Why I Never Recommend Universal or Variable Life Insurance Policies.

Uni­ver­sal Life poli­cies are among the most disin­gen­u­ous finan­cial prod­ucts ever cre­ated.  That they are enjoy­ing so much pop­u­lar­ity is disas­ter­ous for those unsus­pect­ing souls who pur­chase them.  They vio­late every prin­ci­ple we hold about wealth cre­ation, preser­va­tion, use and trans­fer.

If  clients want risk, let them buy risky prod­ucts that they KNOW are risky…  bank­ing and Permanent Life Insurance is about mit­i­gat­ing that risk to as close to zero as pos­si­ble.  If that isn’t impor­tant, then cer­tainly, buy an IUL.

Below are a few articles plus some other information you must read if you own a universal life insurance policy and also especially if you are considering using Infinite Banking as a banking strategy with a universal life policy.


Article One:

Why You Should Not Use Universal Life Policies for Banking the IBC way.


Article Two:

Universal Life Field Notes


Article Three:

How does reading the yellow highlighted text of an actual policy update letter, received by a client just this month of March 2011, make you feel? Comfortable or uncomfortable? This person will be 42 in 2014. This person will be 70 years old in 2042. Isn’t that when one needs their life insurance most?

Article Four:

Click illustrations to enlarge

 Notice the cost of insurance is increasing annually in the UL  and it stays the same in the WL

The short line on the UL means the policy will most likely lapse when you need it most, not so with the WL

The only guarantee one gets with a UL is a guarantee that the price will increase every year,  not so with WL.

Article Five:

What does Kiyosaki say about investing in wall street, which is what you are doing with a EIUL or UL or VL

Article Six:

 How has the Dow Jones performed since 2000

Article Seven:

First, we “finance” everything we spend money on, whether we pay cash, borrow from a bank or finance company, or rent/lease.

If we pay cash, we’ve lost the opportunity to earn interest on that cash (opportunity cost), and no longer have access to it.

If we borrow or lease, we pay interest (and principal) to someone else, losing it forever.

There are some very important distinctions that need to be made when talking about borrowing from life insurance cash values.

When borrowing from the cash values of a mutual or “participating” whole life policy (where the policyholders are the “shareholders”) the money comes from the general fund of the insurance company and is collateralized by the death benefit. So the policyholders’ cash value continues to earn interest even though a loan is taken (no loss of “opportunity cost”).

Any interest charged by the insurance company for the loan goes to help the bottom line of the company, and the dividends are returned to the “shareholder” (policyholder). Dividends are considered a “return (or overpayment) of premium” by the IRS, and therefore, non-taxable.

This becomes extremely cheap money, and if the policy is properly set up, the policyholder can recapture the principal AND interest on the loan, to be used over and over again. And, as a bonus, participating WL policies are engineered to get more efficient over time.

Owners of Universal Life policies (UL’s, VUL’s, EIUL’s, etc) are not so fortunate.

Loans from the cash values of this class of policies are also taken from the general fund of the insurance company, however, the money in their cash account is moved to a safe investment position for protection from loss for the insurance company. Also, most UL contracts state that loans taken negate guarantees. If the policyholder is not careful, loans can cause a policy to implode or lapse. A lapsed policy means any gains will become taxable.

These policies are sometimes referred to as “whole life”, but are in reality an “annual renewable term policy with an investment side fund attached” (this is an industry description), and as such, become less efficient (i.e., more expensive) as time goes on.

While one may not have enough cash value in a participating whole life policy from a mutual company to buy a house, one could use it for a down payment, pay off other loans, or buy a car. In any case, when borrowing from an insurance policy, one should set up a repayment schedule that is at least as much as one would pay for the loan, be it a on a car, credit card, or down payment on a house. Your budget wouldn’t change, but you would recapture the money you would normally pay the bank, and be able to use that money over and over again. Eventually, you might even be able to own your own mortgage! 🙂

Thanks to BYOBanker for this comment. seen under this article  (I have edited a few points)

March 23, 2011 · Jennifer · No Comments
Tags:  · Posted in: UNIVERSAL, VARIABLE, EQUITY INDEXED, Why You Should Not Use UL for IBC

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