Universal life insurance is similar to whole life; however, a number of differences make universal life policies more difficult to compare with each other.
- Premiums for universal life don’t necessarily remain constant for the entire policy (unlike whole life): Therefore, to compare costs and prices, you have to use the same premium.
- The death benefit in a universal life policy can either remain constant or increase as your cash value increases: Use the same death benefit option with each policy to compare costs and prices with other companies and policies.
- Insurance companies will show you both guaranteed and hopeful projected earnings: Take these hopeful projections with a grain of salt. Use the guaranteed earnings, and if you get more, consider it a bonus. On the other hand, you can also use the company’s historical payback to get an idea of whether the hopeful projections are pie-in-the-sky or reasonably accurate.
- Put extra stock into the insurance company’s rating: With universal and whole life, you’re buying into the company itself. If one company guarantees a little more but has a significantly lower rating, you may want to seriously consider the lower-yielding but better-rated company.
- Insurance is protection, not investment: Many other investments can give you a better return on your dollar than universal life insurance, including IRAs and 401(k)s, both of which offer the same tax-deferred benefit. You may be just as well off putting money in other tax-deferred investments and purchasing a lower-cost term insurance policy.
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