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Interestingly, the cash value also poses a disadvantage to the poli- cies. But that is more due to the misuse of the policy than for any other reason. Whole life insurance policies shouldn’t be used in place of other investments, especially when the other investments can earn the investor a potentially larger return. As a general rule, the interest rate for the cash values of whole life policies is rather small and not com- petitive with other types of interest rates. Although it’s guaranteed, investing your money in the stock market may mean a great deal when it comes to overall return. Assuming no need for insurance, how would you feel if you made a 6 percent return on your money in a pol- icy’s cash value, instead of a 11-percent return in the stock market? Would you be happy? I certainly wouldn’t be. This isn’t to say that you should invest your money in the stock market instead of purchasing an insurance policy. What I am saying is that if you don’t need the insurance, don’t buy it. The accumulation of the cash value won’t be significant, and you’ll be paying for insurance you don’t need.


Universal life policies combine term insurance with a tax-sheltered investment account. The term insurance provides the death benefits, while the investment account pays interest, usually at competitive money market account rates. The difference between whole life and universal life is that the universal life premium is unbundled: The portion of the premium paid for death protection and the portion paid into the investment account are identified separately. This contrasts with whole life, where the premium paid goes toward a policy with a stated face value amount of coverage, as well as a cash value that accumulates according to a specified fixed schedule.

When a premium is paid for a universal life policy, it is split up. Part of the premium goes to pay administrative fees, while the remainder is put into the cash value, or investment account. There the money will grow at a certain rate. This rate is periodically revised due to fluctuations with market yields, but it will be guaranteed to be at least a certain amount (such as three percent). Then, each month, one month’s cost of insurance is withdrawn from the investment account, which is then used to purchase the required death protec-

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