Posted on: 03-11-09 21:32:21
Hi
I am planning to buy a universal life policy. I find universal life insurance is one of the most beneficial policies that are available here in canada, provided one can afford to pay the premium for the period.
Can someone come with some negative argument for this.The only argument I have heard is instead of Universal life one should go to term and then invest the difference is no load mutual fund. I made an analysis of this too, I still feel universal policies are better as you would get the insured money one day, where as in term the policy expires.
Also what happens after taking a policy one relocates back to India or anywhere else.
The perception that you "get your money back" is a smoke screen.
If you cannot think of any other legal way to protect your money from taxes, then sure, go for it but other than that, it's not a good deal for the investor.
With the advent of the TFSA, investing in a UL policy is even less profitable.
-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Quote:
Originally posted by Val
Hi
I am planning to buy a universal life policy. I find universal life insurance is one of the most beneficial policies that are available here in canada, provided one can afford to pay the premium for the period.
Why do you think UL is good ? Can you explain it?
What kind of cost of insurance (COI) are you planning for? YRT 100, YRT 85 or Level. If you pay minimum premium for level COI, UL is useless and is as good as T100.
Quote:
Can someone come with some negative argument for this.The only argument I have heard is instead of Universal life one should go to term and then invest the difference is no load mutual fund. I made an analysis of this too, I still feel universal policies are better as you would get the insured money one day, where as in term the policy expires.
High MER's
Needs monitoring. If YRT and investment is not performing well, you have risk of policy lapse or pay very high premium.
If using this tax free growth than you should first use available room for RRSP and TFSA.
As mentioned above if you are paying minimum premium, UL is useless.
Quote:
Also what happens after taking a policy one relocates back to India or anywhere else.
Depends upon company policy.
I really would appreciate if you could explain me the reason as to why do you think UL is good for you.
In my view TERM Life Insurance policies are the the best , cheapest way to get Life Insurance. If you want to invest your $$ , there are better ways to invest it in Mutual funds than in a Universal, whole or a variable universal life insurance...
-----------------------------------------------------------------
We will find a way or we will make one
Here is my reason. Imagine you want to pass on cad 150000, if you put it in TFSA it will take 33 years @ the rate of 5% returns p.a, should something happens in between you won't reach the fig.
On the other hand If you take the term policy, you are covered only till that term should something happens after the term you don't get anything.
On the other hand in universal life you are sure to get the money.
In universal life though they say you are free only after 14 to 20 years of payment, I feel break even is at 33.
Your openion please
The following is a excel sheet which may not show properly here
40 year male
Insured Amount 150000
Premium to pay 1800
Estimated Rate of returns 5%
IF INVESTED IN TFSA
Year Yearly compounded
investmt Amt
1 1800 1,800.00 0.05 90.00 1,890.00
2 1800 3,690.00 0.05 184.50 3,874.50
3 1800 5,674.50 0.05 283.73 5,958.23
4 1800 7,758.23 0.05 387.91 8,146.14
5 1800 9,946.14 0.05 497.31 10,443.44
6 1800 12,243.44 0.05 612.17 12,855.62
7 1800 14,655.62 0.05 732.78 15,388.40
8 1800 17,188.40 0.05 859.42 18,047.82
9 1800 19,847.82 0.05 992.39 20,840.21
10 1800 22,640.21 0.05 1,132.01 23,772.22
11 1800 25,572.22 0.05 1,278.61 26,850.83
12 1800 28,650.83 0.05 1,432.54 30,083.37
13 1800 31,883.37 0.05 1,594.17 33,477.54
14 1800 35,277.54 0.05 1,763.88 37,041.41
15 1800 38,841.41 0.05 1,942.07 40,783.49
16 1800 42,583.49 0.05 2,129.17 44,712.66
17 1800 46,512.66 0.05 2,325.63 48,838.29
18 1800 50,638.29 0.05 2,531.91 53,170.21
19 1800 54,970.21 0.05 2,748.51 57,718.72
20 1800 59,518.72 0.05 2,975.94 62,494.65
21 1800 64,294.65 0.05 3,214.73 67,509.39
22 1800 69,309.39 0.05 3,465.47 72,774.86
23 1800 74,574.86 0.05 3,728.74 78,303.60
24 1800 80,103.60 0.05 4,005.18 84,108.78
25 1800 85,908.78 0.05 4,295.44 90,204.22
26 1800 92,004.22 0.05 4,600.21 96,604.43
27 1800 98,404.43 0.05 4,920.22 103,324.65
28 1800 105,124.65 0.05 5,256.23 110,380.88
29 1800 112,180.88 0.05 5,609.04 117,789.93
30 1800 119,589.93 0.05 5,979.50 125,569.42
31 1800 127,369.42 0.05 6,368.47 133,737.89
32 1800 135,537.89 0.05 6,776.89 142,314.79
33 1800 144,114.79 0.05 7,205.74 151,320.53
34 151320.53
If the motive is just to pass on 150K to the beneficiary, why not to go for T100. For 40 Year old male, non smoker and in good health premium is only 980/annum if you want to continue to pay for lifetime.
If you want to pay it off in 20 Years the premiums is only 1568/annum for 20 years.
However you want to go, beneficiary will get 150K as your insurance is for term 100 years.
Hope this helps.
Any other reason why you want to go for UL?
Feel free to ask
Quote:I think you are misunderstanding the purpose of insurance, like many other individuals.
Originally posted by Val
Here is my reason. Imagine you want to pass on cad 150000, if you put it in TFSA it will take 33 years @ the rate of 5% returns p.a, should something happens in between you won't reach the fig.
On the other hand If you take the term policy, you are covered only till that term should something happens after the term you don't get anything.
Life insurance is not to "get anything" - it is simply to protect and cover a person's family/survivors in the event of untimely death.
It is a miracle of modern financial companies and advisors that have taken that concept and combined it with investment to create products like UL.
Your term needs to be equal to the time your family will need protection - no more and no less.
If you expect that after 20 years your financial liabilities (mortgage, kids' education, retirement, loans, etc.) are taken care of, you don't need insurance or as much insurance.
Why are you expecting to "get" something after your term is over?
It's like car insurance - you only need it until the time you drive.
If you stop driving and don't have a car, you don't need car insurance.
Quote:It is your money that is being returned to you - at a cost to you.
On the other hand in universal life you are sure to get the money.
If you need a safe haven for your money, put it in a GIC.
Quote:I have no idea about your age, but I suspect after 33 years, your home will be paid off, your kids off to univ. and you'll have retirement savings in RRSP/TFSA.
In universal life though they say you are free only after 14 to 20 years of payment, I feel break even is at 33.
So with UL, you will basically be funding insurance premiums for insurance you don't really need.
Quote:On what basis?
40 year male
Insured Amount 150000
Premium to pay 1800
Estimated Rate of returns 5%
Is the insurance company telling you this? Or your broker?
How much control do you have over the investments?
What are the fees being charged?
I don't know your financial committments, but $150,000 sounds too low for life insurance - and $1,800 sounds too high for premium.
Again, I don't know your health, etc. but you can get twice the amount of coverage for less than half that amount with term insurance.
Take the difference and put towards your mortgage, RRSP, TFSA, etc.
If your home is already paid off, take out a HELOC, invest @ 5%, tax deduct the interest and move on.
-----------------------------------------------------------------
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
