Universal Life Insurance Scams and Complications

You don’t think about insurance until you need it. When you decide it’s time to protect loved ones you face another problem: what to choose from among the gluttony of options? So you get a call amidst your decision from someone hawking universal life insurance. Should you buy in? All prudent financial advisers unanimously say no. Here’s why.



Let’s begin by looking at why someone would need life insurance: it is income replacement for someone who has financial responsibilities. What are financial responsibilities? They are debts and dependents. Debts include mortgages, credit cards, car payments; dependents are anyone who would need your income to pay bills and maintain quality of life.

Life insurance is an altruistic move on the buyer’s part thinking of those who would be left behind.

Of course you only need to be old before getting life insurance right? Would a single 20 something person need life insurance?

The answer is ‘depends‘. If someone has no assets, no bills, and no family then maybe no. However, if you had assets or debts, a family medical history, future included plans for marriage, house and or family (or other dependents), then the answer is YES.

Would a 50, 60, or 70 year old need life insurance? Hopefully not because their period of financial responsibility would be gone, and if they had planned their finances prudently they would have built up their estate to the point of financial independence or self insurance.

Avoid Universal Life Insurance At All Costs

Universal life insurance (universal life) consists of life insurance and an investment account which can also be called the side or linked account.

(At this point it must be mentioned that many independent financial experts recommend that insurance and investments be kept separate.)

Universal life allows for flexible premium payments as long as the minimum premium is paid to keep the policy in force. Whereas premiums in a typical term policy are about a third of a percent (1/3 of 1% = .33%) of the death benefit, in universal life they are 1% or more. Over many decades that can be costly.

Universal Life Forces Higher Premiums

Why so high? The premium is used for the expenses incurred by the insurance company. These expenses are: premium tax, administration fees (including commissions), and the mortality expense (cost of insurance). There are also management expenses on the investment account. The policy owner has no control over these expenses. Some but never all of the cost of these expenses are guaranteed by the company. Some but usually not all are outlined in the policy where they can be easily identified by the potential buyer.

The universal life investment account could range from aggressive to conservative investments, such as segregated funds or index funds. Remember, unlike mutual funds you DO NOT own a segregated fund. The investment account is subject to market fluctuations. Policy owners have discovered in the past that a negative return means they have to increase their payments to keep the policy in force. How many universal life owners had to put out extra money in 2008’s bear market?

In Universal Life you DO NOT own the funds.

In Universal Life increase payments based on negative returns on the investment side.

The management expenses are always higher that a non-registered identical investment outside a universal life policy. This is odd because there are no extra management requirements, or active management in either index segregated funds. They are all clones of other investments. As one observer put it they charge custom prices for an off the shelf product. Would you pay prime rib prices for a single patty fast food hamburger?

In Universal Life management expenses are higher despite no management requirements.

Access to Universal Life Insurance Investment Account Extremely Limited

Policy owners will build up their investment accounts over a period of time. However, did you know that in the first 10-15 years of a universal life policy if they wish to access their own money in that account they must pay a fee called the surrender charge. These fees can be up to or exceed the value of the account. For example: After 5 years an investment account is $8409. The surrender charge is $9450. Another example: After one year the investment account is worth $5244. The surrender charge is $12, 500. We all know life has speed bumps and hurdles along the way. These could include relationship breakdown, layoff, or sickness. How many of you know anyone who over a period of a decade and a half has not had an adverse financial event? How would it feel lose your money and on top of that pay up to double?

Withdrawing money early means paying a surrender charge up to the value of the investment.

But don’t you get a great return in the end? Most universal life illustrations base their future projections over many years, perhaps decades. They try to reel in the potential buyer by showing how a fully funded policy would look in 20-40 years. But as mentioned already life does not unfold that neatly. Maximum monthly premiums are in the thousands of dollars. How many owners can maintain that payment over decades? The majority of universal life owners pay only the minimum premium. Even the insurance company will admit as much:

Interest rates are for illustration purposes only, they do nor represent a guarantee of future performance. Actual results will likely differ from those illustrated. Current practice assumes that premiums are paid in full on the due date, that the allocation of premium among the accounts remains the same, that interest rates remain the same, that term investments are reinvested for the same term, and that cost of insurance rates for any increase in sum insured are the same rates as those used at issue. However, in reality all of these elements may vary.

UL must maintain a certain insurance investment ratio to keep the side account tax exempt. According to the Income Tax Act the Maximum Tax Actuarial Reserve line states that above a certain rate of return those gains will become taxable. In reality most times that rate of return will not be achieved because of the high management fees, and the client is usually advised to pick a conservative investment. The companies have invented a way around that rule but in reality few owners could afford to fund that. But the crucial question is: why buy an inferior investment that is very costly and that you cannot control? Why pay ocean front prices for a one room shack on a busy highway?

UL policies combine high fees and conservative investments leaving investor with nothing.

The only way that no taxes will be paid on the policy gains is if the policy pays out at death. Anytime before there will be a policy gains tax. And remember the death benefit from term life insurance is tax free as well.

Another selling feature is the policy loan. Again there are many restrictions on that, the main one being that the bank only considers the investment account value. Thinking back to the bear market of 2008 one must wonder how many loans are being issued these days, It seems strange to pay fees and interest to borrow your own money and to be made to feel that is a privilege.

Policy loans are only based on investment side

Alternatives to Universal Life Insurance & Investments?

The high-school drop outs who sell universal life insurance will cry foul over RRSPs and the recent TFSA instruments. Fact is, educated financial advisers and market executives would never recommend UL for fear of being ridiculed by their peers.

To put into perspective, the advent of the Tax Free Savings Account (TFSA) should render universal life obsolete because its supposed tax benefits have been replaced by an investment vehicle with less restrictions and cost.

TFSAs Should Render UL Obsolete

Universal life may be good for someone that meets ALL off the following criteria:

  • The potential buyer, and spouse if applicable, have maximized their RRSPs.(even universal life marketing literature states that)
  • The potential buyer has cash that is not needed for any other purpose for the LONG term.
  • He or she understands the risks of leveraging.
  • He and or she will have a need for higher income in retirement that can be provided through regular means.
  • A genuine need for life insurance has been established.
  • At least one insurance council has noted that in reality universal life insurance is being sold to many
  • Canadians who meet NONE of those criteria and can only make the minimum premium payments.

Nevertheless if a person is insistent on buying universal life insurance despite the above caveats here are some questions you should ask first. Understand it is a game that the agent would rather you didn’t play and you might want to get the answers checked by a third party.

Another way life insurance sale people (they push hard because of high commission; products easily sold by high school dropouts) try to sell life insurance is to point out all the taxes upon death. Probate fees and taxes on the estate of a deceased person? Probate fees apply only to the part of the estate that has no named beneficiary. If the estate is being passed on to a surviving spouse there will be no tax owed. In any event, life insurance premiums on the type of products that claim to offset these costs cost many times more than either probate fees or taxes in most instances.

In part two we post some important questions to ask if you insist on choosing UL, and also some practical examples of UL vs. TFSA investments.

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29 Responses to “Universal Life Insurance Scams and Complications”

  1. Tanstaafl02 says:

    I was “persuaded” by my now ex to place $136,000 of our very disabled child’s funds into a Nationwide VUL. I later realized this was insurance and not mutual funds. The commissions were $126,000 that I could find out about. I also signed an SIA with Keystone Capital @ 2.65 percent daily. Keystone used market timing, forbidden in Prospectus. Ridiculous in every way for our child. Nationwide could not explain anything. Fees and more fees. This is one product that should be shot down. Period. My attorney transferred the funds after the “level”
    Premiums tripled in tenth year. Many have been hurt by these policies. But they go on.

  2. Rourke Waters says:

    I totally agree with this article because I have friends, family members, including myself who have purchased these policies and have dealt with the loss coverage. There is nothing good about Universal Life. I honestly believe that the government and the insurance companies came up with this so call product so that the vast majority of consumers would end up either replacing their policies after finding out about the poor performances, or loosing their coverage after many years of paying into this product finding out that the premium is not enough to cover the expense and the increasing costs of insurance. The government is the biggest crooks for allowing such product to exists because they are the ones who controls all life insurance companies. Agents, and especially newly licensed agents should learn more about the product before promoting the products to friends and families. These policies will eventually in the future come back to the agent selling the product and bite him/her in the ASS, especially his/her friendship. So to Alan Crawford, you probably don’t even own a UL policy yourself, but sell them for the high commissions. Although you swore that you sell only term life and disability insurance, I doubt you only focus on the two products. If a person doesn’t want life time protection they should just get term, if they want life time protection, skip Universal and take on the Whole Life policy. Pay a little extra for peace of mind.

  3. FICF says:

    Although I agree with all of these statements (high fees, cost of insurance, etc.) this article focuses poorly on the “cash value” aspect of insurance – which is an awful selling point of life insurance. Shame on the producers who focus solely on cash values, and do not sell life insurance on its pure merit – the death benefit.

    Every single UL policy I’ve ever reviewed (and quite frankly, picked apart and destroyed) never had guarantees in their NAIC illustration. What many fail to see, is that due to the rising cost of insurance, the premiums are “forced” to increase at around the time the “knee of insurability” becomes a reality (mid 50’s to late 60’s). At this time, the cost of insurance and other fees of this policy drive the premiums higher, or, are taken out of the cash values of the policy if the insured refuses to pay the higher premium.

    Therefore, a lapsed policy can result – which is why the NAIC compliant illustrations of UL’s generally show no guarantees.

    Commercial agents will try to refute me by saying that “…you can always add a lapse protection rider…” which is just another cost and premium. Why would anybody pay to insure and insurance policy?

    UL, by design, is a way to transfer risk back onto the insured, with no guarantees later in the policy. You are looking at families and spouses who are relying on that policy to be there when they need it, and for it to potentially fail them at the worst times.

    Another assumption that is false, is making the broad statement that people do not “need” life insurance later in life. This is erroneous on many levels, especially for the middle class who lives paycheck to paycheck throughout their 50’s, 60’s and even 70’s. Many do no plan correctly, simply because they may have never had the extra income to plan and save. I meet with many middle market clients (the bulk of my clientele) and when reviewing their savings and investments, they may have but $100,000 in total. Therefore, these middle aged people rely on a budget friendly, life insurance plan with guarantees to make up for what they don’t have in savings – to protect their family. Which should always be the primary reason to solicit life insurance – not as an investment. As a tax free DEATH BENEFIT.

    Selling life insurance for its cash values is like selling a car for its air conditioner.

    Again, shame on all those who sell life insurance based on cash value earnings alone. And shame on those who sell “flavor of the month” insurance policies with lack of guarantees. You are putting people in a potentially awful situation later on in life when they may need that insurance the most.

    I like what Alan said, that no client, nor their situation, fits in a “box”. But I cannot agree that UL is safe, in any manner. Even the Life Insurance Buyers Guide (written by the NAIC) warns consumers about the danger of these policies.

  4. Zanso48 says:

    Universal Life insurance is a scam. Anyone that says otherwise is benefiting from the scam in someway, a UL sale man for example. A while back one of those sale agent tried to sale me a UL plan. After a smoke and mirror power point presentation, they tried to get you to sign up right away (sale pressure tactic). When I asked for a Term of Agreement/Policies Info to read overnight, he refused (red flag anyone?). Basically they wanted you to sign up for what gonna be a 10+ yr commitment with min 300$/month, and all the information you’d had at that time was the presentation and a brochure, LOL. Hidden fee? On top of the 950$ preminum fee, did you know that there is a ~2% management fee yearly, which they didn’t mention at all during the presentation? So if you put in 300$ min = 3600/yr, and get 13% interest of ~500$ (best case scenario) for the year, then they charge you 2% of your total portfolio + 950$ premium fee. As you can see, you’ll be losing money from the start, might as well open and manage your own stock or saving account with the flexibility of withdrawing money anytime w/o surrender charge.

  5. Dubl13 says:

    I am a grand daughter trying to help my family out… My grandmother purchased Universal Life insurance around 1982 now she is 89 and her policy states that she must life past 2017 for her family to recieve the full payout….. it’s a scam…. if anyone care to give us advice on this subject … please contact me asap

    • Rourke Waters says:

      My recommendation is to call the company and request for an inforced illustration. The second is to adjust your monthly or whatever payments your sending in to the company. What I mean is to increase the payments so that the payment would cover the expense and the increasing costs of insurance. Just to let you know, the cost of insurance increase yearly, so pay close attention to your annual statement. Third, if it’s not worth it and she have save enough money, drop the coverage to save you time, money, and the headaches that’s about to come.

  6. advisor11235 says:

    UL is a great product for people who have good advisers. However, In order to benefit from this product the adviser must set up and explain the policy properly. Failure to do so could result in many of the issues mentioned above. This is a complicated product that is VERY flexible and, as a result, is easy to screw up.

    If planned properly, the policy is NOT minimally funded, and the investment not needed for at least about 10 years. You have to allow for the money to grow in this tax shelter in order for it to be of real advantage. Also. this is also a great product for those who wish to leave WEALTH to their loved ones, not merely leave them enough to scrape by.

    If you are concerned, have your dealer run multiple projections to see how your premiums will affect your investment.

  7. Psuworm says:

    smash your logic?
    Guaranteed premium rider to 115. though your cash value depreciates it is still permanent locked in insurance. and if over-funded from the get go, you can remove money, reinvest and save on insurance later. and i only sell 100% whole life with a locked in 4% C.V. appreciation

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  9. Wronalds says:

    I agree with the article above.
    I bought UL insurance thinking that I was planning for the future and would only have to pay the same premium every month for life.
    Boy – was I wrong!
    I trusted the guy I bought the ploicy from and wound up getting screwed years later.

  10. Alan Crawford says:

    Wow, this article is full of inaccuracies and grossly misleading. It fails miserably on fact checks and logical consistency, not to mention basics of economics, taxation, etc., etc. It is actually funny to read despite it being blatantly slanted, ill informed, and lacking any attempt of business ethics.
    Before you choke on your self righteous indignation or have a knee jerk reaction to a challenge of your sacred yet biased and inaccurate beliefs, take a moment to realize there are as many diverse financial situations and needs as there are people. To suggest that any one product or financial, economic, or philosophical approach is the “one”, or that another has no merit is naive and ignorant at best, and intellectually dishonest, self serving, and morally lacking at worst. Just where does this article of misrepresentation fall on that quite undesirable spectrum?
    Thankfully, there are a diverse range of products and creative approaches to meet a complicated and ever changing array of financial needs. I have been in insurance and financial services for 23 yrs, selling primarily Term Life and Disability, but there are lots of legitimate needs for UL, whole life, annuities, etc. When you’ve dealt with a lot of people and situations you quickly realize they don’t fit into neat boxes. A narrow view is just that, …narrow.

    • Cmgirl29 says:

      Really Allen??….I find it right on the money…Maybe it takes a true victim to this insurance policy, as well as hundreds of other misled people (that are now suing)…to be the real testimony here dear.

  11. Scottnkirby says:

    I am amazed at the ignorance on this page. Sounds like a whole bunch of coddled precious snowflakes so dependent on government welfare that anyone or anything which offers financial independence from Government will get sacrificed on the altar of political correctness. Lord.

  12. Jerrypatricia says:

    Hello and let me tell you, you make a lot of sense

    Perhaps only 10% of the universal life sold may be the right product for the consumer

    Universal life is simply a cash cow for the life company. Surrender fees are horrendous this is where life companies are making a lot of money by keeping innocent investors monies when they cancel their plan due to financial hardship and it happens to be in the first 5-10 years depending on the contract they lose it all.

    The fact that investment funds in these contracts are not guaranteed and therefore client can make or lose money.

    Most of the cases term insurance is the best but again consumer be aware, Life companies consider this type of plan a lapse subsidy policies which mean companies make a lot of money since majority of people never keep them to term and hence life company pocket the money and pays little death benefit and guess what upon renewal they make it so expensive that you will cancel since a similar new term insurance is less expensive! Does this make any sense to you?

    When shopping for insurance please look at the following before you gives you’re your money

    • Has this company ever cheated the consumer, i.e. overcharged them?
    • Never mind what they claim their reputation to be, investigate has this company charged any extra MER expenses than what they promised to the inventors, remember they will charge the Same MER in the policy investment ? If so, do not touch them, just Google and see which company has had law suites against them for charges, do not touch them they cannot be trusted

    • Does the broker have at least a university degree? You do not want to deal with hungry policy hunters, Life Company loves them, and they bring in policies by weight and have no mercy on any client. Once they sell you they disappear


    Never buy anything from those companies that have been found guilty of overcharging people. Once a thief always a thief. Google them and avoid them

    Good Shopping

  13. Pete says:

    This has been the funniest and sad discussion,
    First and foremost Barry I give you two thumbs up for writing the truth, Mike you should cut your fingers and go burn in hell and including anyone that supports you in this discussion, because you are nothing but a sleazy insurance agent trying to screw families out of their hard earned money, You should be Ashamed of yourself, Ho w do you F…sleep at night?. Shame on you. I know though and you know that as well, way in the back of your conscious that your time will come and you will have to be judged………..
    It makes me laugh when an insurance agent pretend they are so knowledgeable about insurance when they say any form of Cash Value Life Insurance is better than Buy term and Invest the difference. Because Cash Value Life Insurance is nothing But Term Insurance and invest the difference however it is inside the policy where the insurance companies control your MONEY. Watch this http://www.youtube.com/watch?v=sGDgYLCpnDo
    There are two kinds of universal life one that is Yearly Renewable Term insurance and Investments bundled together. This is usually a cheaper policy BUT the Insurance cost keeps on going up yearly, when the cost of insurance becomes higher than the premiums you are paying from your bank account, they start stealing the extra cost of that insurance from your Saving (Investments) to pay for the increase, when the Savings equal or less Than Zero the policy will terminate.
    The other kind of Universal Life Insurance is a Term 100 with Savings or Investments, now the premiums of these kind of policies are very high from the beginning because they have to guarantee the price till age 100. So when you do the PROPER calculations Buy a 30 year or a 35 yr Term insurance you would pay way less premiums, Then now take the difference and Invest it either in an RRSP or better yet a Tax Free Investment Account (TFSA) and in 35 years you would end-up with 3 times the Insurance coverage you bought where now you can cancel that policy why? Because you are self insured and you do not need to keep paying for it. As well in Universal Life policies you have a market risk how?
    Premiums are calculated on two assumptions, Mortality Rates (How many people will die in a given year out of 1000 people) and they assume a rate of return on the premium you are paying them (usually they assume 6% per year not average) SO when any of their assumptions are wrong they have to increase your Insurance Cost, where does this money come from? Ohha they steal it from your savings and deplete your investment till one day the Savings equal Zero and the policy will terminate cancel. What a Scam, Scam, Scam.
    Great books to read to educate yourselves against sleazy bustard like the ones that will reply to this posting and have nothing good to say, Personal Finance For Dummies, The Idiot’s Guide for life Insurance, Wealth Without Risk, The Wealthy barber, Smoke and Mirror, The Money Coach, and many, many more to list………….You see after reading approx. 83 different books about how money works I realized that whoever answers this e-mail in a negative way is just a Sleazy Insurance Agent that is just trying to defend themselves and trying to not convince you But trying to really convince their own selves that what they are doing is not that Bad (It pays so good they think) to be able to live their daily lives and look in the mirror without killing themselves. Shame on you Insurance Agent, Shame on you.

    I know someone will reply in a negative way and try to defend themselves,I just know and expect it, may you be forgiven for your doings, Just remember you are the only one that have to look in the mirror everyday and one day when you are old and lonley you will not maybe, you will remember this e-mail and say man what was wrong with me, all these people that I took advantage of……….. you see the pain of change is way easier than the pain of regrets.

    • Rrsort1 says:

      Now that is funny. Interesting when one with just a little information tries to come across as knowledgeable, especially when that information is misapplied . Better luck next time, but study the subject in depth first and create a compelling argument.

  14. Barry Econ, you talk about UL policies returning low rates at or near the GUARANTEED interest rates in this (or ANY) sluggish economy and that hurting the policies’ overall returns. That is very true, but the key word is GUARANTEE. At least the owners of UL policies – if it is a good one with a reputable, solid company – have a guarantee that they’re getting a return on their money AND won’t lose their principal (the portion of their premiums put into the cash account). What is everybody else getting in the same sluggish economy? For most people, nothing (no returns) at all, and if they’re not lucky, even NEGATIVE returns, meaning a loss of principal. Isn’t that what has happened to a lot of people with money in 401(k)s, IRAs, and other market-based investments, the SO-CALLED GOOD investments? Why isn’t anybody talking about those and pointing out the dangers? Why is everybody so interested in beating up on ULs and making it sound like it’s only “scamming, ne’er-do-wells” that sell them to clueless, unsuspecting folks? There are multitudes of very WEALTHY people who put their money in UL policies, and that is because they recognize and understand well-structured, well-placed UL policies for the POWERFUL cash accumulating, wealth-building and tax-saving strategies that they are – and the benefits these can bring down the line, not the least of which is the tax-free, hassle-free transfer of wealth to one’s heirs. Most of you ill-informed critics of UL policies make so much noise about folks not being able to sustain the premium payments that come with UL policies, but the truth is that the same problem exists with any other type of life insurance product – AND so-called “good” investments, for that matter. Most people go through financial challenges at one time or another in their life, and then they’re going to cut down on “expenses” and stop paying money into something that they consider – rightly or wrongly – to be expendable. It could be their life insurance policy (and it doesn’t matter whether that policy is term, traditional whole life or universal) or their mutual fund account (IRA, ROTH, 401(k) – it makes no difference). The bottom-line is that when they “cut-off” that plan or policy like that, they’re not going to get out of it what it was designed for. It is not only UL policy-holders (or owners of life insurance policies in general) who get very little – or occasionally nothing – back when they terminate (or surrender) a plan too early. Our world today is full of unfortunate folks who rushed into buying “hot” stocks, mutual funds, etc., at the very peaks of their values (and for the most part, upon the recommendations of you guys, the SO-CALLED EXPERTS who are here bashing UL policies) only to turn right around and lose almost all of their investments, getting nothing – or next to nothing, compared to what they put in – back when they sold out too early at the bottom of the market crash. Go and ask that lady I met only recently who put $23,000.00 in a “good” investment with a big-name company on Wall Street and ended up with only $800 after just a few years. I GUARANTEE you, that would NEVER have happened with a UL policy that I designed for them with ANY of the insurance companies I work with. And let’s not forget that all these years while the policy was in force and before the policy-owner cancelled, if the insured had died the insurance company would have paid the death benefit – which IS ALWAYS going to be far more than any amount of money put in the policy by the owner regardless of however many premium payments were made. (I’m not even going to talk about the LIVING BENEFITS that come with UL policies, at least the ones that I set up for my clients.) That is a guarantee NO “good” investment can boast of, and the value? PRICELESS!!!

  15. susan says:

    don’t really understand a lot of what you folks are saying. I am the owner, along with my sister, of a Universal life policy on our 89-year-old mother. The premiums are 27,000 a year and the whole policy is only worth 400,000. We do not have the money to pay for the policy any longer. The amount we would realize if we surrender is 18,000. Who can we sell this policy to? We are feuding with our mother and she probably will not sign for a physical. Do we need to have her signature in order to sell the policy? Perhaps either one of you could help. Thank you.

  16. barry econ says:

    Ryan J Charles:

    This isn’t the playground where a) you need to be tested by the academy, b) you can hurl insults.

    Universal life insurance policies are certainly a form of insurance, but one that has a storied history of being sold by college drop outs looking for a quick and high commission.

    Fact is this type of policy works for those who can afford to properly fund the policy. Joe Average won’t benefit because he’s going to be sold a policy he can’t afford since he makes minimum payments. In our current economic climate UL monthly expense fees and charges dip into the account values because most people don’t tend to deposit enough into their policy.

    It’s those people being duped and left with nothing for retirement.

    But we’ll find out after 30 years–no wait, we don’t have to because we have data right in front of us.

    How have YOUR UL policies done in the past two years?

    Purchased plans through poorly managed life insurance companies and their interest rates (and thus, their returns) have spiraled down. Ex. UL from an off-the-wall life company that you’ve been paying premiums on since 1980 and left a whole $4,000 of value.

    In our downward economy a UL policy has a guaranteed interest rate of say, 4%. If the economy is doing well (and thus the insurance companies returns are doing well) the fluctuating UL interest rates can be as high at 9.5%. When the economy becomes sluggish for an extended period of time, the interest rate can lower to the guaranteed rate and if it stays there for any length of time and only the minimum payments are made, one will see the shortfalls.

    Universal life is not an investment and NEVER replaces RRSP or TFSA (canada). The mortality costs are set in stone when you buy the policy. The cost of the insurance goes up every year as you get older, just like an annual term life policy does.

    for UL the money your paying goes into a deposit account, just like a savings account. Out of that account the insurance company takes out the cost of the insurance every month. So you never know what the cost of the insurance really is because all you know is that you are making deposits into that account.

    The interest you earn is suppose to grow or offset the increasing cost of the insurance in later years. If the interest drops that never happens. Feel ripped off yet? You should. Even some life insurance agents do not understand how UL works.

    Call your agent and ask them what your mortality costs is today. If they have no clue what a mortality costs is then you know they don’t know anything about life insurance.

    Fact is UL has been abused and generally speaking average and under households shouldn’t use the product if they want to gain on retirement savings.

  17. Ryan J Canales says:

    Wow!
    I guess anyone can come here and spew what ever misinformation that crawls across their mind. Either that or someone taught a monkey how to type.
    First and foremost, you are using the term “Universal Life” as a catch all. In most of your so called “examples” you mention investments. Well if you are talking about Life Insurance with an investment exposure, then you are talking about “Variable Universal Life” Insurance.
    The fact that you cannot distinguish between the two and have sucah a poor grasp of the proper vocabulary terms, further proves that you have no idea what you are talking about and should just remove this article.
    You should be ashamed of yourself. The mere possibility that someone can come across this article and be totally misinformed by you and your crackpot theories should be a crime.
    If someone took your advice they might not find out how wrong you are until 30 years has passed. All the while you are sitting there smugly thinking about how you can dupe someone into working with you to make you more money. You sir, are scum!

    “Avoid Universal Life”

    That is your advice?

    One cannot make a statement like that without some bias. A true answer is dictated by the situation and the facts, not idicts that do not take into account the facts.

    You said it yourself in one of your rebuttals, that you have little experience in the subject matter.

    All I can say is, if that is the case, then why write this article?

    You should b ashamed!

  18. Mike R says:

    In theory, you should be the least biased, if you truly don’t market financial products. And yet, I’m skeptical, because you’re so damn vocal against a product you know so little about. This would lead anyone who does know the product well to wonder why you’re so vehement against it. Further, despite the corrections provided to your misconceptions and uninformed opinions, you hold to them like they’re gospel.

    You now know that the fees for the investment component are no more than seg funds held outside a UL shell; that the quality of funds inside the UL shell can perform equally to funds outside; that there is no cap on the return an investor can reap; that the product can be tailored with both a portion of perm and term insurance; and most importantly, that the funds are available in a far more tax-efficient manner than RRSP’s.

    Despite that, you continue to throw out lines such as: “The money would be better off spent in long term investment vehicles in the form of RRSPs and TFSAs.” We continue to demonstrate that UL should be included in any discussion of long term investment vehicles. There exists no known plausible argument to exclude UL from this group. They are a far better vehicle than RRSP’s, equal to TFSA’s, PLUS the added benefit of an insurance component. For this reason, they also are available to serve as an estate planning tool.

    As such a vehicle, you’re again correct… start early, pick aggressive funds, and via UL (and/or TFSA’s), get to enjoy a tax-free retirement. Or, do all the above with RRSP’s, and be prepared to get taxed to death in retirement.

    I will again comment on your last question… I guess I wasn’t clear enough last time. You asked, “how have the average or struggling investor coped with rising UL premiums post-Oct 2008?” You need to be clear… UL premiums DID NOT increase because of market conditions in 2008. The cost of insurance, as you no doubt know, is based on mortality tables, not market conditions. So, not one of my clients who I had placed in UL (regardless of the company I used… even if my favourite is Transamerica) had an increase in their UL premiums.

    Having said that, I called my contact at Transamerica for their input, and was given this explanation… IF someone had opted for a 20-pay plan, and had completed their 20 years of payments, and the COI was now being covered completely by their investment component within the policy, then they would have received such a letter. It would let them know that because of market conditions, their investment component would not be able to sustain the COI for as long as anticipated, and they have 2 choices… cover the COI by making premium payments until the market recovers, or expect the investment component to diminish quicker than expected, reducing the amount available to them in retirement. Obviously not ideal, but no one would call anything associated with the financial crisis of 2008 “ideal”.

    I guess having 6 years in finances means I don’t have to deal with this yet, though conversations like this may happen down the road. Nonetheless, I endorse never paying just the minimum premium, and I expect my clients to retire with hundreds of thousands to millions in their investment component. When market corrections happen, those clients will be well prepared.

    One final comment… you mention “average or struggling investors”. Average investors would benefit from the protection and investment benefits of a UL policy, providing they’re comfortable exceeding the minimum monthly premium. Struggling investors? Yes, struggling investors would be far better served with another option, and buying cheap term and a TFSA is an awesome solution for them for the time being. If someone without principles puts a struggling investor into a UL policy… well, shame on them. But again, that’s an advisor issue, not a product issue.

  19. barry econ says:

    As noted in the other related article: http://www.discusseconomics.com/insurance/the-truth-about-universal-life-insurance-comparing-investments/ You are not neutral because you’re a broker b/c you have a divested interest in selling UL. And noted, I am not the author of the article so I dont know what you mean by PFS.

    I am perhaps the LEAST bias because I’m not selling anything, I’m sitting on the outside looking in while you’re inside figuring out how to pull commission.

    The point of all of this is to suggest that retirement savings should be kept in investment vehicles like TFSAs and RRSPs and should be started early in aggressive funds. then you can sit back and collect your millions when your retire.

    Lastly, apart from the millionaires, how have the average or struggling investor coped with the rising UL premiums post-Oct 2008?

  20. Who's to be trusted? says:

    An excellent question, and I’ll reply with a question: does it seem prudent to trust an agent who is captive to one company, a company that has but one product (an overpriced one at that), to provide honest and prudent advice? or might it seem wiser to find a broker… someone who has the resources of several providers, who can market all forms of insurance and investments currently available, and who can then do an honest and transparent job of running the numbers to come up with the best solution for a client?

    Truth of the matter is, buy term and invest the difference is an excellent strategy. I use it more often than I market UL (I should… I spent 5 years with PFS, and whole-heartedly endorse the philosophy). However, for anyone who can afford more than the cited ‘minimum’ premium for the appropriate UL policy for their needs, and who would like to drastically reduce their tax liablility in retirement, I find that Transamerica’s Prosperity UL policy is the single best product available. Note Barry, I’m a broker, and I still find this to be the best product around. It is my unbiased opinion. Fortunately, as demonstrated, it is a most excellent solution.

    Unfortunately Barry, you have no choice but to be biased. You’re forced to be biased. I used to be as well. Only when you have multiple companies and their products can you be unbiased.

    You have the decency to admit you’re not an expert. I wish you had done so in the intro of your piece, as anyone who read your blog would have assumed from the beaucoup “matter-of-fact” statements that you were. Please continue to do some research… learn the ways of UL, my young apprentice.

    Oh, and I noticed that you had no rebuttal to the example I used… where in my client, for the same monthly expense, came out $7,000+ ahead of your strategy. Nothing on that?

  21. barry econ says:

    Mike, thanks for your contributions, although your comments are fraught with the same inconsistencies and conjectures that you’re complaining about (and you’re promoting). Do you really think that because you’ve posted something that you’ve becoming a neutral voice in the issue? No way, you’re an insurance advocate!

    I will do my best to offer some thoughts on your comments (as I’m not an expert on this topic).

    higher premiums, you say? Well no kidding. What do you sell… 20 year term? 30 year, maybe? The fact is that less than 2% of term policies ever pay out. Less than 2%! No wonder the premium for UL is more… IT’S GUARANTEED TO PAY. Unlike term, where in, if you live beyond the term, IT’S GUARANTEED TO END! or, become too expensive to carry. What a dumb comparison this one is. It’s not even remotely an apples to apples comparison. Oh, and the expenses you mentioned that cover the costs of the insurance company… are you serious? Your explanation suggests that a “term only” company doesn’t have overhead, expenses, admin fees and commissions. Of course they do. And those costs are built into EVERY term policy ever sold. Come on now… be fair!

    The main point, as I see, against UL, is that it gives a false investment security blanket to the investor. Life insurance shouldn’t be tied to investments, why? Because you’re investment nets nothing! (Ok, maybe a measly 40K). (I will comment on the equity part you mentioned after doing some research.)

    Insurance protects against loss, it’s not meant to make you money. But if it does, fine.

    Here’s the point, does UL alone permit you to retire comfortable? There are too many unknowns and consequences that can leave investors with nothing. The money would be better off spent in long term investment vehicles in the form of RRSPs and TFSAs. Let’s keep retirement portfolios and insurance separate.

    And by the way, the evidence and comments are not assumptions, they have all occurred in the past to clients. You’ll note that no products or services were sold in the original article thereby removing any form of bias or ulterior motive.

    You on the other hand promoted books and insurance products.

    Now who’s to be trusted here?

    More thoughts to come.

  22. Mike thinks you're a Primerican... says:

    … cause only someone who has no other choice but term would make so many blanket and often wrong comparisons. For example:

    – many independent experts DO in fact recommend keeping insurance and investments separate… but they do this when discussing term versus “whole life” (WL) insurance. Primarily because WL isn’t an investment in any way, but rather a savings account that typically pays a percent or two on any premium paid over the cost of insurance. I have never seen an expert explicitly say anything of the sort about UL.

    – higher premiums, you say? Well no kidding. What do you sell… 20 year term? 30 year, maybe? The fact is that less than 2% of term policies ever pay out. Less than 2%! No wonder the premium for UL is more… IT’S GUARANTEED TO PAY. Unlike term, where in, if you live beyond the term, IT’S GUARANTEED TO END! or, become too expensive to carry. What a dumb comparison this one is. It’s not even remotely an apples to apples comparison. Oh, and the expenses you mentioned that cover the costs of the insurance company… are you serious? Your explanation suggests that a “term only” company doesn’t have overhead, expenses, admin fees and commissions. Of course they do. And those costs are built into EVERY term policy ever sold. Come on now… be fair!

    – While it is true that you do not own a segregated fund, and that when you buy a seg fund you are allocated “nominal” shares, the laws are clear that they are yours to do with as you please. Yes, the insurance company owns the shares, but your name is on them, and you may buy and sell as if you had a certificate in your hand. This is a feature of seg funds, whether in a UL policy or not. Are there pros to counteract this apparent con of a seg fund? Absolutely. How about a deposit guarantee (in the case of IA Clarinton’s seg funds, a 100% guarantee)? How about creditor protection (in the case of bankruptcy/foreclosure)? How about bypassing probate and the possibility of a contested will? How about a death guarantee? Is there a mutual fund in creation that has any of those features???

    – I market UL policies every day, and not one of my clients had to suffer an increase in their premiums at any point during or after 2008. I think you just pulled this little gem out of your butt.

    – higher management fees? Perhaps… back in the 80’s. However, I’m partial to Transamerica’s Prosperity UL product, which boasts no added management fees on top of what the fund company charges. Look it up. You may find that you don’t know as much as you think you know. The MER inside the UL policy is identical to the MER if purchased separately.

    – ah, the inevitable surrender charge. Yes, to be fair, it exists. In the Transamerica product I mentioned, when a client pays only the required “minimum” premium, the declining surrender charge disappears in the 15th year. However, it only applies to the minimum premium… anything over and above the minimum is not subject to it. Here’s how I explain it: “Folks, just like your pension at work, or your RRSP’s, these funds are for retirement. I’d prefer that you did not consider this a short term savings account, as there will be an expense to get access to your money in the first 15 years. If you need access to funds in this time period, you would do well to consider a TFSA or emergency fund in a money market account. In return, I can show you how to get access to your funds in the most tax efficient manner possible… let me show you.” Again, this only applies to the minium premium expense. Therefore, if the COI is $100/month, but the minimum payment is $150, the surrender charge applies to the extra $50. However, if the client is comfortable with $250/mo into the UL policy, the $100 over and over the minimum is theirs, if the need arises.

    – and your assumptions never cease: “most times that rate of return will not be achieved because of the high management fees, and the client is usually advised to pick a conservative investment.” As discussed, you don’t know what you’re talking about when it comes to management fees. Also, just as when you market your mutual funds, we look at the time horizon until a client is likely to need the funds (typically retirement). IF the horizon is long, we can feel more comfortable recommending somewhat more aggressive investments. Nothing changes in a UL policy. And yet, you suggest that clients are “usually advised…” Bull. However, that would be an advisor issue, not a UL product issue. Let’s keep the main thing the main thing here.

    – the benefit from a term policy is tax free as well? Of course it is. However, as less than 2% of term policies every pay, more than 98% of term holders will never get to experience an of this tax-freeness! However, since you put your clients into mutual funds, what they can expect is 100% of their retirement income to be taxable. That’s right… CPP is taxable, OAS is taxable, their pension (if they have one) is taxable, AND any withdrawals from their RRSP’s are taxable. And yet, there’s a way to provide at least one of those in a tax-efficient manner, and you don’t even understand it… though you feel free to slam it. Nice.

    – the policy loan. You slam it like it’s a bad thing, when in truth, it may be the single biggest plus to UL policies. Look at it this way: you have half a mill in RRSP’s, or you can have half a mill inside the UL policy (and you would, cause you can have the exact same fund with the exact same fees, both in- or out-side of the policy). Let’s say your client wants to have 4K per month of usable income. From the RRSP’s, you’d need to take out $90,000, pay 46% in taxes, and get roughly 48K to play with. How many years will the RRSP’s last in this scenario? Let me give you a clue… NOT NEARLY LONG ENOUGH!
    Now the same scenario with a UL policy. Your client needs 48K per year. So, they take 48K. How many more years will they get before they run out of money? Now factor in growth on the 42K that they don’t have to pay in taxes annually… can you say OH MY GOD?!?!?! That’s substantial.
    Yes, they pay interest on the loan, but even that’s an awesome feature. Let me explain it to you: In this case, we’ll consider Transamerica and their Prosperity UL product. The funds in the investment portion that are needed are “collateralized”, and moved into a side account at the insurance company. You are then “lent” 48K, and charged an absolutely atrocious 10% interest on the loan. But hold the phone, Trans then turns around and gives you an 8% credit on the 48K that they collateralized from your account. The result? A net 2% cost to get access to your 48K… 2%, versus 46% in income tax. You do the math, cause math doesn’t lie, exaggerate, or belittle it’s competition by calling them “highschool dropouts”. I know you didn’t mean me, cause I have a degree… but nonetheless, that was beneath you. Regardless, the math on getting to leave the 42K behind to grow is an insurmountable obstacle for you to overcome. And no, borrowing your money is not a privilege, though after running the numbers, it definitely could be considered one.

    – “Fact is, educated financial advisers and market executives would never recommend UL for fear of being ridiculed by their peers.” That’s so funny, cause “educated” financial advisors from every company (World Financial Group, SunLife, Equitable Life, Transamerica, Manulife, etc, etc, etc) love and market this product… companies like yours that do not have the option of UL are the only ones who ridicule it. And since you don’t have it to offer, you’re not fooling anyone. “Fact is”, an honest and careful comparison of Transamerica’s Prosperity product and your “buy term and invest the difference” philosophy, especially when discussing access to the funds in retirement, will yield a winner in the UL category, every time. I’ve done the comparison many times, and continue to do it frequently as a training exercise for our people, and we don’t bother with insults about someone’s education or threats of being ridiculed.

    – another comment you make, no doubt trying to be pro-active, but in the end, just creating more questions, is the taxable due at death. I noticed that you mentioned a situation where assets are moved to a surviving spouse, and you’re correct, no taxes are due. Interesting that you didn’t go one step further and consider the implications when the second spouse dies. How convenient, because it is at this point that the entire nest egg in an RRSP becomes taxable income in the last living year. At this point, the entire RSP gets taxed, and at the highest tax bracket, PLUS another couple points for probate. All that hard-earned money, cut in half for taxes, before the will ever kicks it and disperses what’s left to the heirs. I’m stunned that you knock UL, when the exact opposite happens… any life insurance AND the entire investment account is passed tax-free to the beneficiary(ies). Just that fact alone should make every financial advisor a fan of UL. Course, with a ‘term-only’ company, you don’t have the conversation about estate planning and preservation… you just plain can’t. And so your clients have to contend with more taxes during retirement, and knowing that about half of their savings will ever make it to their heirs when they pass away.

    – lastly, TFSA’s. You are correct, they are a great vehicle, and in many ways mimic the benefits of a UL policy. Cry foul? Not sure what you mean, but anyway. Here’s my thoughts… the TFSA should be fully taken advantage of. However, TFSA’s have one limitation that UL covers… the need for immediate insurance protection. So again, you’ll recommend a “buy term and invest in TFSA’s” approach. As noted, a quality UL product (like the Transamerica Prosperity product) combines these two into one vehicle… a powerful combination of permanent AND term insurance, plus the benefits of the TFSA investment program, in a one-stop-shopping product. As mentioned, if the funds may be needed prior to retirement, then yep, we suggest the TFSA as an emergency fund too.

    I strongly recommend that you get a book by Patrick Kelly called “Tax-Free Retirement”… or visit his page at http://www.tax-freeretirement.com/ You’ll learn a lot about UL, how it really works (as compared to a lot of assumptions and conjecture like this blog), and how it will benefit you and your clients, especially during retirement.

    Hope that cleared up some of the misconceptions about what the unnamed author had the audacity to call a scam. The internet’s amazing… assumptions and opinions, in the absence of facts, are all-too common.

    Regards,
    Mike Roberts

    • Cowboysup says:

      YOU know its funny reading these articles….Ever hear the term..”spoken like a true life insurance agent!” I guess people like David Bach, Sussy Orman, Dave Ramsey and the thousand books on life insurance are all wrong eh! Let me quote “Buy Term And Invest The Difference” it is the only way to buy insurance. Oh and should I mention that the life insurance industry (whole life, Universal Life Company’s) were investigated several years ago and have lobbied the government to never investigate the Insurance industry ever again…mmmm…wow! I wonder why…should I also mention all the lawsuits the insurance company’s ( again whole life and UL providers) are under for misrepresenting the clients and because of how the products work. How about the fact of the lovely product Transamerica as you so confidently promote was found guilty in a lawsuit in 2010 and had to pay out millions to consumers due to their “UL” policy’s. Oh and should we also tell the consumer about the 8-10 times the commisions you make selling a WL or UL policy. You see you don’t have to do a lot of research to see all the bullshit you are filling people with how good UL is…what about the people with the $27,000 a year UL policy they have on the 87 yr old and “can’t afford it” now and they get a womping $18,000 back to cancel it…but I guess their agent did a great job in your opinion because he made a years wage off the client and a shitload of residual every year and could really care less about the client but hey I’m guessing in your mind when you leave the industry a few years from now you really don’t give a shit if the client is good or not you already made your money and sold your “book of business” on screwing over clients, pretty sad isn’t it!!
      All I have to say is you UL and WL supporters need a wake up call!! If you actually sat down and did your math for 3 maybe 4 min on the BTID you wouldn’t be writing this bullshit here…oh wait sorry I forgot, I appologize! its about commissions not the client….frig…
      Everyone buy the longest term you can buy 30 or even 35 yr if you can for a portion and some short term 20 yr for the mortgage and invest the rest you will be way furthur ahead financially. I challenge you to compare a WL/UL policy cost to a 30 yr term cost and then invest the diff and see what you come up with even at 6% it might blow your mind. Remember WL is an Either/or policy and you DO NOT receive both at death, in UL you have to PAY EXTRA PREMIUM’S to get both…wow what a deal eh!!
      Enough said…..

      • Scottnkirby says:

        Buy term and invest the rest is about the dumbest and careless advice anyone can give a person. My father had term insurance. I said HAD. He did so because he was advised to go that route when term first appeared. Well he outlived the term insurance. By that time he could no longer qualify for new insurance. but did he still have financial obligations to protect? He died and left my mom in big trouble and uncertainty because he followed the buy term and invest the rest strategy. So for those who are smug and cling to this option I say you do so at our own peril. Uhm. yes…. And when he died he had debts that came rolling in because he was in the normal course of living but yet his pensions and retirement ended when he died leaving my mother with debt and her income cut my two thirds. And the invest the rest part? Well the stock market decimated my dads retirement investment. So for all of you indigent people who are ready to kill all life insurance agents you see and rely on the love of the national government not to mention Suzie Orman and Dave Ramsey’s advice I say by experience that was devastating advice. Whole life insurance is permanent and will always be there and with the cash value is a great deal if you investigate the company you sign with. And Universal Life, its not for everyone, It is right for me because I have a nice professional salary and I can properly fund it. I have both types of permanent insurance. It gives me options that other retirement venues cant compete with. The contracts are offered with security and values I couldnt find anywhere else. While the stock market has crashed, the value of my contracts continue to rise just as promised. With all the legal protection and financial protection it offers me and my family I wouldnt choose any other direction. I am happy not to be dependent on Government for my retirement and that I have financial freedom and choices through out this journey.

      • Barry Nag says:

        Sounds like your dad was a victim of either bad or no financial planning advice. Term DOES expire and that’s the whole point. It’s supposed to expire when your supposed to have had your debts paid off thereby making life insurance pointless (assuming you have no more debt to cover). He should’ve been moved to something else to reflect his ongoing need, and he should’ve been pulling out of his funds as retirement drew near, not 2-3 years before.

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