What is a Universal Life Insurance Policy?
Just what is a universal life insurance policy? It is a class of permanent insurance that is based on a cash value. When you purchase a universal policy, it’s almost like making an investment. But is it right for you? Read and find out!
Investing 101
When you invest in anything, you pay into it, usually at a fixed percentage. Why fixed? Because it is the easiest way to establish your prospective out come over the course of your investment period. However, every so often you might change it up, and put a bit more, or a bit less. These additions and subtractions produce a different out come at the end of your investment period.
This above example is a lot like how universal life insurance operates; you pay a fixed amount with your premiums, like in any other policy. However, in a universal policy, if you decide to over pay, this will actually increase the cash value of your policy, which increases your benefit payout in the long run.
Now, on the flip side of things. If for some reason you miss out on a payment, or underpay, It’s automatically taken off any over payments that may have been made. It’s almost as if you created a buffer zone for your payments. Who knows, you might struggle one month, and it’s a good way to make ends meet, while still keeping your policy intact.
Sounds pretty good doesn’t it?
What a Universal Insurance Policy Is
Basically, it is just a different technique of investing, and creating a bigger portfolio of investments. It’s just that this one doesn’t pay until you’re dead.
It is definitely not your run-of-the-mill insurance policy, to be sure, but it does have its benefits, where you can augment your policy size, and give a better investment payout in the end.
That is the main benefit for having universal insurance, the fact that you can increase the eventual payout as much as you want. It’s an easy way of increasing your insurance without any fuss.
Don’t forget that the cash value additionally gets interest for the entire length of the policy. This gives you an even greater return on investment when it is finally cashed in.
Assess: Is a Universal Policy Right for You?
A universal life policy has a lot going for it, but is it the best for you? It just might be, if you thought you would take advantage of the over-payment clause.
If not, then perhaps you should stay with a standard term or whole life policy instead, as either one could be more of a benefit for you.
Why bother buying a policy with special options like that if you aren’t going to use them? Instead, use that investment to buy the life insurance that meets your needs.
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Read More...What Does It Mean To Buy Term, Invest The Difference
You have probably heard of the saying “Buy term, invest the difference” when getting insurance and putting your money in investments. But do we really comprehend what it actually means? What could be the reason why majority of financial planners strongly recommend that you should “buy term and invest the difference” ? On the other hand why is your insurance agent forcing you to buy his or her recommended product?
Most financial planners would tell us to stay away from whole life insurance products as they are considered rip offs. These kinds of products are not so popular anymore in the United States. In order to fully understand “whole life” versus “term” they are differentiated as follows: Term insurance refers to life coverage only while “whole life” refers to term policy with an investment scheme. Insurance agents usually present whole life insurance as something that will help you save for your retirement. Forcing you to save is probably something that is good for you, however the bad thing about this is that the returns for the investment in whole life insurance is very low. It is a pity that these type of products are still sold in the Philippines. Sadly, people still buy them because of inadequacy of financial knowledge.
In order to fully understand this, let me give you an illustration. My mother asked me if she should continue paying an insurance product that she bought for my sister. The insurance product was worth about P 400,000.00 (Philippine Peso) She already paid half of it so the balance left is P 200,000.00.
According to her, the benefits of the insurance product are as follows; After 20 years, my sister who is still 18 years old will receive P 40,000.00 per annum until she reaches 65 years of age; At the age of 65 she can either choose to receive P400,000.00 lump sum or continue receiving P 40,000.00 until she dies, plus she is also insured for two million pesos for as long as she lives.
To evaluate whether or not she should continue paying the P200,000.00 we will evaluate the benefits of the insurance product versus the “Buy term, invest the difference” option.
The total money that my sister will be receiving under the insurance scheme is around P3,520,000.00. This is derived from the P 40,000.00 she will receive per month until she reaches 65. Add to this the P 400,000.00 she will receive lump sum during that age. We should also take into consideration that she is insured for P2,000,000.00 hence giving us total benefits of around P 3,520,000.00
On the other hand, if we follow the buy term invest the difference scheme, if her insurance company will allow her, she will convert what she has already paid into “term insurance” which usually runs for only 20 years and then invest the P 200,000.00. If she will invest the P 200,000.00 at a vehicle of investment that gives about 10 % return per annum and also re-invest the returns of the investment taking full advantage of compounded interest at age 65 she will get a whooping P 17,639,497.05.
Now do you see the difference? What is P 1,500,000.00 vs. P 17,000,000.00+. Even if you add the insurance coverage that is only a mere P 3,500,000.00, it still cannot compare to the P 17,000,000.00.
But what if her investments will incur losses ? That is no problem at all. She can just buy term insurance and renew it every time it expires anyway, term insurance is very cheap and affordable.
The next thing you could probably ask, what investment vehicle would give me 10 % return per annum? Well there is and there are lots of them. You can put it in mutual funds. It does not guarantee a rate of return but historically most mutual fund companies give you more than 10 % return per annum especially if they are invested in equities. Now that the stock market is very bullish returns ranges from 40 % to more than 70 % per annum. You can even directly invest in the stock market. Even the most conservative investors in the stock market earn more than 10 % per annum.
Buy term invest the difference? It certainly does make sense!!!
Want to know more about investment strategies ? Visit the blog of Zigfred Diaz where he writes about several interesting topics such as investments, money management, business, making money online and Stock market investing
Read More...Top Secrets To Getting Cheap Term Life Insurance Quotes
Getting quotes for term life insurance coverage is easy and it is similar to being checked when taking out a loan at a bank or other financial institution, they want to see if you will be a financial risk to them when you are searching for a term life insurance quote on line. It’s in their interest because they can’t see what type of person you are because you are applying for a life insurance policy.
In general, when you are looking to take out some form of life insurance you will need to undergo a medical exam so that the company can be sure that you fit their policies and to ensure that your policy is suited to you. After this exam is complete the term life insurance company will be able to individualise your policy and supply you with a personalised quote that will reflect your situation and your health record – and some companies have been known to deny people cover because they are considered too ill. If you are worried about this and you want to make sure that your family are covered for when you pass away then you will want to choose a term life insurance policy with no medical exam.
Is not having an exam a good idea? All companies that operate in the life insurance market in business to make money and need to make profit to be viable and to stay in business. This means that they don’t pay up much and that they do make a lot of profit from the policies that they sell to individuals. If every life insurance company needed to pay out for each policy holder that they had, then they would be out of any money that they have taken; therefore, they lower the cost and cover for people who do not want a medical exam when taking out their term life insurance cover.
The small print matters When you are looking at the different life insurance policies the small print should matter to you. Many people will look at it not having a medical exam is the main element of the policy and go straight ahead and pay for the policy there and then, but the small print really does matter. If you compare two policies side by side – medical exam and no medical exam – then you will see that there are a few significant differences. There are many different things on the with exam than the life insurance policy without an exam. Therefore, you should view any policy without a medical exam as an extra policy to your pre-exisitng main term life insurance policy.
If you are considering taking out one of these life insurance policies without a medical examination then you should be aware that nearly all of them will pay out much less than their equivalents. The amount that you will be covered is far less and so your family will not receive as much as some others in the event of your death. You will also find that these types of policies are advertised in the newspapers and that many if not all will be offered by financial institutions that do not provide insurance services as their primary business.
Many insurance policies will not allow you to claim on the policy within the first two years, as this policy will not be an exception, and you may find that during this time the compnay could change the terms of the policy and adapt when and if they will poayout the policy amount. You will find that they don’t have to tell you about this either. Even if you do go down the route of no medical exam you may find that the company will not payout if you have not informed them of a medical condition that you have had in the past or been diagnosed whilst with them.
Do You Even Need It? You will need to be sure that a term life insurance policy is for you, as it won’t be for everyone. If you live in a house by yourself and do not have a family and dependents then you probably wont need to take out a term life insurance policy. If you run a business, however, then you should, and you should think about sufficient cover for you and your business needs, so that your family wont be left with debts that they may have to pay off.
Also, if you have a family who are dependent on your salary, then you will need to take out some sort of term life insurance – this will make sure that they will have some money in the future to pay the general day-to-day bills and keep afloat.
