What is the best description of universal life insurance?

Answer 1

Here is the best way I can explain it:

Lets say you are going to rent a home and you have a $1000 dollar per month budget. You find the home you want and you tell the landlord that you want the home and are willing to pay $1000 per month. The landlord says, "I only want $500 a month". Lucky you right? You say "Great, but how about I still pay you the $1000 and you invest the difference for me?" The Landlord agrees.

You stay in the house for ten years and every year the rent has gone up little by little. You really don't care because its always been within your budget and the rest was reinvested for you. So up till now you've been quite happy with your rent/landlord. But today he shows up and says your rent will be $1200 a month. You respond with, "Well I can't afford $1200 only $1000." The landlord says, "don't worry about it, you pay me the $1000 and I'll just take the rest out of the money I invested for you." Again, this sounds pretty good and you agree.

Still every year going forward, little by little, the rent of your home keeps going up. You keep paying $1000 a month and the difference comes from your investment. 5 more years go by and you landlord shows back up and says that your rent is now $2000 a month and their is no longer any money left in your investment account to cover the difference. So you either have pay the $2000 or move out. You can't afford the two thousand so now you are homeless.

That is what universal life does. Half of your money is going towards paying a term life policy and the rest is being reinvested. The price of term insurance goes up as you age until the point you can no longer afford it and you stuck without coverage and by that time you either can no longer qualify for coverage or if you can, you probably can't afford it. Hope this helped.