First of all, your numbers in the example are reversed, there is no way you’re going to find 150K more in universal coverage for $23 a month less than term. It’s not possible.
That being said, even at the higher rate, ftg has it backwards-universal life is a much better deal for you than term, with one caveat.* Lets look at how a term policy works, shall we? (I’m making all of these numbers up for illustration purposes) Most term policies are what is know as “10 year guaranteed renewable” policies. What this means is that your premium will stay the same for the next ten years(Some companies are going to issuing the policies in 10 year increments, but only guaranteeing the premium for 5, but we’ll stick with the traditional), and at the end of that time you have the absolute right to renew the policy regardless of any health conditions that might have come up in the meantime. What is not guaranteed, however, is your premium, and if you’ve come down with cancer, they’re gonna stick it to you. For the purpose of illustration, however, lets assume that you remain healthy. You’re 40 years old. You buy a term policy for $50/month. Ten years from now, you want to renew, and have no trouble doing so, except now you’re 50 years old so your premium is no longer $50/month, it’s $90/ month. Ten years further, same deal except you’re now paying $180/month. Ten years from that, you decide to renew the policy again…except you can’t. Term policies expire at age 70 weather you do or not. So lets look at what you’ve spent:
10 years of $50/month premiums- $6000
10 years of $90/month premiums- $10,800
10 years of $180/month premiums- $21,600
You’ve spent almost $40,000, and you have bupkis to show for it. Your family was protected in the case of your death, true, but you’ve got jack at age 70. Term policies are a fantastic deal-for the insurance company. Less than 3% of them ever pay dime one to their beneficiaries.
Now contrast that with a universal policy. Universal policies are going to be more expensive, true. However, most of them are set up such that your premium stays the same for the life of the policy, which is usually good until age 95. That means that while you are paying $75 instead of $50, you’ll always be paying $75, ten, twenty or thirty years from now. What’s more, your chances of outliving the policy are vanishingly small. Even better is the fact that you’re not throwing your money away if you don’t die. See, universal policies build equity. That means that even if you don’t die, you can cash them in at some future point for all or some of the premium money you’ve paid. What’s more, you have an item of value. You can borrow against it, cash it in or cash out a portion of the money at any time. (Doing any of these may affect your monthly premium) With the policies that my company offers, approximately 20 years is the break even point at the current rate of return (4.75%-3.25% is guaranteed). That means that you could insure yourself at age 40, and at age 65, if you decide that you no longer need that much life insurance (your house is paid off, kids are grown, you have no large debt load, etc…), you could get back every penny you spent in premiums over the last 25 years (tax free!), while still having protected your family in the event that you had died. Tell me that wouldn’t get your retirement off with a bang!
So, now you know the differences between the two types of policies. If you have any further questions, just ask, I’d be glad to answer them.
*Caveat: As any financial planner will tell you, if you buy a term policy instead of a universal one, and faithfully invest the difference in premiums every month, you will likely have more money down the road than with a universal policy alone. It’s almost guaranteed.(I’m hedging my bet in case the economy completely tanks with the 'almost") HOWEVER, this means that each and every month, for the next 10, 15, 20 or more years, you will faithfully, without fail, invest that $23 premium difference. You will never forget, or miss a payment, or spend the money on groceries because things are tight or anything else. Frankly, this is only realistic for a very small number of extraordinarily disciplined people. Most people (and I include myself in this) are not that disciplined, and a universal life policy kind of forces you to invest that money. I would not have remembered to pay an amount to investments every month for the past few years, but I have made my (universal) life insurance payments each month without fail, without even thinking about it.
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