Author Topic: Universal Life Insurance  (Read 4223 times)

powersln

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Universal Life Insurance
« on: May 17, 2012, 02:48:47 PM »
Hey everyone,

We have $6,613.00 left to pay on a student loan that had an original balance of over $40,000.   Needless to say, we are getting excited about saying goodbye to Sallie Mae.   We are having a garage sale this weekend and I'm trying to gather every dime I can to get this thing paid.

This brings me to my question for the community.   Let me start with a quick background.   I'm a married 25 y/o male and have a 2 month old baby.    I have $200,000 term life policy through my employer.   I also have a $10,000 universal life policy that my grandfather bought me when I was born.   This policy has a current cash value of $1,142.   I've heard universal (whole life) is a horrible investment.  I'm thinking of canceling this policy and taking the cash value to pay on Sallie Mae.   The investment inside of the policy has a guaranteed return of 4.0%.   The premiums are all paid on the policy and I won't have to put a dime more into it.  Is it wise to cash out this policy?

Thanks!

MrSaturday

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Re: Universal Life Insurance
« Reply #1 on: May 17, 2012, 03:09:03 PM »
Is that guaranteed 4% before or after they add their management fees?  Chances are you're getting less than half that.

arebelspy

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Re: Universal Life Insurance
« Reply #2 on: May 17, 2012, 04:35:45 PM »
Universal life is usually super front loaded with fees.  It's probably not hurting now to have it.

Only 10k coverage though is so small so as to be almost useless.  I guess you can call that the "burial costs policy."

If you do cash out, there may be taxes, so find out about that as well.

I'd probably just leave it.
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James

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Re: Universal Life Insurance
« Reply #3 on: May 17, 2012, 05:25:05 PM »
First thing is to find out all the details as others are saying.  How much return has it actually seen over the years, what charges are there to take the cash out, etc.


My gut feeling is that it's not a big deal either way, it isn't costing you anything, and if you died every dollar you can give your family helps.  But every year that $10k policy shrinks due to inflation, and the $1,142 probably won't grow very fast.  If you take that money out and invest it then by the time you actually die (or use it) it will almost certainly be worth a lot more than the $10k policy plus the amount the $1,142 would grow if left there.  So I would lean toward taking it out and investing it (or pay down loans so you can move toward investing other money sooner) if you are healthy and not involved in high risk behavior...  :D

Lars

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Re: Universal Life Insurance
« Reply #4 on: May 17, 2012, 05:52:44 PM »
I have one of those whole life policies purchased when I was born as well and I have decided to keep it. I figure it provides a little bit of diversification and the coverage increases every year at the rate of inflation or more.

arebelspy

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Re: Universal Life Insurance
« Reply #5 on: May 17, 2012, 07:45:40 PM »
First thing is to find out all the details as others are saying.  How much return has it actually seen over the years, what charges are there to take the cash out, etc.


My gut feeling is that it's not a big deal either way, it isn't costing you anything, and if you died every dollar you can give your family helps.  But every year that $10k policy shrinks due to inflation, and the $1,142 probably won't grow very fast.  If you take that money out and invest it then by the time you actually die (or use it) it will almost certainly be worth a lot more than the $10k policy plus the amount the $1,142 would grow if left there.  So I would lean toward taking it out and investing it (or pay down loans so you can move toward investing other money sooner) if you are healthy and not involved in high risk behavior...  :D

Typical universal life grows with the cash balance.. so the death benefit is likely 10k + the 1142.  Should double check that, but that's the usual.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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bdub

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Re: Universal Life Insurance
« Reply #6 on: May 17, 2012, 08:37:38 PM »
Assuming a conservative return of 6.5% after management fees of a low-cost Vanguard fund, it would take ~39 years for the investment value of the $1142 to reach $10K (assuming no tax implication for cashing out).   I would leave it alone.

powersln

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Re: Universal Life Insurance
« Reply #7 on: May 18, 2012, 07:10:47 AM »
Thanks for the replies.  I think I'm going to just hold on to it.

patcassidy

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Re: Universal Life Insurance
« Reply #8 on: June 18, 2012, 06:21:00 AM »
Though we typically advise against whole life policies because of slow growth rates and loaded front fees, policies that have been held for many years are already paid into. Leaving it alone, like the others have suggested it, is the wisest option. You'll never know when you'll need it, especially since term life insurance is temporary. On the side, your mention about term life through work may be a bad idea to rely on wholly and solely. It doesn't follow you if you quit, get laid off or fired. You would have to convert to an expensive whole life policy (depending on whether this is offered by the carrier your employer chooses) at this point. Look up an aggregator website for quotes; for details click here [MOD EDIT: POTENTIAL SPAM LINK REMOVED], if you are in great health, you're likely to qualify for even better rates than what's offered at work.


Pat Cassidy
Disclaimer: I work for AccuQuote and this is my personal opinion.
« Last Edit: June 18, 2012, 07:21:40 PM by arebelspy »