That is a great question! I will start off my answer with the full disclosure that I am not a fan of, nor do I recommend, UL policies. Here's why: While they do provide an opportunity to earn a substantial death benefit, and offer flexible premiums, those "advantages" are often not really advantages. These policies transfer much of the risk from the insurance company to you (unlike term or whole life policies that have solid guarantees), and require that you are aware, and managing the policies performance. These policies are a mix of whole life and term policies, and are typically only guaranteed for a certain number of years (20, usually) though they can end sooner, or later than that, depending upon the policies investment performance and what you've paid in premiums. When it comes to protecting my clients' money and future, I prefer to suggest policies that are guaranteed, and therefore safer. A UL policy may be right for you, or it may be a bit riskier than you would prefer. There are many policies out there, and some have started offering limited guarantees, so please talk with your agent about whatever concerns you may have. And a last bit of advice? Ask them to show you real numbers on the policies returns, and not the projected estimates in the illustration. I hope that helps, thanks for asking!
I also recommend guarantees in policies, and therefore, at times, recommend universal life with no lapse guarantees.
The advantages to guaranteed no lapse UL policies are:
1) There is little to no cash value, so the premium is often lower than policies that endow.
2) Universal Life is flexible, allowing you to increase or decrease the premium, dump in cash, or reduce the face amount, at will.
3) You can adjust the no lapse period on some universal life policies, making them almost like guaranteed term, but with more flexibility.
Disadvantages:
1) Customers can be misled about, or misunderstand, the type of universal life policy they are purchasing, and end up with shorter coverage and/or lower cash values than they expected.
2) For those who want a simple and straightforward policy, UL may be too complicated. Again, if you get the kind with built in guarantees, it greatly simplifies your experience because you simply pay the premium stated.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Life insurance is all about mathematics. There are differences between policies; however, the underlying numbers are the same. A given number of people at a given age will die in a given year. A whole life policy uses the general fund of the company to guarantee its benefits. If you want a more “flexible” approach you can buy universal life which develops its cash values in a separate fund. The company does not guarantee the results of that fund.
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The advantages to guaranteed no lapse UL policies are:
1) There is little to no cash value, so the premium is often lower than policies that endow.
2) Universal Life is flexible, allowing you to increase or decrease the premium, dump in cash, or reduce the face amount, at will.
3) You can adjust the no lapse period on some universal life policies, making them almost like guaranteed term, but with more flexibility.
Disadvantages:
1) Customers can be misled about, or misunderstand, the type of universal life policy they are purchasing, and end up with shorter coverage and/or lower cash values than they expected.
2) For those who want a simple and straightforward policy, UL may be too complicated. Again, if you get the kind with built in guarantees, it greatly simplifies your experience because you simply pay the premium stated.