Universal Life Insurance? What are the pros and cons?
Are there any websites that have informative facts about what direction we should take. My husband and I are in our twenty's and have a chunk of money that we can invest in, a financial advisor has advised us to claim married and 4 on our paychecks and invest $10,000 in a Universal Life Insurance policy. I'm skeptical and would like to further check out the details. Our CPA does not want us to change our exemptions to married and 4. Please give any insight and information. Thanks
Public Comments
- The word "financial advisor" is not regulated, so it is nearly meaningless since anyone could claim to be a "financial advisor." It sounds like you want to work with a "financial planner" which is a regulated term. For potentially more objectivity in the advice you receive, you may want to find a "financial planner" who does not collect commissions on the products they sell. Good luck. On that same note, it sounds like you are trying to find someone to actually help provide financial advice based on your situation. Sad Soul on the other hand offered financial advice without knowing very much about your situation - the opposite of a financial planner. Not to mention the many factual misstatements such as 'you will have to pay more or your policy will lapse' then only to say that 'your beneficiaries will receive a death benefit as long as you make the payments.' Yawn. The numerical statements are also incorrect because they do not use a modifiers such as "might" or "could". This makes those points wrong because they do not account for the products with higher interest rates or lower loans. I doubt a Universal Life policy is the best solution for you, but if you want newspaper caliber advice, go read a newspaper. It's cheap.
- Your financial advisor is nothing more than a salesman who wants to make lots of money. Universal life insurance is the worst type of life insurance out there. This is how a universal life insurance works: 1) You pay a level premium. 2) A portion of your premium goes toward cash value and the rest pays for the insurance. 3) As time goes on, the cost of your insurance increases internally, even though premiums remain the same. So less and less of your premiums goes into the cash value. At some point, the universal life insurance policy will lapse unless you pay higher premiums to keep it. 4) Your cash value gets a low rate of return of 0-4%. 5) If you ever wanted to take money out from the cash value, you have to borrow it and pay loan interest of 6-8%. 6) If you were to die someday while the life insurance policy is still enforced, all the cash value is kept by the insurance company. (Unless you choose to pay more premiums to include the cash value as part of the death benefit). The only benefit about getting a universal life insurance or any type of life insurance is that your beneficiary will get paid a death claim as long as you pay your premiums. My suggestion to you and your spouse is buy a 30 year level term insurance. Open an IRA account and invest into mutual funds. If both of you max out your IRA contributions, you should invest more into your employer's retirement plan (such as 401k) if you have one at work. In IRAs and 401k, your money grows tax-deferred. That means, you don't pay any taxes. If you still have lots of money left over, then invest in mutual funds that are not in any retirement accounts. Your investment will not grow tax-deferred since its not in any qualified retirement account, but at least its better than putting money into any life insurance policy.
