Universal Life Insurance or Whole Life Insurance? Both are permanent life insurance, but they are not equal. In our fourth Prosperity Proof, we’ll let the differences speak for themselves
A PROSPEROUS lifestyle is made possible by having a vehicle to store and save cash that is ALSO accessible and liquid. And that’s where permanent life insurance comes in! But just because you’ve identified that your client is ready for life insurance, doesn’t mean there aren’t some misconceptions left to tackle.
Universal Life Insurance is the route that typical financial planning pushes. At Truth Concepts, we advocate for Whole Life Insurance as the ideal savings vehicle!
To give you an idea why:
Universal Life Insurance…
has flexible premiums and Death Benefit. You can easily change the PREMIUM amount and/or the Death Benefit at any time. However, this change can happen without any regard for the survival of the policy.
Whole Life Insurance…
has flexible payments and Death Benefit. The premium stays level, but payments can be processed annually or monthly. The Death Benefit also increases as the Cash Value of the policy increases.
Universal Life insurance…
does not always have a guaranteed Death Benefit. Typically, an OPTIONAL RIDER protects the Death Benefit beyond age 100, when the policy value doesn’t perform as illustrated. And policy changes, delinquent or late premiums, loans, or partial surrenders may cause loss of this protection.
Whole Life Insurance…
DOES have a guaranteed Death Benefit. This benefit is guaranteed as long as proper cash flows are maintained (as in the Guaranteed Illustration). Because of the policy structure, even in the worst economic environment, there is adequate cash value to support the Death Benefit.
Universal Life Insurance…
does not have a guaranteed Premium. The required Premium amount is not guaranteed and may FLUCTUATE based upon varying costs and economic changes. It is therefore volatile and unpredictable.
Whole Life insurance…
has a guaranteed level Premium. The required Premium is a guaranteed LEVEL amount, regardless of changes in the costs or the economy. The rate will never rise and is therefore easily accounted for the whole duration of payments.
Universal Life Insurance…
has a “Policy Value.” The estimated (non-guaranteed) internal amount is used to determine the earnings within the policy. There is typically a guaranteed minimum Gross Earnings RATE. But since this is not a dollar amount, expenses will affect the actual value.
Whole Life Insurance…
has a “Cash Value.” Guaranteed is the minimum Cash Value if no dividends are paid. This is an ACTUAL dollar amount, NOT a rate. Non-guaranteed is the estimated cash value based upon the guaranteed portion PLUS actual current dividend performance. Dividends are guaranteed, though the amount is not. This is the biggest reason that Whole Life is looked at as a savings tool and not just another insurance payment.
Universal Life Insurance…
has no endowment. Since there is no endowment (pay-out) age for the Death benefit. You must DIE for someone to receive the money.
Whole Life Insurance…
has an endowment of the Death Benefit. There is a set age for endowment when the policy is established–usually age 100 or 120–at which point the Death Benefit will pay-out. Even if you’re ALIVE.
Universal Life Insurance…
is without a Reduced-Paid-Up option. Because the policy will never endow, it is never “Paid-Up.”
Whole Life Insurance…
does have a Reduced-Paid-Up option. Due to the endowment, it is possible to reduce the Death Benefit amount so it is GUARANTEED PAID-UP.
Universal Life Insurance…
shifts all the risk to the insured. The Premium amount, Policy Value, and Death Benefit are determined by the economy, policy expenses, and longevity. The Insurance Company only guarantees a gross earnings rate minimum and Death Benefit for a period of time.
Whole Life Insurance…
companies assume all the risk. The level-premium amount is GUARANTEED. The Cash Value is guaranteed to increase every year by a minimum dollar amount. The Death Benefit has a guaranteed minimum. The policy is guaranteed to endow. All the risk is on the insurance company to provide you with these things.
Overall, the benefits of Whole Life Insurance are clear. Your client won’t just be paying premiums in order to be insured. They’ll be putting their money into an account that they can later use and borrow against like it’s their own personal bank. And no other savings account is going to have the same kind of returns. The policy takes a few years to really take off, but the sooner the policy is established, the sooner the fruits can be enjoyed.
So what’s the practical application of this newfound knowledge?
In the Truth Concepts Software, you’ll find the Life Insurance Values tool to be crucial to your work. Using the software, you can import up to six Permanent Life Insurance and up to four Term Life Insurance illustrations into one file.
The top row (PLI1-Trm4) indicates the different illustrations loaded. You can rename them in the description box for easy access later. In addition to premiums, you can input withdrawals and loans. This comes in handy for Diversification, or if your client desires to withdraw a retirement income or an education loan from their account.
Using the summary page, you can look at what the combined illustrations will look like. You’ll be able to test combinations of permanent and term insurance, or just permanent life insurance policies, to see the combined effects. See what multiple premiums would look like, or combinations of premiums and withdrawals. You could even look at a married couple’s combined values. Adjust time frames, ages, and even the policy (using the interpolation feature).
And that’s just within the tool itself. Life Insurance Values supports the following calculators: Funding, Borrowing, Diversification, Accumulation, Distribution, and Asset Flow. Upload the file you’ve created, and test out the different policies for yourself!
Show your client how a Universal Life Insurance policy would perform, and then show them how a Whole Life Insurance policy would perform. See for yourself which will have the best impact on your client’s finances.
If your client is considering Whole Life insurance, take a look at this questionnaire from the Prosperity Economics Movement. Advisors who are interested in learning more about the Prosperity Economics Movement, and how to take part, can visit Prosperity Economics Advisors. Clients can learn more at Prosperity Peaks.
Our next post in the series will look at Qualified Plans from the Prosperity Economics point of view.
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