# Is Universal Life a good idea?



## coolclayton

My fiance and I have been talking to a financial planner lately, and she has been suggesting a lot of options we have for building some wealth. One of the things she has been strongly pushing for is a Universal Life policy. I have tried to do some research on it, and have been quickly reading and studying as much as I can, but I need some feedback on it. Most of the information I have read about doesn't fit our exact situation, so I'm struggling to find a good answer.

We are both young (24), debt free, and starting our careers. We are currently trying to save up a large downpayment for our first home. The financial planner is arguing that because of our age, the payments for a Universal Life policy would be quite low, not much higher than a term policy. As of this moment, we have no need for any insurance, as we are not dependent on each other or anyone else, but we realize that once we have a home, we will need at least a term policy. I have recently started investing in a TFSA as a retirement vehicle, and I also wish to invest in RRSP's in the near future with any extra money. I wouldn't mind investing in Real Estate if I have any extra money on top of the TFSA and RRSP, as Real Estate is more related to my field (construction). 

Basically, what I am asking is this: Should I be investing in a Universal Life policy? I think I would rather put my money towards real estate properties or even non-registered stocks/mutual funds account, but would I be missing out on a greater investment if I pass on the Universal Life?


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## MoneyGal

Run away from your "financial planner" quickly, far, and fast. 

I don't think you have a need for insurance at all -- in fact, that's what you yourself say -- let alone the most costly form. Yes, universal life insurance premiums would be lower now than they would be if you were trying to buy insurance at, say, age 65 -- but will you need insurance then, either? That's like saying you should lease an SUV now because you might need it later. 

You don't even have your savings STARTED yet and you have identified savings needs that have nothing to do with replacing your unmonetized human capital in the even of your death (which is what life insurance does). And yet you should divert your financial goals to fulfilling a requirement that doesn't exist at the highest possible cost? 

Nu-uh. No way, no how. Buying something that you don't need has huge opportunity costs (because the money isn't available for other things that you DO need and want, like a house), and your planner has NO WAY to quantify the size of whatever "foregone opportunity" she is suggesting you would be faced with if you don't buy a UL policy. That is: you are trading a known, present cost for an uncertain future benefit which is generally available at lower cost. It just doesn't make sense. 

Of course, feel free to disregard. I'm just too hot in my house here and up in the middle of the night, and there's not much more that gets me going than life insurance salespeople.


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## MoneyGal

BTW it isn't as though insurance companies have access to some "special" forms of investing (or investing knowledge) that make buying a UL policy a "better investment" than investing outside a UL policy. 

The advantages of a UL policy from an investment side relate to overfunding the reserve account and letting it grow tax-free. UL is (generally) appropriate for tax planning reasons; not for insurance reasons. 

But it doesn't sound like you have excess cash sloshing around that you need to shield from taxation, and you can achieve the investment returns that you'd get inside a UL policy yourself (actually, with greater ease than the insurance company, because -- at least ideally -- you will be investing at much lower cost outside a UL policy than inside a UL policy).


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## FrugalTrader

coolclayton,

Universal Life premiums bring an awesome stream of income for your financial planner, but probably doesn't bring you a lot of benefit at your stage in life. Insurance is for protecting your dependants. Do you have any?

Just curious though, what is the difference in premium payments quoted to you?


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## CanadianCapitalist

MoneyGal said:


> Run away from your "financial planner" quickly, far, and fast.
> 
> I don't think you have a need for insurance at all -- in fact, that's what you yourself say -- let alone the most costly form. Yes, universal life insurance premiums would be lower now than they would be if you were trying to buy insurance at, say, age 65 -- but will you need insurance then, either? That's like saying you should lease an SUV now because you might need it later.
> 
> You don't even have your savings STARTED yet and you have identified savings needs that have nothing to do with replacing your unmonetized human capital in the even of your death (which is what life insurance does). And yet you should divert your financial goals to fulfilling a requirement that doesn't exist at the highest possible cost?
> 
> Nu-uh. No way, no how. Buying something that you don't need has huge opportunity costs (because the money isn't available for other things that you DO need and want, like a house), and your planner has NO WAY to quantify the size of whatever "foregone opportunity" she is suggesting you would be faced with if you don't buy a UL policy. That is: you are trading a known, present cost for an uncertain future benefit which is generally available at lower cost. It just doesn't make sense.
> 
> Of course, feel free to disregard. I'm just too hot in my house here and up in the middle of the night, and there's not much more that gets me going than life insurance salespeople.


Just unbelievable! A young person just starting out needs to keep things simple: save for a downpayment, max out the RRSPs / TFSAs etc. I don't see why someone young with no dependents would need any form of life insurance -- let alone, a UL policy.


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## Sampson

CanadianCapitalist said:


> I don't see why someone young with no dependents would need any form of life insurance -- let alone, a UL policy.


I don't see why ANYONE would need a UL policy


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## MoneyGal

The advent of the TFSA effectively kills the rationale for UL policies for any young Canadian. It used to be that people would use UL for tax arbitrage. 

But now, with a TFSA, when the original poster is, say, 65, and wants to start drawing retirement income, if he fully funds his TFSA he will have at least $205K (if he maintains inflation-adjusted growth) in a tax-free account.

The remaining reason to buy a UL policy is to pay taxes when you die. You buy a UL policy so that at death your estate is not forced by liquidity constraints to sell assets in order to raise money. The family cottage, handed down through generations, is an example. 

But mostly this is an example of a "financial planner" who is trying to make what would otherwise be a low-prospect client into one who will provide a significant income stream *for her.*


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## leslie

MoneyGal is correct: RUN don't walk.


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## coolclayton

Thanks for the response and advice. Most of these suggestions and thoughts were already going through my head, but sometimes it takes someone to agree with you to get yourself to really believe it. 

I will say that meeting with the financial planner has definitely been a positive experience. Although she may not have provided me with the best investment opportunities, she has shown me what I don't know, so I have been pushing hard to learn as much as I can for the last 2 months.

For now, I think my plan is going to be to continuing to save for a downpayment, maxing out the TFSA and RRSP's, and then looking for new income streams and investment opportunities if I have any money left over.


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## coolclayton

FrugalTrader said:


> coolclayton,
> 
> Universal Life premiums bring an awesome stream of income for your financial planner, but probably doesn't bring you a lot of benefit at your stage in life. Insurance is for protecting your dependants. Do you have any?
> 
> Just curious though, what is the difference in premium payments quoted to you?


I don't have the numbers, as she kept all the paperwork with her when she left. This was a bit of a warning sign for me. I remember her saying the difference was "small" though.

Small can be a relative term though.


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## steve41

One of the strategies UL plans use is to show the effect of the plan growing to the point that the UL acct can be used to collateralize a future investment loan. The numbers (sort of) work, however be wary.


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## MoneyGal

CoolClayton: the relevant difference is not between premiums for term life insurance vs. premiums for permanent life insurance -- it is between the premiums for permanent life insurance vs. no life insurance (i.e., zero). 

You don't need insurance. That's like saying the difference in the monthly payments on this Mercedes and that Honda Civic are small -- except the payments for the Mercedes go on FOR THE REST OF YOUR LIFE while the payments for the Honda would stop after 5 years. And you don't even need a car! You are fine riding your bike around!

Focussing on small numbers - "one easy monthly payment" - is intended to make crappy decisions palatable to unsuspecting consumers. 

If someone insists on comparing between permanent and term life insurance costs, assume a period of time over which insurance is required (let's say 20 years) and compare the total costs of the permanent insurance (remember, you pay the premiums until you die) and the costs of the term insurance.

I'll do the calcs and come back later.


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## coolclayton

MoneyGal said:


> CoolClayton: the relevant difference is not between premiums for term life insurance vs. premiums for permanent life insurance -- it is between the premiums for permanent life insurance vs. no life insurance (i.e., zero).
> 
> You don't need insurance. That's like saying the difference in the monthly payments on this Mercedes and that Honda Civic are small -- except the payments for the Mercedes go on FOR THE REST OF YOUR LIFE while the payments for the Honda would stop after 5 years. And you don't even need a car! You are fine riding your bike around!
> 
> Focussing on small numbers - "one easy monthly payment" - is intended to make crappy decisions palatable to unsuspecting consumers.
> 
> If someone insists on comparing between permanent and term life insurance costs, assume a period of time over which insurance is required (let's say 20 years) and compare the total costs of the permanent insurance (remember, you pay the premiums until you die) and the costs of the term insurance.
> 
> I'll do the calcs and come back later.



One of the points she brought up though was that the insurance company pays out an annual bonus after a certain number of years. This bonus increases over time, so what we actually pay becomes smaller and smaller until we don't pay anything at all. So after 20-30 years (I can't remember the actual length of time she showed me) we are no longer paying out of our pocket for the premiums. Is there any truth to this? Would this change the scenario?


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## MoneyGal

Then she was recommending what is known as a "participating" UL policy. These kinds of policies have the *potential* to pay dividends, but there's no guarantee (it depends on whether the collective set of assumptions used in the policy are more or less favourable than the actual results). 

So, now she's saying "buy the Mercedes -- and the monthly payments at some point in the future may go down by an uncertain amount." (If she's saying the payments WILL go down, she's misleading you. She cannot make that statement.) 

This still doesn't make it a wise choice for you. Capiche?


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## coolclayton

Thanks for the input. I had kinda thought it wasn't the greatest choice for me from the beginning, but I'm glad you backed me up on my opinion. A lot of the research I did related to people in their 30's, who would be paying higher premiums, or people with lots of debt. I'm glad to hear any kind of advice or opinions you can give


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## OhGreatGuru

There are several other threads on life insurance on this site, and quite a number on MoneySense. The general consensus seems to be that the only insurance most people need is term insurance, if any. For all other types of life inurance, the "return on investment" (over the cost of term insurance) is very poor compared to what you could do by investing the premium difference yourself.

Universal Life Insurance can be a beneficial estate planning tool in some cases. But that 's not likely to be an issue if you are still young and not wealthy.


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## MoneyGal

Another comment on the participating element of the UL policy: what the advisor is saying is that if the insurance company's investments do well, they may pay dividends to policyholders, and those dividends can be used to offset policy premiums. 

But think about that logic for a minute. That's like saying, buy this Mercedes, and the "low monthly payments" will remain stable for the rest of your life. And they include a payment to a reserve fund which we will use to buy equities. If our investments do well, we may return some of the excess to you in the form of dividends, which you can use to offset your monthly payments. 

Except: why wouldn't you just invest your savings directly? Why use the intermediary of the insurance company?! 

"Give us your money, and we'll invest it for our profit, and if we do really well, we might return some of it to you." Does that sound like a deal for ANYONE except the advisor?!


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## lb71

When you own a "participating" product, you participate in more than just the investment experience of the company, you also participate in the experience of its expense management and mortality. You can still earn dividends in a lousy investment environment. Regardless, these policies are more expensive than your term policies.

In the late 80s/ early 90s the insurance industry got into a lot of trouble with its "vanishing premium" policies. These were marketed as lifetime insurance but with premiums stopping at some point. The dividends from the policy would be high enough to cover off your future premiums, i.e., they would vanish. Well, these things were created when interest rates were high, and once they started coming down, the assumptions that supported the vanishing premium fell apart. Class action lawsuits were filed, and the industry pretty well paid up. Now, there are regulations in terms of the illustrations agents provide you. The assumptions have to be more realistic, and I believe they also have to provide you with worst case scenarios. If they do not, ask to see them.


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## Rickson9

coolclayton said:


> Should I be investing in a Universal Life policy?


No.


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## Rickson9

MoneyGal said:


> "Give us your money, and we'll invest it for our profit, and if we do really well, we might return some of it to you." Does that sound like a deal for ANYONE except the advisor?!


People are lazy and can easily get sold into it.

In the end everybody gets what they want.


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## OntFA

Tim Cestnick recently wrote a trio of insurance articles. They are worth reading.

Five reasons you should be nice to your insurance agent

Decide the coverage right for you

Benefits in buying a permanent life insurance policy


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## leslie

I read the last link from Tim Cesnick. His reasons for needing 'permanent' insurance was "There are many reasons". But that is the whole point of the responses above. There are precious FEW reasons. 

Anyone in the 'planning' profession loves these products because they can be piled on top of each other to create all kinds of 'planning' products. But next to no one needs these products.

He talks about the savings/investing portion of the premiums as if they are a good thing. Superficially, their freedom from tax is a good thing, but the investing products themselves are REALLY bad, and you are stuck with them. They are a classic case of the tax tail wagging the investment dog.


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## steve41

I know a friend of my FIL who purchased a large life annuity when the going rate was 15%. He is still going strong and sends an Xmas card to the agent who sold it to him every year.


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## DrStan

The agent is looking to pad her pockets at your expense. Walk away and buy cheap term insurance whenever you buy a house and/or have kids to protect your significant other against the unlikely but catastrophic event of your untimely death. Usually, the more complex something like this is, the more it will cost you.


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## AntiBrian

Term insurance for when you have kids, or an nonworking spouse, and only enough to keep the former going until 18 or 25ish, and the later depending on situation.

Disability insurance in case you can't work, and I assume check the small print.

People get way too much life and usually way to little of the latter.


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## rookie

Re-invoking this old thread again. i can clearly see that all the financial experts in the forum have concluded that universal life is not needed for anyone and not to trust insurance agents advocating it. when i asked my agent for a quote of 500k term insurance, he gave me quotes for that and a UL policy of 400 term + 100 UL. i was looking at the tables and here is what i saw:

i am basically paying 672$ extra every year for 20 years for the 100k UL coverage. now if i invested this 672$ in a TFSA (assuming i am not maxing out) for 20 years at a modest rate of 6% return, i see that it takes me about 45 years to get 100k when i will be 74 years. so the way i see it is that if i invest the diff, i am in the green only if i live beyond 74. plus i need to have room in tfsa. plus i need to make 6% every year. from these, it looks like it makes sense to with UL. am i missing something?


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## jamesbe

First time seeing this old thread.

I bought a UL last year when I turned 30. My wife doesn't work much and can't afford the mortgage payment. Mortgage insurance was basically like throwing money away payment was $30 a month for mortgage insurance.

I got $300,000 of UL insurance for $130 a month, at first I thought man another $130 a month, now I don't even notice it, if anything happens the mortgage is paid off with $ to spare. If nothing happens at least I know I have that $100 a month ($30 was the premium) being set away and growing as an investment.

There is a reason to get in early as it saves you on premiums later. Previously I had term insurance that my parents paid (I didn't even know) not sure why but I had this term insurance at a cost of $20 a month, that money is gone forever now IMO I rather pay the extra and not have the money disappear when the term ends.


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## balexis

Life insurance really is a weird domain, I had to purchase some 2 years ago when I bought my first house.

I was in a similar situation as you: no kids, just a mortgage with my partner.

Our objective was: how can we make sure one can keep the house in the unfortunate event of the other's death, and which option is the cheapest?

We ended up taking a mortgage insurance that pays once, when the first of the two dies. It has a monthly fee WAY lower than any term or UL insurance, end of story.



jamesbe said:


> if anything happens the mortgage is paid off with $ to spare.


That's the problem when you worry about the mortage: it shrinks over time and you become more and more over insured as time goes. Do you really need that $ to spare? If do, what happens if you die this year, compared to in 10 years? You won't have nearly the same amout of '$ to spare', right?

For example, it costs us 20$/month for a 225k mortgage (26 y/o couple, non smokers).


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## MoneyGal

Two quick comments: 

1. a life annuity (great, cheap product for the right person at the right time) has NOTHING to do with UL. It pays when you are alive, not when you are dead. It's the opposite of life insurance, actually. 

2. Mortgage "life" insurance is not underwritten at the time of purchase. That means the insurance company decides whether you qualify for the payout after you die, not before (unlike every other kind of life insurance out there). There are lots of horror stories out there about the problems this can pose when the coverage is retroactively declined. Mortgage life insurance is a crappy deal for this reason alone.

p.s. This is actually why mortgage life insurance is cheap. You aren't really managing the risk with this kind of insurance. Underwriting is expensive.


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## rookie

mortgage insurance is for people who are opening their doors to robbers, i agree

but i was trying to understand why people in the forum have totally written off UL while it seems to be making sense to me looking at the numbers. another thing i should have mentioned in the earlier post is that UL does not make sense if i died within hte next 20 yrs which is also highly unlikely.


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## brad

This actually brings up a question from me:

When we bought our house three years ago, in the heat of the moment I bought mortgage insurance because I was too consumed with all the house-buying details to look into it properly. I have a minimal life insurance policy through work that pays out some percentage of my salary, but that wouldn't be enough in this situation because there's a huge income disparity between myself and my girlfriend and she wouldn't even be able to swing one month of mortgage payments. So I wanted to be sure that if I die, she won't have to worry about losing the house.

I understand that I made the wrong decision in buying mortgage insurance, but I'm not quite sure what the right decision should be. There's just the two of us (she has a daughter, but she wouldn't be a beneficiary). I just want to be sure that if I die before her the house will be paid off and she can have enough to handle maintenance, taxes, etc.

Any thoughts? Good books to read?


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## the-royal-mail

I don't think you need to read a book to answer this question, brad. The way I understand mortgage insurance, is for coverage in case of disability or death to protect your spouse in exactly the manner you have described. The only reading you need to do is your policy details or better yet call or speak to your provider to get specifics. They can answer these questions for you but from where I sit I think you made the right decision.


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## rookie

brad said:


> This actually brings up a question from me:
> 
> When we bought our house three years ago, in the heat of the moment I bought mortgage insurance because I was too consumed with all the house-buying details to look into it properly. I have a minimal life insurance policy through work that pays out some percentage of my salary, but that wouldn't be enough in this situation because there's a huge income disparity between myself and my girlfriend and she wouldn't even be able to swing one month of mortgage payments. So I wanted to be sure that if I die, she won't have to worry about losing the house.
> 
> I understand that I made the wrong decision in buying mortgage insurance, but I'm not quite sure what the right decision should be. There's just the two of us (she has a daughter, but she wouldn't be a beneficiary). I just want to be sure that if I die before her the house will be paid off and she can have enough to handle maintenance, taxes, etc.
> 
> Any thoughts? Good books to read?


if i were you, i would first get a separate term insurance that would cover the outstanding mortgage + a little bit more (either individual policies or joint first to die) and once the policy is active, cancel mortgage insurance.

you can get quick quotes here:
https://www.qfsbrokers.com/survey.asp#health


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## HaroldCrump

In my book, mortgage insurance is like car loan insurance.
It protects the lender by ensuring they get their money back but make you pay the insurance premiums.
It does not protect your family beyond the amount of the mortgage.
Your mortgage principal reduces with time, but the insurance premium stays the same i.e. leveled across the amortization period of mortgage.

It is cheaper to get additional coverage on your regular term life policy to the tune of your mortgage principal.
So if your regular term policy is $500K and you pay $500 a year for that and your mortgage balance is $200K, increase your coverage to $700K.
You will have to redo the medical test but unless your health situation has changed since you first got the term policy, the increase in premium should be less than the total you'd pay for mortgage insurance.


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## MoneyGal

HC: yes, but only IF your claim is approved ex post facto. 

Why yes Brad, there is an excellent, short, easy-to-read book on insurance. I recommend it all the time: Insurance Logic, by Moshe Milevsky.


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## MoneyGal

FWIW: I did not say and would not say that UL never makes sense. I did say that for the poster who started this thread, UL was a complete non-starter. UL exists because it provides some advantages and because there is a market for it.


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## rookie

MoneyGal said:


> FWIW: I did not say and would not say that UL never makes sense. I did say that for the poster who started this thread, UL was a complete non-starter. UL exists because it provides some advantages and because there is a market for it.


so would u recommend it in my case?


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## MoneyGal

[shrug] I don't know enough about your situation. 

In general terms, though, the fraction of people who can truly benefit from UL is very small, and it all rests on tax arbitrage.


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## rookie

MoneyGal said:


> [shrug] I don't know enough about your situation.
> 
> In general terms, though, the fraction of people who can truly benefit from UL is very small, and it all rests on tax arbitrage.


actually i am now looking into another product which is term-100, pay-20. i am guessing this is pure term insurance with a little higher premium to support payout on death and addresses estate planning as well. since the premiums are low for women, i am looking at purchasing this for 100k for my wife. the quotes are coming at 586CAD for my wife aged 32. if i invest 586CAD in TFSA (assuming we are not maxed out, so far we have) for 20yrs and consistently make 6%, i get 100k at age 78. so we would start losing money only if wife lives beyond 78.


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## MoneyGal

Responding ONLY on the question of survival probabilities, using Canadian mortality tables I calculate a woman aged 32 in good health has a 64% chance of living to age 78. If that's your break-even point (and the only purchase consideration you have), the odds are against you.


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## MoneyGal

And now responding on the investment side: This blog post is worth reading very carefully. 

Even if you disagree with his conclusions, IMO you should do the math for your investments this meticulously (so you can disagree in an informed way).


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## rookie

MoneyGal said:


> Responding ONLY on the question of survival probabilities, using Canadian mortality tables I calculate a woman aged 32 in good health has a 64% chance of living to age 78. If that's your break-even point (and the only purchase consideration you have), the odds are against you.


darn, as usual.

now, what if i throw in that 6% return is too fantastic for a guaranteed investment and also that we are maxing out our TFSA?

also, u mention that there are some people who still benefit from UL. who would a good example be for this?


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## MoneyGal

People in the highest tax bracket with no other tax-sheltering opportunities (i.e., holding assets in a corporation, IPP) who have excess cash.


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## HaroldCrump

MoneyGal said:


> People in the highest tax bracket with no other tax-sheltering opportunities (i.e., holding assets in a corporation, IPP) who have excess cash.


May I add : "with their mortgage and other significant debt paid off"?


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## MoneyGal

Der. Goes without saying. No consumer debt.


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## brad

the-royal-mail said:


> I don't think you need to read a book to answer this question, brad. The way I understand mortgage insurance, is for coverage in case of disability or death to protect your spouse in exactly the manner you have described.


On paper, yes, but from what I've read here and elsewhere, mortgage insurers are pretty good at avoiding actually paying out claims. See for example MoneyGal's reply here: http://www.canadianmoneyforum.com/showpost.php?p=24000&postcount=29.

I'll read Moshe's book if I can find it; when I checked Amazon and Chapters it seemed like it was out of print, but I could get a used copy.


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## the-royal-mail

Yikes!

Wellllll.....then maybe as someone else said, adding the mortgage to your life insurance policy would be the best thing to do??

It also sucks that when you sell the house and discharge the mortgage, that money you contributed until then stays in their pocket.


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## brad

the-royal-mail said:


> Wellllll.....then maybe as someone else said, adding the mortgage to your life insurance policy would be the best thing to do??


Right, I think that's the thing to do, except that I don't have a life insurance policy. I have a bare-bones one through work, but it can't be adjusted -- that's why I bought mortgage insurance as I didn't have time to research what kind of life insurance policy would be right for my situation. But now that I have time, you can bet that's what I'll be doing!


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## OptsyEagle

rookie said:


> also, u mention that there are some people who still benefit from UL. who would a good example be for this?


It works great for "joint last to die" if level cost insurance is used and it is kept until the 2nd death occurs. 

The joint plan does 3 things. 

1stly, because the risk of a catastophic death is significantly reduced by using 2 lives, the mortality numbers seem to work better. 

2ndly, because it is tax free at death it competes very well with taxable investments for obvious reasons (mentioned already as tax arbitrage ... interesting way of putting it). 

Lastly and most importantly, because it has no cash value if cancelled, the insurance company does an estimate of how many people will cancel their policies before death. When they do that, all the money set aside as a reserve for their inevitable death, comes into play. If the insurance company had it their way, they would keep it, but since we live in a very competitive world, they use it to reduce the premiums you pay. So in other words, other people that are stupid enough to pay premiums for a long time and then let the insurance company off the hook are actually funding your estate plan. You would be surprised how many people actually cancel their UL plans.

Anyways, I hope that answers your question.


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## OptsyEagle

brad said:


> Right, I think that's the thing to do, except that I don't have a life insurance policy. I have a bare-bones one through work, but it can't be adjusted -- that's why I bought mortgage insurance as I didn't have time to research what kind of life insurance policy would be right for my situation. But now that I have time, you can bet that's what I'll be doing!


Don't worry about that. A new term 10 policy on each of you will most likely be the same or even less than what you are paying in mortgage insurance. It is by far, superior, but ensure that the coverage on the term policy is offered before you cancel your mortgage insurance. Also, only go to a broker that can provide you a list of many insurance companies quotes (as opposed to a captive salesperson).

Now that being said, if you need it for 20 years or more, you will save a lot by purchasing term 20, but it would not be a fair comparison to use those quotes (which will be higher than term 10) to compare against mortgage insurance. Term 10 is a closer apple to apple example but even those two are not identical.


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## MoneyGal

the-royal-mail said:


> It also sucks that when you sell the house and discharge the mortgage, that money you contributed until then stays in their pocket.


This is a strange way to think about insurance. They got to keep the premiums because you survived. Insurance is about managing (catastrophic) risk!


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## rookie

MoneyGal said:


> And now responding on the investment side: This blog post is worth reading very carefully.
> 
> Even if you disagree with his conclusions, IMO you should do the math for your investments this meticulously (so you can disagree in an informed way).


thanks a ton for the link. the blog does clarify a lot. all the time i was posting with my agent's word that the fee is the same for UL and term. i asked him for the fee structure in term but he still hasnt got back. for now, i will just stick to term!!! 

the forum really rocks and u guys have helped/influenced me to make a tangible financial decision in an informed manner after considering all options!!!


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## balexis

Moneygal, thanks for pointing out the fact that most mortgage insurance are not underwritten at time of signature.

I'll double-check my contract tonight. In my case, I did not take the insurance form the lender (which I suspect would have this caveat). I took it from an insurance company and they requested my medical file from my family doctor and sent a nurse to take my blood pressure, urine sample and ask a bunch of questions (for smth like 45 minutes). This led me to think that the underwriting was done at this time and not when the actual payment is requested.


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## MoneyGal

Yep, that's what underwriting is. Mortgage life insurance is sold over the phone by a sales rep. True life insurance is underwritten (validated) by the insurance company via a medical check. 

Here's a Four Pillars blog post on post-claim underwriting. 

(Disclaimer: I disagree with some of the characterizations of insurance in the above-linked blog post. In particular, I disagree that insurance is a "loss leader" for the insurance company. A loss leader is a product sold at a loss. By definition, insurance companies cannot sell insurance policies as loss leaders, or they'd be out of business. They sell insurance to access the capital in the form of premiums paid by policyholders. Insurance companies make money by managing risk and by risk-pooling and only secondarily by investing.)


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## balexis

Just to clarify my last post: the insurance I got IS a mortgage insurance product.

I think the term 'mortage insurance' in this thread is mainly used as the insurance product sold by banks and that are post-claim underwritten.

However there seems to exist proper underwritten mortage insurance, such as this one:
http://www.inalco.com/english/individual/life-insurance/mortgage/mortgage.jsp

From the website description, can you confirm this product is not post-claim underwritten? What phrases should I look for in my contract that would indicate whether it was already underwritten or if it will come post-claim? Because of course I couldn't find the word "underwriting" anywhere.


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## MoneyGal

Gotta love it! I downloaded the brochure and read it. 

It looks as though this is "regular" life insurance sold as "mortgage insurance." To be clear: mortgage insurance pays your LENDER in the event of your premature death - you never see the $$. 

This looks like life insurance set at the amount of your outstanding mortgage balance. 

If a nurse visited your home and took a blood sample, your policy has been underwritten.


----------



## balexis

OK I read the brochure as well, it looks like a good product (BTW I am NOT selling anything, I'm an IT geek).



> Like any other mortgage insurance, a few questions will be asked
> about your health. However, once you receive confirmation that your
> application has been approved, you will have peace of mind knowing
> that you are protected under the coverage you selected, which may
> not always be the case with group plans offered by lending
> institutions. Some products offered by major lending institutions even
> reserve the right to refuse compensation at the time of the claim.


and:



> In the event of death, the money is paid to the beneficiary of your
> choice, which does not have to be your lending institution.


OK I can go back to sleep soudly


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## fraser

I have never been a big fan of insurance policies, other than term. I am just about to retire and have cancelled my last small term plan as we no longer need it and the cost was increasing substantially. When our children were born, I had the opportunity through my employer, to purchase inexpensive term -7 times my salary. We kept this until our children were about to leave university, then reduced it to 4 times. We did have mortgage insurance with CIBC and found an anomoly in the system which CIBC had to manually adjust at the time. We paid our mortgage down fairly quickly but I noticed that the insurance part of the biweekly payment did not reflect the reduction in insurance coverage due to the reduced principal. CIBC adjusted but it is something to look out for.
The one thing that I never liked was insurance vendors trying to peddle complicated policies. I always had the feeling that I would never be able to find the 'pea'.


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## rookie

balexis said:


> OK I read the brochure as well, it looks like a good product (BTW I am NOT selling anything, I'm an IT geek).
> 
> 
> 
> and:
> 
> 
> 
> OK I can go back to sleep soudly


+ i bet the sum assured is not reducing with your outstanding debt...


----------



## Mike59

Universal Life policies aren't for everyone, and as most are alluding to, probably aren't for 98% of the population given that other vehicles (TFSA, RRSP etc.) are more efficient. It's quite clear that permanent insurance policies are a whipping-boy during these discussion forums, there are hundreds of other threads on the net I've come across with equally critical views.

After much study and reading every article I could get my hands on, ULIFE works for me and is part of my portfolio, here's why I own one:
- I am 30, own my own business, and hope to retire early (around 45 if all goes well
- I view RRSPs and the government as evil and want nothing to do with RRSPs, I prefer greater control over the money, I take no formal salary (since I can't use EI anyway, why pay taxes toward it) 
- I pay myself about $150k in corporation dividends per year, and can max out my TFSA as first priority every year
- Debt repayment (cars, early mortgage lump sum) will come before all other investments
- I would like to have money available in my mid-forties, and available at all times should I feel the need to use it for emergencies
- I have a young family and want to protect my estate in the event I die early

The ULIFE in my case is $750k, and I deposit about $10k annually in cash, guaranteed at 4% growth for life minimum, and I pay no penalty for early cash withdrawals. I classify the cash value portion of this policy as the fixed income part of my overall portfolio. The cash grows tax free, and with the current market, is probably going to outpace bonds with my 10-15 yr retirement horizon. 

My portfolio is evolving into this: 
75% Stocks/equities/mutual funds: in CCPC (corporation), and TFSA
25% Fixed income: ULIFE policy at 4% / yr minimum

I don't think I will touch the cash portion of the ULIFE until much later. I've calculated that even if I cash it out around 50-60, the capital gains tax is minimal if I am retired, it can be streamed out over 5 yrs in small chunks. The tax-free growth and flexibility of the policy outweighs the relatively small fee I pay in comissions each month. A big plus over an RRSP, where you are stuck waiting until 60-65, and forced to pay tax later anyway.

The other question not raised as often, is how often do term insurance policies pay out as planned? I hear many horror stories where families are denied payments as the loved one had a "pre-existing condition" or the insurance company tries to fight the claim based on a technicality by digging into one's medical history after their death. It's nice to know your policy is intact and guaranteed with permanent/universal, and at least while one has a young family, the ULIFE makes sense with that concern in mind.

Overall, I am happy with the choice, and we'll see how it works. Btw, I'm not an insurance salesperson, (I don't trust them either), but work in healthcare and have a love for finance. I'd be interested to read if others have similar scenarios where they've found life policies to be a good fit for their financial plan.


----------



## pando

My partner and I have a universal life policy before we turned 25. After age 25, I think they require a full medical assessment. That may be why your agent was pushing you to get it before you turn 25 (it'll just be cheaper in the long run). I guess it is insurance (provides peace of mind for the couple...we were also childless at the time)...but when you turn 65, you get a big chunk of money at the end...I believe much more than your monthly payments. I'd have to see the charts provided to me by my universal life agent, but at 65, I think I'll be getting at least 100,000$ when I would have only put in around 24000$ through the years. You might not need it, but if you are committed, frugal and can think very long term...it's probably a great idea to consider it before you turn 25.

I get annual statements on how much has accumulated. I can cash out the universal policy whenever I want, and by now - I can probably take back almost as much as I have put in (It's been 11 years). It grows at around 6% at least. I won't do that of course - personally I'd like to get that lump sum.


----------



## Mike59

pando said:


> I can cash out the universal policy whenever I want, and by now - I can probably take back almost as much as I have put in (It's been 11 years). It grows at around 6% at least. I won't do that of course - personally I'd like to get that lump sum.


It's my understanding (at least from my own policy) that you can also allow it to compound during your retirement instead of taking the lump sum at 65, and cash out portions of it even later. You may even be able to achieve numbers above $200k, $250k with the right duration and patience... 

With my policy, I have calculated that the most efficient cash-value withdrawal would take place during my 70's, perhaps in 5 separate blocks. This minimizes capital gains tax, and allows interest to compound on the remaining balanace during years where you're not using the money.


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## mcu

Mike, may I ask what the 750k ULIFE is costing you now?


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## Mike59

mcu said:


> Mike, may I ask what the 750k ULIFE is costing you now?


Base payments are about $430 per month, which buys the $750k death benefit policy and provides additional cash value of (assuming the current rate which is floating around 5%):
$53k at year 10
$138k at year 20
$239k at year 35 

By overfunding, and contributing an additional (roughly) $600 per month to the cash account portion, the numbers change to a cash value of:
$149k at year 10
$392k at year 20
$1,158,000 at year 35


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## mcu

Did you ever consider or look at the Ulife quick pay ones? Was it worth it? I am also debating with term and ulife and also self employed with 4 kids


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## Mike59

mcu said:


> Did you ever consider or look at the Ulife quick pay ones? Was it worth it? I am also debating with term and ulife and also self employed with 4 kids


I never considered the quick-pay option... In my case, I don't like having so much invested up front in one place. I'm still early in my career, and prefer to sprinkle my investments betweeen several vehicles to avoid risk (The consequence of being paranoid about everyone, their brother, and their uncle Bob)  . I like the flexibility of the pay-as-you-go ULIFE because you can adjust the premiums at anytime in case you run into an emergency. 

Prepaid whole-life and quickpay are probably better for those who are insanely wealthy. I picture a good candidate to be someone with $2 million+ net worth who is still earning more, perhaps $1million sitting around in cash/investments, and looking to quickly re-allocate $500k with estate-planning in mind.

In deciding between term vs. ULIFE, I think estate planning should be a larger question to answer. Term leaves nothing behind if you outlive your policy. Although you may come out ahead by going with term and stuffing surplus dollars into other investments, any investments you make outside of a life policy will be hit with significant taxation upon your death...Part of me loves the idea of setting up something for my children/family that shuts out Canada Revenue and their grubby hands


----------



## kcowan

Mike59 said:


> Part of me loves the idea of setting up something for my children/family that shuts out Canada Revenue and their grubby hands


And the ULIFE insurance salesmen play on that all the time! The extra fees for ULIFE policies often compensate for the tax savings so it is wise to shop around and ask about MERs and fees.


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## mcu

What kind of questions am I looking to ask when shopping around for this? I want to get something ASAP and for quite a while now but I keep on reading that ULIFE is just a product the salesman pushes because he makes more $$.


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## pando

mcu. My advice would be to look for Universal Life (which I think is a combination of Whole Life and Term Life) - from a company that has not yet demutualized. By purchasing universal life from a "mutual/private" company, you also become owners of that company. Sometimes, these companies decide to go public (as did SunLife), and they must first pay out their Universal Life holders (in the form of stocks). Do some research about it, but you may want to consider getting insurance from a Mutual Life insurance company first of all. 

I found this link about a company that did demutualize:

http://lsminsurance.ca/life-insurance-canada/2008/03/demutualization

The size of the payout depends on how long you've had your Life insurance plan with them and probably the size of the policy. My policy is not with the above life insurance company, but it is a Mutual Company.


----------



## wheel

> Re-invoking this old thread again. i can clearly see that all the financial experts in the forum have concluded that universal life is not needed for anyone and not to trust insurance agents advocating it.


Then they're not really experts. Anyone who suggests Universal life insurance is *never* appropriate knows less than nothing about life insurance. In my experience, they're simply parroting back stuff they've read on the internet. They simply don't understand life insurance, and UL particularly. Universal life insurance is fraught with danger in the way it's marketed and is only occassionally appropriate, but when it's needed, there's simply not a better, cheaper way to get insurance.

Take one of these experts and ask them to explain the phrase 'walking the MTAR'. Ask them how premium tax is treated differently by the companies between term insurance and Universal life. Ask them what happens if you overfund a universal life policy. If they don't this stuff then they're not much of an expert on universal life insurance, are they. So why are you listening to them?

I'll boil it down for you. If you need life insurance forever, then minimum funded universal life insurance with guaranteed level insurance costs is a great way to go. And there's some people who say today 'I need life insurance forever'. if you're not saying that, then what you're saying is 'I don't need life insurance forever', and then term insurance is where you should be investigating.


----------



## wheel

pando said:


> My partner and I have a universal life policy before we turned 25. After age 25, I think they require a full medical assessment. That may be why your agent was pushing you to get it before you turn 25 (it'll just be cheaper in the long run). I guess it is insurance (provides peace of mind for the couple...we were also childless at the time)...but when you turn 65, you get a big chunk of money at the end...I believe much more than your monthly payments. I'd have to see the charts provided to me by my universal life agent, but at 65, I think I'll be getting at least 100,000$ when I would have only put in around 24000$ through the years. You might not need it, but if you are committed, frugal and can think very long term...it's probably a great idea to consider it before you turn 25.
> 
> I get annual statements on how much has accumulated. I can cash out the universal policy whenever I want, and by now - I can probably take back almost as much as I have put in (It's been 11 years). It grows at around 6% at least. I won't do that of course - personally I'd like to get that lump sum.


Wow. There's an example of why people get totally ripped over people promoting UL. Do you have any idea how much is very, very badly wrong with what you've posted?

Maybe you should check your recent statements and see if you're still on track for that $100,000 nonguaranteed payout. I do like your 6% idea though, though you could just as well have said 15% and been just as correct.

As for the cashing out whenever you want, try dumping in $10,000 into a brand new UL policy and then 'cashing it out' as you say, in year 3. How much are you going to get? $10,000 plus 'interest' less taxes? Or more likley $4000? Hmmmmmm...


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## MoneyGal

Two fantastic posts from Wheel. I went back and re-read this thread. I don't see anyone commenting that UL is "never" appropriate. I do see people (including me) saying that for the OP, UL is not a good choice. But that's a different conversation than, "is there ever a circumstance in which UL makes sense?"

On a related note, I don't see anyone in this thread holding themselves out as "an expert" on insurance. I think the phrase "all the financial experts in this forum" was intended as a slur.


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## kcowan

MoneyGal said:


> Two fantastic posts from Wheel. I went back and re-read this thread. I don't see anyone commenting that UL is "never" appropriate. I do see people (including me) saying that for the OP, UL is not a good choice. But that's a different conversation than, "is there ever a circumstance in which UL makes sense?"
> 
> On a related note, I don't see anyone in this thread holding themselves out as "an expert" on insurance. I think the phrase "all the financial experts in this forum" was intended as a slur.


Certainly that is my sense. If someone is doing the hard sell, then you know it is because of commission. But there are times when UL makes sense, but never forget that lower premiums are totally due to the mortality tables. If you pay in for 40 years, the annual premium will be significantly lower than if you pay in for 20 years. You have had the insurance for the extra 20 years but the higher fee is so you can pay in the face amount before you will statistically die. There is no way around that. 

So check for ROI on extra amounts that are paid in. They should be competitive with cost-effective returns like e-funds.


----------



## wheel

kcowan said:


> So check for ROI on extra amounts that are paid in. They should be competitive with cost-effective returns like e-funds.


Did you just compare efunds with death benefits? 

I think it's about time I did a guest blog post debunking buy term invest the difference .


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## kcowan

wheel said:


> Did you just compare efunds with death benefits?
> 
> I think it's about time I did a guest blog post debunking buy term invest the difference .


Usually there are two aspects to participating life policies. The straight insurance component and the investent return. The investment return portion will not be competitive with e-funds. So buying term and investing the difference is more profitable if you have the discipline to do it. Obviously this varies by insurance company.

My experince is with Industial Alliance. But it was purchased when it was Maritime Life (much better).


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## MoneyGal

In fact, I think this is why UL can be difficult to grasp - no other life insurance product is offered unbundled in quite the same way. 

With most other products, the actuary figures out the premium (and the benefit) and tells the customer what to pay. 

With UL, you essentially have renewable annual term insurance plus a side fund - and as long as the side fund balance is sufficient to pay the charges, the customer can pay any premium they want, including none at all.


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## wheel

kcowan said:


> Usually there are two aspects to participating life policies. The straight insurance component and the investent return. The investment return portion will not be competitive with e-funds. So buying term and investing the difference is more profitable if you have the discipline to do it. Obviously this varies by insurance company.
> 
> My experince is with Industial Alliance. But it was purchased when it was Maritime Life (much better).


Par policies pay a dividend. Calling it an investment return is incorrect. Dividends are not an investment. My bicycle has more in common with efunds than par policy dividends do.

But you're real problem is this:


> So buying term and investing the difference is more profitable if you have the discipline to do it.


That's very very bad risk management advice. Mixing insurance and investments is about the worst thing you can do. When agents do it, they're trying to sell you on how wonderful an 8% rate of return looks. When uninformed consumers do it (which is what's happening now) you're comparing nonguaranteed, high risk investments with potentially fully guaranteed death benefits. Because all your 'discipline' in the world doesn't fix a -40% rate of return. This is the type of advice that leaves people uninsurable and uninsured. Frankly IMO, there's little difference between agents and consumers when they do this. The ironic thing is that when consumers do it, they're normally the same folks horrified at the agents doing it. 


> With UL, you essentially have renewable annual term insurance plus a side fund -


You have two general choices. 1) Annual renewable term, and 2) guaranteed level for life. And the only choice you should ever make is guaranteed level for life.


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## MoneyGal

Yes, understood. 

My comment was from the POV of the insurance company (not the consumer), only in the sense that UL *as a product* combines straight life insurance (what's called "pure insurance" in the biz) and (what's called) a "side fund." 

There is no other life insurance policy that "unbundles" (NOT sells) these two components in this way. 

My comment was not intended to provide an opinion about what consumers should choose. There is obviously space for all of these products on the shelf, given that they exist and continue to exist (and there are needs they fulfill for a wide spectrum of consumers with varying levels of risk appetite and risk aversion; and varying needs for premature death insurance).


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## HaroldCrump

So can someone explain under what circumstances or for what type of person a UL plan makes sense rather than "buy term and invest the difference"?
I am among those that have been led to believe the latter.


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## wheel

HaroldCrump said:


> So can someone explain under what circumstances or for what type of person a UL plan makes sense rather than "buy term and invest the difference"?
> I am among those that have been led to believe the latter.


How long do you want the insurance for? 

20 years -> 20 year term
10 years -> 10 year term
forever - permanent insurance

It's not really any more complicated than that. If you arrive at permanent insurance, then you have three choices; 1) whole life, 2) term to 100 and 3) universal life. Universal life insurance has two basic insurance costs, increasing annually, or level for life. Only consider level for life insurance costs (noting again, insurance costs <> premiums). Of those three you should only look at products that have fully guaranteed level premiums for life. Then it's pretty much just a case of 'what's the cheapest?'. The answer to that today is pretty much a tie between term to 100 and universal life with level insurance costs (and assuming you put $0 into the investments).

So if you go need insurance forever--->permanent insurance---->term to 100 or Universal Life, then I'd say you may consider universal life for two reasons. 1) you can throw a couple months premiums into the guaranteed/low risk investments of the universal life policy so that if you ever screw up your banking info even 20 years from now, then the policy will have that money to draw from, giving you time to catch it, and 2) you have the possibility of the investments. yes, the investments are mostly NOT the right thing. But the *option* of having them available to you, at no additional cost above a term to 100 policy, well might as well have the sunroof even if you never intend to use it - you may some day.

While all of that sounds tasty, it's still important to remember not to apply the general case to your specifi situation. And a 'good idea' doesn't mean 'there are no better alternatives'.

e.g.
The investment part of universal life insurance features tax deferred growth. Just like an RRSP! So let's say your premiums are $1000 a year. If we assume for simplicity, you can get $10,000 inside the investments and it earns 10% - $1000 a year. The company will take that $1000 and pay the premiums - you don't have to pay the premiums out of your own pocket. This is freakin' awesome.

But wait! There's more!

That $1000? If you're in a 50% tax bracket, then you would have to earn $2000 of income to pay your premium right? It costs $2000 to pay your $1000 premium. But if you do this inside the universal life insurance policy, that $1000 is never taxed! You are paying your insurance premiums with pre tax dollars! I seriously want TWO of these bad boys.

Even you buy term invest the difference folks can't touch that - pretax investment returns you can use to pay your insurance premiums with! If I earn 5% inside my UL, you'd have to earn 10% outside it! 

I really don't understand why you *wouldn't* buy this stuff. You got a better way to do this? Not even close pal, not even close.

Oooh, just a few minor things we glossed over though while you've got the deer in the headlights look, like:
- you probably don't actually need permanent insurance, you probably need term insurance which is way cheaper. 
- there are ways to get tax deferred earnings. Like RRSP's and TFSA's. Both of which are as good as UL investments or better. 
- Are you actually prepared to put your money in high risk investments - which can *and do* crash - in order to maybe get this tax advantage? And if it does crash - and they do - that possibly jepordizes your entire insurance policy, and maybe you don't even know this for 20 years? Are you actually that risk tolerant? Do you have the money and ability to risk that money and the ability to risk you insurance coverage? 

Hardly anybody in Canada fits all that. Yet it sounds pretty darn good when I spout it out in the right order and keep focused on the positive. Which means that if you're looking at those 'advantages' to Universal Life insurance you may be risking more than you know. But it's doesn't mean Universal life insurance is bad or wrong for the right case. Treat it like insurance, get everything guaranteed, don't mix your investments in with your life insurance, and watch for risk and it's a fine product if you need permanent insurance.


----------



## kcowan

wheel said:


> ...
> e.g.
> The investment part of universal life insurance features tax deferred growth. Just like an RRSP! So let's say your premiums are $1000 a year. If we assume for simplicity, you can get $10,000 inside the investments and it earns 10% - $1000 a year. The company will take that $1000 and pay the premiums - you don't have to pay the premiums out of your own pocket. This is freakin' awesome.
> 
> But wait! There's more!
> 
> That $1000? If you're in a 50% tax bracket, then you would have to earn $2000 of income to pay your premium right? It costs $2000 to pay your $1000 premium. But if you do this inside the universal life insurance policy, that $1000 is never taxed! You are paying your insurance premiums with pre tax dollars! I seriously want TWO of these bad boys...


I have one of these Tax Deferred Savings Plans with Industrial Alliance. There is a Shuttle Fund and an Accumulation Fund. They have been invested 50% Bond Account and 50% Canadian Equity 50 Account. Returns since 12/2002 have been 3.11% for the Accumulation Account and -0.63% for the Shuttle Account. Sure its tax free. But I will never be rich with those kinds of returns.

No I don't want a second one of the bad boys.


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## wheel

I hope it was clear that I was being facetious when I said that .


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## jagman

*How ya look at it*

I am intrigued by this thread. I am looking at life insurance again after chaning jobs. I lose my employer paid life insurance soon. I see people looking at these plans as "investments" Myself, I can't make the math work but I am 45 so that might be why.

I look at insurance as "replacing an income stream" Thats where numbers like those that Mike59 is using confuse me. I figure if Mike is 30 now and retiring at 45, then his income is higher than mine. That being said, he is only insuring himself for $750K. I am 45, making less (i figure) and have insured myself for $900K and figure that even that number is a bit low for my wife to form an income stream from equivalent to what I make. However, between the savings we have so far..and the chance that, with each year I stick away more money, I think she should be able to live on the income stream produced fairly well. She works also, though working full time and raising two kids would be tough on her..etc etc... (Truth is, statistically speaking, the chances of me dying before 65 are pretty low...the insurance will most likely expire and all that money will have been for peace of mind) 

What I am saying is, I went term. I looked at the cost of UL with my age and the amount I would want to replace an income stream and the only way that made sense was TERM. My term insurance will expire at age 65 I figure (20 year) and, by that time, I will have enough money to live off of in my retirement. If I die two days after my life insurance expires, my wife will be fine , from a financial point of view. If I die two days before it expires, she will have tons of money....though she tells me she would prefer me over the money.... 

The monthly difference in fees for UL vs term are huge when you are 45....that money is better spent on investments today, trips to Costa Rica and other items called "life"

For the vast majority of people, I think term is the way to go. My neighbor used to sell insurance. He told me that, for most people, when you do the math, TERM is the way to go. he had a few clients for whom UL made sense, but the majority of UL plans he sold were purely to make higher fees and make his boss happy. 

Do your homework.....


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## bltman

My father only ever purchased term insurance and I vowed to do the same. Fast forward many years and now I own some Universal. Even then, I still detest the added expense, little benefit and the commission my insurance agent gets.

Choosing Universal insurance a few years ago was not an easy choice on my part. However, after crunching some numbers and weighing the risks I felt I had no choice. Being insured only to the age of 55 does not replace my missing salary in my household so I really technically needed 30 or so years of term insurance. However, I have a chronic health condition which made some of the hard to find 30 year terms off limits (i.e. I could not qualify for them at regular rates) and the renewal costs on 20 year terms very expensive. There was also a possibility that I would not be able to qualify for additional term insurance in the future if my health problems act up. I crunched the numbers and found that the costs of splitting my insurance between 20 year Term and Universal were tolerable and the Universal portion gave me that longer protection beyond the 20 year term.


----------



## wheel

> but the majority of UL plans he sold were purely to make higher fees and make his boss happy.


Then he's the problem. That doesn't mean there's anything wrong with the product. 



> Fast forward many years and now I own some Universal.


Young people mostly want term. Older people mostly want permanent (i.e.universal life). The happiest older people are those that bought their permanent when they were younger and locked in the rates. But you can't tell most folks that they're change their attitude when they're older, so there's little sense trying. Even if you could, as you noted, permanent is more expensive so most folks defer it until later even if they do want it now. 


> I still detest the added expense, little benefit and the commission my insurance agent gets.


Commissions on life insurance are one of the lowest markup products you buy. On a 20 year term policy, commissions might be 5% of your premium. You're complaining about 5% markup for commission? You pay more than that when you buy a sofa I bet. Nobody bitching about sofa commissions, and the sofa salesperson doesn't have you to look after for 20 years either.

You're paying a noticeably higher commission on your house insurance - probably 3X. Nobody seems to complain about that.


----------



## bltman

wheel said:


> Commissions on life insurance are one of the lowest markup products you buy. On a 20 year term policy, commissions might be 5% of your premium. You're complaining about 5% markup for commission? You pay more than that when you buy a sofa I bet. Nobody bitching about sofa commissions, and the sofa salesperson doesn't have you to look after for 20 years either.
> 
> You're paying a noticeably higher commission on your house insurance - probably 3X. Nobody seems to complain about that.


I was not complaining about my term rates or the commission for term. They are reasonable for the 20 year period and if there is a 5% commission built into my term insurance that is fine.

But, what is the commission on my permanent insurance portion? Permanent is an expensive product and its pushed on people that don't need it for a reason. I determined that I needed some. I presume my insurance salesman made some pretty good money on that one.


----------



## wheel

bltman said:


> I was not complaining about my term rates or the commission for term. They are reasonable for the 20 year period and if there is a 5% commission built into my term insurance that is fine.
> 
> But, what is the commission on my permanent insurance portion? Permanent is an expensive product and its pushed on people that don't need it for a reason. I determined that I needed some. I presume my insurance salesman made some pretty good money on that one.


Why do you care what he makes? I already noted that their percentage is far lower than just about any other product you buy - you should be crowing about how cheap the commissions are. I would actually expect that the percentage of your premium that goes to commission for a permanent product is lower than it is for term. I didn't run the numbers, but based on what I do know, that's what I would expect.

The guy made a good commission, and it doesn't affect you noticeably. Why begrudge someone that? In fact, you may consider that you're likely going to expect him to provide you service for how long? 30-50-70 years? off a couple of points in commission? Would you look after customers for the next 30 years for that? Particularly when they're complaining on the front end about how much money you're making ?

I understand that it's difficult to seperate some general distaste for the product and some sales tactics that are used in the industry, from commissions. That does not mean that the commissions are high, because as I've noted, the opposite is true.


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## patmanz

IMHO, insurance and investments should be separated !


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## father

I have been talking to a financial planner lately....Thanks for the response and advice...


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## father

I really technically needed 30 or so years of term insurance....


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## davext

I went with UL. I'm young, self-employed, and I have a good income. I chose the 10 year, equal monthly payment option with $250,000 coverage. I don't have a family yet, but when I do I'll add a term policy on top for about 20 years.

I'd like to think that I secured a low rate because of my age. I see it as part of my diversification along the lines of fixed income. Basically by paying about $24,000 in premiums in 10 years, I'm guaranteed $250,000 for life. That ain't a bad deal to me. Although I actively invest, I don't know how many years it would take me to get that return. I know that $250,000 is a lot of money if I die tomorrow, or if I die 20 years from now. 

If I was just graduating and saving for a house or paying of school debt, I would definitely have a hard time saving and paying these UL premiums but I have no problem paying for the premiums and saving for what I need in the future.


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## Carmen

*Really?*

I am not endorsing UL policies but I am endorsing responsibility. To say a young person doesn't need insurance is selfish. Everyone needs final expense after the age of 18. When do young people take responsibility? If something unfortunately happens to a young person (over the age of 18) should others pay? Really??? this is the plight of the younger generation....How about this...TAKE RESPONSIBILITY FOR YOURSELVES.....I commend the person asking the original question because deep down they know they should be responsible for themselves. As far as the UL goes...research and make a decision base on your situation. It works for some but not for all. 




MoneyGal said:


> Run away from your "financial planner" quickly, far, and fast.
> 
> I don't think you have a need for insurance at all -- in fact, that's what you yourself say -- let alone the most costly form. Yes, universal life insurance premiums would be lower now than they would be if you were trying to buy insurance at, say, age 65 -- but will you need insurance then, either? That's like saying you should lease an SUV now because you might need it later.
> 
> You don't even have your savings STARTED yet and you have identified savings needs that have nothing to do with replacing your unmonetized human capital in the even of your death (which is what life insurance does). And yet you should divert your financial goals to fulfilling a requirement that doesn't exist at the highest possible cost?
> 
> Nu-uh. No way, no how. Buying something that you don't need has huge opportunity costs (because the money isn't available for other things that you DO need and want, like a house), and your planner has NO WAY to quantify the size of whatever "foregone opportunity" she is suggesting you would be faced with if you don't buy a UL policy. That is: you are trading a known, present cost for an uncertain future benefit which is generally available at lower cost. It just doesn't make sense.
> 
> Of course, feel free to disregard. I'm just too hot in my house here and up in the middle of the night, and there's not much more that gets me going than life insurance salespeople.


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