Many agents say Universal Life Insurance works better. Is this true?
For those of us who have been helping clients with Infinite Banking policies for years, we have seen the detriment that Universal Life Insurance can have on an investor–especially one who understands and wants to implement Infinite Banking as a concept.
Often, these investors are new, or under-educated about Universal Life Insurance. Or, in some cases, they are just looking to make a quick buck.
What makes Universal Life Insurance such a bad product for investing? Let’s take a look.
Insurance Costs of Universal Life
The most important, and the most destructive, part of a universal life insurance policy is the cost of insurance.
When compared to whole life, universal life can often look better–especially in the early years.
This is like the classic example of the tortoise and the hare.
The problem is that universal life insurance relies on an underlying term insurance policy to as the insurance asset.
See, in order for Infinite Banking to work, we have to have life insurance. That’s the key legal aspect of the policy.
Universal life insurance relies on cheap term insurance to fill this life insurance gap, which works great at first.
But like we talk about in the death benefit section, we must die with our life insurance policy in-force in order to keep the full tax advantages of Infinite Banking.
When we are younger, term insurance is cheaper.
But as we get older, term insurance costs become astronomical.
In order for a universal life insurance policy to have positive growth in our later years, it has to generate significantly more growth inside of the policy to keep up with the term insurance costs.
Not only has this failed for those with term life insurance policies in the past, it is likely to keep failing in the future for the same reasons.
The insurance costs are just way too high, and the growth is not there.
Tied to the Market
Universal life insurance policies are also tied to the market. This is a good thing right?
Well, if you are looking into the Infinite Banking Concept you probably are sick of running money through the market ups and downs.
Universal life protects you from losing money, but the market still has to gain significantly for the policy to work properly.
Back in the 1980s this may have worked. But that’s the other problem. In most years where universal life insurance policies have done well, you still would have been better off having money in a 401k or IRA.
Universal life insurance offers a market investment that still underperforms the market, but takes on all the risk of buying expensive insurance.
It is a lose-lose for almost everyone involved. Except maybe the agent.
Easier to Sell
So, if these policies are a disaster, why does anyone buy them?
The reason is because they are easy to sell.
Like we talked about in the growth section, whole life insurance companies don’t project future numbers based on past growth.
However, universal life insurance companies don’t necessarily follow this same approach.
Universal life insurance policies often have projections that look amazing. The problem is, the likelihood of them being true is, statistically, almost impossible.
This is why they get sold though. They are made to be sold.
Whole life insurance often is harder to sell because they underproject, not overproject, earnings.
Universal life insurance is not this way. They often overproject, just like Wall-Street, their market based assets.
Making them a time-bomb wrapped in an attractive box.
Universal life insurance policies are very risky. The main point here is this: Infinite Banking is meant to be risk-free and tax-advantaged.
Universal life insurance does not offer us the same attributes that whole life insurance does. So, when it comes to Infinite Banking, whole life insurance is the only product recommended by us, Infinite Banking Concepts, LLC., R. Nelson Nash, or any other honest Infinite Banking practitioner.