The Real Difference Among Whole Life, Term and UL Policies

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So, today’s topic is “The real difference among whole life, term and UL policies”

For the sake of simplicity, we are going to divide our video into two sections: In the first section, I’ll define in simple terms what is the meaning of term life, whole life, and universal life. And in section №2, I’ll go through the benefits and features and the differences between these three life insurance policies. So…

Term Life: it pays a benefit in the event of the death of the insured during a specified term.

Whole life: it provides coverage for the life of the insured while building cash value inside it.

Universal life: it provides coverage for the life of the insured with a flexible premium option.

Let me give you an example that will make it easier for you to understand the difference between these three and also remember it for a long time. There are basically two kinds of life insurance policies temporary and permanent life. Term life insurance is for temporary coverage, like 10, 20, or 30 years. For example, if you bought a term life insurance for 15 years, once that period is over, you do not have any more coverage. The reason people buy them is basically because they are cheap. For a small amount of money, you can buy a lot of death benefit coverage. And it does not build any cash value, because it does not have any savings component built inside it. Say, for instance, you rent an apartment and live there for 10 years then you leave. During those 10 years, you kept on paying your landlord rent, each and every month in and month out. You paid him for 10 long years. And now when you get out of that apartment, he does not owe you anything. And that is exactly like buying a term life insurance policy. You have the coverage as long as you’re paying the rent, once you are out it’s done. All your money is gone. Now you have to start all over again. On the other hand, think about this scenario, you bought a house, you paid the mortgage to your bank for 10 long years, and now you have some equity built up in the house. And that is exactly like buying a whole life policy. As time goes by, it builds cash value inside it. Just like if you have a 15 or 30-year mortgage, once it’s over, you own the house. Moreover, a whole life policy has a guaranteed compound rate of interest for all these years and also you have the possibility of getting a dividend check at the end of the year.

Now, I think you have some basic idea about the difference between term life and a permanent life. By the way, both whole life and universal life fall into the category of permanent life insurance. Let’s put it like this, Whole life insurance offers consistent premiums and guaranteed cash value accumulation, while a universal policy provides flexible premiums, death benefits, and a savings option.

Now a little more about universal life policies: in the 1980s when universal life insurance was introduced, it became an overnight sensation. Simply because, as they said, it was a bridge between whole life and term life. In other words, it’s a permanent life policy that goes for the rest of your life and also gives you some flexibility to pay your premiums. You can increase or decrease your premiums based on your good times or bad times. Now, if you browse through your computer you will find a Wall Street Journal article published on September 19, 2018, which says, “Universal life insurance, a 1980s sensation, has backfired.” It continues, a Long decline in interest rates cost premiums to sore when they were supposed to stay level. As the Wall Street Journal reporter named Leslie Scism continues, a popular insurance product of the 1980s and 1990s has come back to bite many older Americans. Universal life was a sensation when it premiered, and for some years it worked as advertised. It included both an insurance and savings account that earns income to help pay future costs and keep the premium the same, but once the interest rates in the market went down it caused the premiums for universal life insurance to soar. Which created a problem for many older Americans. Unfortunately, these people had thought that they are buying a permanent life insurance policy with the flexibility of premium. One thing that was never mentioned to them was that premiums can go up, based on the market fluctuation. And now after paying the premium for 20, 30, or even 40 years, these people are out of luck. One of my 76-year-old clients told me recently, “Sunny by buying this universal life policy looks like I gambled with my life and my family. I bought it so many years ago. I paid them monthly premiums for several decades, without fail, hoping it will build some cash value inside it and also I’ll have life insurance coverage for the rest of my life. But now, due to this market fluctuation, I cannot afford to pay the premiums because they’re so high. And when I called the insurance company, they said I did not have any cash inside it. I’m devastated and do not know what to do.” And you know what it is hurtful. If he would have bought a guaranteed interest and dividend-paying whole life policy for all these years, what do you think it would be valued at today? You do the math.

For me, when it comes to money, primarily, I go for two things: simplicity and guarantee. Just think for a moment, why do some people like their bank CD so much more than any other investment? Do you think primarily because it’s simple to understand? Because it does not have so many moving parts. Because it’s not complicated, as to understand market fluctuations, indexes, and whatnot. And secondly, the reason they love it is that it’s guaranteed. If a bank CD promises you, “We will pay you so much interest, you are dead sure that you will get that interest, at the end of the term. No, if’s and buts.” But the only problem with the bank CD is these days it is paying next to nothing, right? So, what is the solution?

A traditional whole life insurance policy with the concept of infinite banking. A whole life policy insures your life; so, when you check out of your life, the money will check in to take care of your loved ones. I’ll say it one more time, “When you check out of your life, the money will check in to take care of your loved ones.” And that is the death benefit. The infinite banking concept goes one step ahead and focuses more on your living benefits. We construct your policy the way that it accumulates more cash inside it than a traditional whole life policy. How? By focusing more on the cash value than the death component. And on top of everything, you can have access to as much as 90% of your money from day one. Here is a quick story of one of my friends, how they were able to get rid of their $6000 credit card debt, that they owed to a credit card that was charging them 29% interest. They bought a whole life policy and dumped $10,000 as their annual premium. Then they turned around and after 30 days took out $6000 from their policy as a loan and paid off their credit card. Now they can sleep better.

So, to recap, a term life insurance policy just covers your life for a certain period of time. A whole life policy is for your “Whole Life,” with a built-in cash value accumulation component. And a universal life is in between a term and a whole life policy.

Now I know what you must be thinking, “Sunny, where is the bonus tip for the day?” In my last video where I mentioned the word photo reading, some of my viewers asked me to throw some more light on it. So, here is a brief description of photo reading: you all know or heard about speed reading you can read up to 3000 words per minute. But in photo reading, you can read up to 25,000 words per minute. How? Because you read it through your subconscious mind, which is how you can finish 200 pages book in 10 to 15 minutes with 85% of comprehension. And the reason I mentioned it is because the best way to make money is to become a student of finance. And through photo reading, you can read an enormous number of books in a year. Like they say, to earn more you need to learn more. And what would be the best time to use this when we are all locked inside our homes due to coronavirus. Just Google it and you’ll find all the details about photo reading.

Now, I have a question for you: What is the one thing you got from this video today? Please let us know.

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