Personal Finance

Universal Life Insurance, $240 / month, worth it?

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  • Feb 12th, 2013 11:27 am
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Member
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Sep 4, 2006
216 posts
5 upvotes

Universal Life Insurance, $240 / month, worth it?

Is getting Universal Life Insurance good for my mom?
She got a quote from a WFG rep, the coverage is $500k,
and the monthly payments is $240 / month, for 10 years

The rep said it's good because we are investing at the same time
and we can withdraw the earnings after the 10 year finishes.

She said the earnings will be %6, and she said we would be able to withdraw
%60 of how much we spent, so %60 of ($240*12*10).

It seems like a good deal, but I'm quite weary as the rep makes a commision,
and may not tell us the whole story.

My mother is 40, and the rep said we should do this as soon as possible,
as the life insurance will keep getting priceir in the future.

Any advice is appreciated thanks :)
"The trouble is, if you don't risk anything, you risk even more."
Erica Jong
11 replies
Member
Nov 16, 2010
274 posts
35 upvotes
Scarborough
Isn't life insurance eligible for withdrawal after death?
Deal Addict
User avatar
Nov 26, 2003
1286 posts
355 upvotes
The only thing I know about insurance is whole life insurance is only appropriate for an extremely small portion of people, if any at all. So do your research into whole vs term and see what suits best
Jr. Member
Jul 8, 2008
167 posts
14 upvotes
I would agree with the rep that the cost of life insurance will be higher, particularly if you hit the 40 mark.

As for whether or not you want to go for it, why not get a few quotes from reps with different companies?

Here's a couple of options you may want to consider:
- I'm not sure whether the rep quoted you is a standard UL or limited pay UL. When I did my UL a few years back (at the time Lehman Brothers went belly up) my rep said a lot of people's UL though they didn't have to pay again because they had enough money within the UL to pay itself, suddenly were requested by their insurance companies to pay the monthly amount again because the funds held in the UL nosedived. Hence the one I signed up is limited pay UL, where I am only responsible for X years of payments.
- Another options you may like to consider is reducing the base insurance amount of the UL, and then add a term rider (eg. $250K UL + $150K term rider). It maybe more economical compared to a 100% UL, but you have to discuss with the reps to see whether such option is suitable for your family.
Deal Addict
Jul 27, 2006
1113 posts
824 upvotes
Moncton
Very bad idea. $240/month over 10 years will have cost her $28800. After 10 years she can get back 60% or $17280, or a net loss of $11520 over 10 years.

At her age she should be able to get a term policy for similar coverage for around $40-$50 month. The monthly premiums might increase slightly when she turns 45, but probably only to $70-$80. If you figure on an average of $60/month for 10 years, the policy would have cost a total of $7200 over 10 years.

Now, if she took the extra $180/month she saves over buying this policy and invests it in something that pays even 3% it would grow to over $25k after 10 years. Subtract the $7200 and she would have a net gain of $17800 compared to a net loss of $11520 - a difference of over $29k.

I really don't understand how people get sucked into these schemes.
Deal Addict
Oct 13, 2008
3481 posts
1772 upvotes
oIIIIIo wrote: Very bad idea. $240/month over 10 years will have cost her $28800. After 10 years she can get back 60% or $17280, or a net loss of $11520 over 10 years.

At her age she should be able to get a term policy for similar coverage for around $40-$50 month. The monthly premiums might increase slightly when she turns 45, but probably only to $70-$80. If you figure on an average of $60/month for 10 years, the policy would have cost a total of $7200 over 10 years.

Now, if she took the extra $180/month she saves over buying this policy and invests it in something that pays even 3% it would grow to over $25k after 10 years. Subtract the $7200 and she would have a net gain of $17800 compared to a net loss of $11520 - a difference of over $29k.

I really don't understand how people get sucked into these schemes.

Loss? Is the $500,000 coverage not for life? You are not factoring in the actual cost of the coverage. ($11520 for $500,000 coverage would be amazing)

The OP has not provided enough info, it does sound fishy. I agree with WESBOAG "That said a real limited 10 pay policy would literally be 3 times that price.""


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Deal Addict
Jul 27, 2006
1113 posts
824 upvotes
Moncton
Cech wrote: Loss? Is the $500,000 coverage not for life? You are not factoring in the actual cost of the coverage. ($11520 for $500,000 coverage would be amazing).
Not if it were cashed out in 10 years for the 60% refund.

Frankly I find these type of policies to be structured in such a complicated way that they are very hard to understand. Like Warren Buffet likes to say - if I don't invest in what I don't understand.
Deal Addict
Oct 13, 2008
3481 posts
1772 upvotes
oIIIIIo wrote: Not if it were cashed out in 10 years for the 60% refund.

Frankly I find these type of policies to be structured in such a complicated way that they are very hard to understand. Like Warren Buffet likes to say - if I don't invest in what I don't understand.

??, if you cash out, you are essentially cancelling the policy. It's not something you are supposed to do as an investment, the option is there if you "need" it.

Insurance is not refundable. If that was the case, the auto insurance companies would owe me big time!! ;)


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Member
User avatar
Sep 4, 2006
216 posts
5 upvotes
wesboag wrote: The way I interpret it is that the rep is suggesting the OP's mother can withdraw 60% of the cash value while still keeping the policy in force. While it may be doable in some cases, there is no way a limited pay policy for a 40 year old woman for $500k would only be $240/month in the first instance. A typical limited pay (10 years) would cost her about $800/month. A life time pay UL is closer to $300/month for that benefit amount.

WFG reps prey on the unsuspecting and manipulate the heck out of their illustrations to effectively BS about the outcomes and structure of the policies they sell. Most WFG reps have absolutely no business selling insurance. They don’t understand them themselves. If your mother “needs” life insurance, have a REAL advisor work through a needs analysis with her. Guaranteed a morally acceptable insurance rep will suggest as the others have mentioned, term insurance is the way to go.

Although I do believe in permanent coverage, in most cases (95%) it just isn’t cost effective given most people sucked into these policies haven’t the financial means to continue them. They are most appropriate for wealthy individuals who have exhausted their other resources (RRSP’s, TFSA, temporary coverage, etc), incorporated businesses and/or for estate planning purposes. Something tells me your mother simply needs the coverage in case she passes.

Am I correct?

What is her financial situation like?

At 40, she should concentrate on proper retirement planning, not purchasing permanent coverage, especially coverage sold by an unqualified WFG rep who can probably only give her 30 minutes of his time or else he’ll be late for the pizza he needs to deliver for Dominos.

I live away from my mother, so I did not know this.
I just found out that she has been with this universal life insurance for the past 2 years.
I also found out that it's from Transamerica,

I do agree it's a bad investment, and that she shouldn't have done it in the first place.
Now that I know this, where can I go from here?

She said that she has already paid $5760, will we lose all that money if we decided to go with term insurance?

Thanks
"The trouble is, if you don't risk anything, you risk even more."
Erica Jong

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