Term Life Insurance Articles
3 Major Disadvantages Of Universal Life Insurance Policies
2011-12-31
A universal life insurance policy is a combination of two other forms of life insurance -- term life insurance and whole life insurance. Unlike a term life insurance policy, a universal life insurance policy can be purchased for a person's entire life. However, unlike a whole life insurance policy, the insured can change the premium rate and level of coverage as need be. Universal life insurance is also similar to a combination of a life insurance policy and an investment. Although universal life insurance is an insurance policy, it is used by many as an investment. There are three major disadvantages to universal life insurance: the rising costs of fees, the possibility of poor investment and the low rate or return versus other investments.
First, a major drawback of universal life insurance is the rising cost of fees. When individuals choose universal life insurance, they must pay fees to the broker in addition to insurance company fees to invest their money. The fees for this type of insurance are generally higher than the fees charged for any other type of insurance or the fees charged for investment brokers. As the fees continue to rise, individuals make less money on these policies because so much of the money they pay out is not invested but is simply going to pay these fees.
Second, universal life insurance works a little differently than other types of life insurance. Where other types of life insurance have a set benefit, universal life insurance benefits depend on the money made off of investments. If money was invested poorly or if the economy is suffering, individuals will not make as much money as they could have with a different type of investment. In addition, when poor investments lead to a low rate of return, the loved ones that insured people are trying to protect with universal life insurance do not get as great of a benefit, which means that they do not get the money they may need to survive in the event of a sole provider's death.
Finally, universal life insurance is typically not a smart investment practice. When individuals invest in mutual funds or other types of investments, they generally make more money than they do with a universal life insurance policy. Although some people choose a universal life insurance policy to help them commit to investing, investing in something else will generally earn them more money.
Although universal life insurance may appeal to some, it is not often the best choice due to rising costs and lower returns on investment. Other life insurance policies and investment techniques may yield better results, earning more money to protect a person's loved ones.
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A universal life insurance policy is a combination of two other forms of life insurance -- term life insurance and whole life insurance. Unlike a term life insurance policy, a universal life insurance policy can be purchased for a person's entire life. However, unlike a whole life insurance policy, the insured can change the premium rate and level of coverage as need be. Universal life insurance is also similar to a combination of a life insurance policy and an investment. Although universal life insurance is an insurance policy, it is used by many as an investment. There are three major disadvantages to universal life insurance: the rising costs of fees, the possibility of poor investment and the low rate or return versus other investments.
First, a major drawback of universal life insurance is the rising cost of fees. When individuals choose universal life insurance, they must pay fees to the broker in addition to insurance company fees to invest their money. The fees for this type of insurance are generally higher than the fees charged for any other type of insurance or the fees charged for investment brokers. As the fees continue to rise, individuals make less money on these policies because so much of the money they pay out is not invested but is simply going to pay these fees.
Second, universal life insurance works a little differently than other types of life insurance. Where other types of life insurance have a set benefit, universal life insurance benefits depend on the money made off of investments. If money was invested poorly or if the economy is suffering, individuals will not make as much money as they could have with a different type of investment. In addition, when poor investments lead to a low rate of return, the loved ones that insured people are trying to protect with universal life insurance do not get as great of a benefit, which means that they do not get the money they may need to survive in the event of a sole provider's death.
Finally, universal life insurance is typically not a smart investment practice. When individuals invest in mutual funds or other types of investments, they generally make more money than they do with a universal life insurance policy. Although some people choose a universal life insurance policy to help them commit to investing, investing in something else will generally earn them more money.
Although universal life insurance may appeal to some, it is not often the best choice due to rising costs and lower returns on investment. Other life insurance policies and investment techniques may yield better results, earning more money to protect a person's loved ones.
