" as they go through a training plan with the insurance company to understand what they are selling and the commissions they will get when they are sucessful. 

Now, I don't know about the bank employees selling the the insurance policy receiving some commission, but this was the way many years ago when my ex decided to answer a Canada Life ad. The guy came to our house and discussed what she would be selling, and told her that before they would hire hire her, she had to make TWO firm sales from their products they offered. Ie:go door to door.


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## CalgaryPotato (Mar 7, 2015)

carverman said:


> They are trained to sell and get a commission from the insurance company for every policy they sell.
> 
> I find that hard to believe that he "didn't know" as they go through a training plan with the insurance company to understand what they are selling and the commissions they will get when they are sucessful.
> 
> Now, I don't know about the bank employees selling the the insurance policy receiving some commission, but this was the way many years ago when my ex decided to answer a Canada Life ad. The guy came to our house and discussed what she would be selling, and told her that before they would hire hire her, she had to make TWO firm sales from their products they offered. Ie:go door to door.


They know how to sell the product, and they know what they get as far as commissions go. What they are not taught, unless they do their own math to learn it (and many don't) is what the actual fee's that go to the customer are. The problem with those funds, is the investment is a fund, with a hefty % fee. The insurance piece doesn't have a fee, but is valued in a way that makes the company money, and then they tack on that extra $12/month or whatever account fee. As a bonus kick in the teeth fee. 

That is the real problem with these products. They should in theory be similar to getting a bank mutual fund, and an insurance policy. And even with the hefty MER, it might be worth it, since there are some tax advantages with these products. But then they tack on the extra fee on top, which depending on how much money you are putting in over top of your insurance cost every month, can be like paying a well over double digits MER.


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## OptsyEagle (Nov 29, 2009)

CalgaryPotato said:


> To be honest, you'd be surprised how little these agent's know about the products they sell. A family friend got me into this deal when i was 18. As I got a few years older, and realized what a bad deal UL was, I explained that I wanted to cancel. When I showed him the math about how much I was paying in fee's he was shocked, because the fact is, they are never explained what lousy things they are selling. They are just taught the benefits, and how to sell it based on those.


Absolutely. To be clear, Universal Life is an incredible product. The problem isn't the product, the problem are the agents trying to sell it to everyone and unfortuneately it is wrong for the majority of our population. 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. Unfortuneately in the quest for more sales, even the insurance companies sales reps will promote it to the agents for needs that either are ridiculous or can be dealt with better with other investment products. An uneducated agent will easily fall prey to these sales tactics, especially when their inherent bias to making a sale, is present.

In the quest to understand my advice a little better. The issue about the insurance company wanting their customers to go away, after some period of premium paying time, is also a benefit to the right customer. This issue is known in the industry as a "lapse subsidy". When the insurance companies are quoting insurance they look at all the regular stuff like mortality, their internal expenses, commissions paid, interest rates, etc., but they also look at their experience with lapses (people cancelling their policies). Remember the insurance company is socking away money to pay the eventual claim of the death benefit, since death is not a maybe but is a certainty. That money they are putting aside comes from the premiums the customers pays. This is all separate from any cash value that really comes from the customer paying premiums above their insurance costs. So, this reserve fund the insurance company is developing is real money and very valuable. What do you think happens with the reserve when the customer cancels their policy? It does not form part of the cash value of a universal life policy, so the customer does not get it. The insurance companies would love to keep it all for themselves but because we live in a very competitive insurance market, what actually happens is they take their estimates of how much money they will generate from people cancelling policies and use it to reduce the premiums offered to new customers. As I said, they call this the "lapse subsidy". 

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. It is not a small benefit but a huge benefit and all tax free to your heirs or estate. Add all this to a corporate owned policy, for example, that is using pre-tax corporate dollars (money not paid out to the owners yet) that pays the entire death benefit tax free outside the corporation to the heirs via their capital dividend account, and I will guarantee you that no other investment will ever generate the same estate value to the heirs, then Universal Life, Level cost life insurance. Certainly not with the same guarantees.

That is just one of many examples where it can be used very effectively in the right circumstances. The original posters circumstance, unfortuneately, was not one of them.


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## Beaver101 (Nov 14, 2011)

^


> .. 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?


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## Beaver101 (Nov 14, 2011)

CalgaryPotato said:


> To be honest, you'd be surprised how little these agent's know about the products they sell. A family friend got me into this deal when i was 18. As I got a few years older, and realized what a bad deal UL was, I explained that I wanted to cancel. When I showed him the math about how much I was paying in fee's he was shocked, because the fact is, they are never explained what lousy things they are selling. They are just taught the benefits, and how to sell it based on those.


 ... I had the opposite (very lucky actually!) experience. Enquired about an UL policy with a sales rep. and was given materials (sample policy, etc.) to read first and then to contact him if still interested or understood. There was no pressure from him to purchase, infact he was far from enthusiastic to sell me the policy. No follow ups, nothing. So it led me to think either he didn't believe in the advantages of such policy or he's a 'sales' person with high ethics. So I would question a broker or sales person who pressure you in buying whatever - would you buy it for yourself, your family, and recommend it to your friends?


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## Beaver101 (Nov 14, 2011)

jmbagsy said:


> ... 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*?
> 
> ...


 ... no need to figure out how to tell that agent who was an acquaintance of your father. Follow OptsyEagles's post #24, either send a cancellation letter AFTER you get term replacement in place or just don't pay the premiums. See how fast they cancel your policy.


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## OptsyEagle (Nov 29, 2009)

> 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.


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## carverman (Nov 8, 2010)

Beaver101 said:


> ^ ... 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:
> ...


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## Nerd Investor (Nov 3, 2015)

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.


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## jmbagsy (Mar 14, 2017)

OptsyEagle said:


> The original posters circumstance, unfortuneately, was not one of them.


Pardon me for not following the rest of your post as I am a novice in this field but I do understand the quote above. Can you tell me for whom does UL fits and take advantage of all its benefits? My parents who are 59 y/o got the same UL from the same agent as I did... I am suspecting this are not for them too. And again, thank you for your time replying to this thread, same goes to others who are on this thread.


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## OptsyEagle (Nov 29, 2009)

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.


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## Nerd Investor (Nov 3, 2015)

jmbagsy said:


> Pardon me for not following the rest of your post as I am a novice in this field but I do understand the quote above. Can you tell me for whom does UL fits and take advantage of all its benefits? My parents who are 59 y/o got the same UL from the same agent as I did... I am suspecting this are not for them too. And again, thank you for your time replying to this thread, same goes to others who are on this thread.


It may be more appropriate for your parents depending on their financial situation. Think of permanent insurance (not necessarily universal) as a long-term, tax sheltered investment, but one that isn't accessible until death. This is overly simplistic and not really accurate but it will at least help you get to the right frame of mind in terms of whether it makes sense. So when would this make sense? When you have (or expect to have with a reasonable degree of confidence) excess non-registered investments that you are confident you will not need or want to access for yourself. 

There are other situations when it would be warranted as well, but thinking through the above will tell most people whether it's worth considering. If the answer is yes, then you have to look at the death benefit paid out, a reasonable expectation of cash surrender value (if any), and figure out the equivalent rate of return to see if it makes sense as an investment.


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## CalgaryPotato (Mar 7, 2015)

Beaver101 said:


> ... I had the opposite (very lucky actually!) experience. Enquired about an UL policy with a sales rep. and was given materials (sample policy, etc.) to read first and then to contact him if still interested or understood. There was no pressure from him to purchase, infact he was far from enthusiastic to sell me the policy. No follow ups, nothing. So it led me to think either he didn't believe in the advantages of such policy or he's a 'sales' person with high ethics. So I would question a broker or sales person who pressure you in buying whatever - would you buy it for yourself, your family, and recommend it to your friends?


I wouldn't have called my experience high pressure. He was actually a really close family friend, who honestly did believe UL was the best product for everyone. He was heavily invested in one himself.

It's very common in insurance for many people to sell products they don't understand at all.


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## jmbagsy (Mar 14, 2017)

OptsyEagle said:


> I probably missed the mark but if it was easy to understand, many of those insurance companies would be hurting to find new customers.


Sadly, this is relevantly true.


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## jmbagsy (Mar 14, 2017)

Nerd Investor said:


> Unfortunately, from what you've told us this does not seem to be the case.


Yes, this is quite true.


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## jmbagsy (Mar 14, 2017)

Nerd Investor said:


> It may be more appropriate for your parents depending on their financial situation. Think of permanent insurance (not necessarily universal) as a long-term, tax sheltered investment, but one that isn't accessible until death. This is overly simplistic and not really accurate but it will at least help you get to the right frame of mind in terms of whether it makes sense. So when would this make sense? When you have (or expect to have with a reasonable degree of confidence) excess non-registered investments that you are confident you will not need or want to access for yourself.
> 
> There are other situations when it would be warranted as well, but thinking through the above will tell most people whether it's worth considering. If the answer is yes, then you have to look at the death benefit paid out, a reasonable expectation of cash surrender value (if any), and figure out the equivalent rate of return to see if it makes sense as an investment.


I believe the financial situation of my parents are not that good. I am seeing myself now sitting with them and try to convince them to get rid of their UL plan as well. Any idea on how I would make a valid point to them and make them hear what I am saying? I know it's going to be tough for me as I am just starting to learn from you guys here.


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## My Own Advisor (Sep 24, 2012)

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


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## CalgaryPotato (Mar 7, 2015)

My Own Advisor said:


> 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.


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## My Own Advisor (Sep 24, 2012)

Agreed Potato!


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## jmbagsy (Mar 14, 2017)

My Own Advisor said:


> No idea if this is helping


It sure does. Thank you so much. It gives a brighter perspectives for people like me who has little knowledge about life insurances/investments.


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## ian (Jun 18, 2016)

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.


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