This is a great question! I like it especially because it shows that you are carefully considering before buying. That is wisdom. This type of policy is often hyped with big numbers about what it will generate for you. The reality is far too often something different. I do not recommend these policies for my clients, and here's why. There is very little risk on the part of the insurance company. You will bear the majority of it. Are you a skilled investor? You are expected to be, by the insurer. Are you able to spend time watching the performance of your policy investments? Because if you are expecting a policy that you can buy and throw in a drawer and forget about, this isn't one of them. Your premium payments need to be enough to cover the cost of the insurance, which rises steadily as the policy ages. If your investments don't do well, you are expected to increase your payments to compensate for the losses your policy is taking. If you aren't doing that, your policy draws from the cash value it may or may not have generated. It cannibalizes itself until there is no money to cover costs, and it lapses. There are very few guarantees in this type of policy. Most will only guarantee you will have coverage for twenty years. This makes them little more than very expensive term policies. Can they generate large cash values? Yes. Can they lose money, and go belly up, costing you years of payments? Yes. Are you someone that is okay with trying to make this work? If so, then this may be a policy for you. In my opinion, they are a great way for agents and insurers to make a lot of money at your expense, and that is not my way of doing business. I do not sell them, nor do I recommend them, as I do not believe in their viability as a life insurance vehicle for most people. I hope that helps, and I'd be happy to discuss it further with you, if you'd like to contact me. Thanks for asking!
If you buy universal life insurance that offers a lifetime guaranteed level premium and level death benefit, there are few cons to universal life insurance. With those guarantees, it is a permanent policy, so it will usually have a higher premium than term. But it often has a lower premium than whole life. Also, guaranteed no lapse universal life policies do not usually have a lot of cash value, but for many people, that is a worthy trade off for the lower premium.
If you get a universal life policy without guarantees, you need to be careful that your policy does not lapse before you want it to. If you purchase indexed universal life or variable universal life, you also need to manage the investments made within your policy. The con would be that many people assume their agent is managing their policy for them, and are dismayed when coverage ends or they have very little cash value to show for their years of premiums. If you understand your policy well and know how to manage it, being able to manage your own policy can be a pro rather than a con.
Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
As Ms. Mace pointed out the problem with universal life is a lack of guarantees. If the universal life can guarantee a death benefit at a level premium the performance of the separate cash value (which isn’t guaranteed in a universal life policy) isn’t important. What is important is that your price will remain level while the death benefit will also remain level.
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If you get a universal life policy without guarantees, you need to be careful that your policy does not lapse before you want it to. If you purchase indexed universal life or variable universal life, you also need to manage the investments made within your policy. The con would be that many people assume their agent is managing their policy for them, and are dismayed when coverage ends or they have very little cash value to show for their years of premiums. If you understand your policy well and know how to manage it, being able to manage your own policy can be a pro rather than a con.