Universal Life Insurance vs Term Life Insurance

Universal Life vs Term Life

What is the difference between Universal Life Insurance and Term Life Insurance? Which one is better?

If you are talking with an agent or advisor, hopefully the answer will be it depends on your situation.

Unfortunately, the landscape these days doesn’t always allow for impartial and independent advice. Some advisors believe that it is always best to only buy term life insurance. Some think Universal Life Insurance is the only solution to every life insurance need.

Both of these opinions are wrong.

If you look at two quotes for the same death benefit amount, the main difference between Universal  Life Insurance and Term Life Insurance will be the cost. Universal Life is designed to last as long as you do. The insurer is taking on a “till death do you part” commitment. Obviously, knowing that you will have a life insurance policy beyond 10, 20, or 30 years can be a very important consideration.

Depending on the type of Universal Life Insurance you are considering, some or most of your payments may also go to building cash value. Considering this, it is almost ludicrous that “term only” proponents complain about the “outrageous cost” of Universal Life Insurance.

A similarly silly comparison would be saying a 4-year university education is too expensive, everyone should just take one community college course instead… after all it’s cheaper!

In summary, Universal Life Insurance is designed to last your entire life (even until old age) and can build cash value. Term insurance is like renting your insurance. Dying during that period is the only way that the policy will be of benefit to you (besides peace of mind.)

There are many different types of Term Life as well as Universal Life Insurance.

When considering the pros and cons, it is important to work with someone that has your best interests in mind. Find a knowledgeable professional whose only motive is to help you get what’s best for you, regardless of any benefit for them.

Safe Money Millionaire by Brett Kitchen & Ethan Kap [Book Review]

Safe Money Millionaire is a well-written, quick read about the power of several wealth-building strategies. The premise is how to build wealth, safely, outside of Wall Street.

Kill the Status QuoSafe Money Millionaire Book

Safe Money Millionaire gets right to the point in telling you what it’s about – challenging conventional “financial wisdom” that clearly is not working for most Americans:

  • Diversify with mutual funds
  • Max out 401(k) contributions
  • Keep a high credit score and shop for low interest rates
  • Buy term and invest the difference
  • Put your money in the market to get a good rate of return
  • Defer taxes until later

In fact, this is where the above strategies have gotten the average American:

  • Half of workers 55-64 have less than $88,0000 in their retirement accounts
  • Trillions have evaporated from 401(k) accounts
  • 71% of those aged 45-64 worry about having enough money in retirement

“Safe Money Millionaires build their house on a solid foundation. Contractors don’t put buildings on foundations of clay or sand. They use concrete. Why, then, would we be any less careful with our entire financial future?”

Defeat the Enemies of Wealth

In subsequent chapters, you learn about enemies of wealth and read some eye-opening facts about each.

  1. Market loss
    • “Average” rates of return can be far from accurate!
    • The financial gurus in the media are often wrong or don’t practice what they preach
  2. Taxation
    • In addition to your income tax of up to 20-30% each pay period, you also face additional taxes for nearly every transaction you make
    • Tax deferred plans like your 401(k) can actually cost you more in taxes in the long run
  3. Interest
    • Average Americans can pay up to 34% of their after-tax income in interest
    • How to recover most of the money that you pay in interest and keep it in your own pocket

 “The 401(k) represents an implicit promise to middle-class Americans that they can live off the income they receive from stock ownership, just like the rich do. It is a promise impossible to fulfill; it is the great 401(k) hoax.”

Financing Yourself to Wealth

Safe Money Millionaire explains how you can recapture the  interest and principal that you are currently paying for cars, credit cards, and loans and put it back in your pocket. It takes some patience and diligence to get started, but once you’ve become your own bank, you start to gather some real momentum in your journey to becoming a safe money millionaire.

The best part about becoming your own source of financing is that you’ll never again be at the lender’s mercy, worrying about credit scores and debt ratios. You will be able to approve yourself!

Supercharging Your Plan

In Chapter 8, the authors explain a powerful strategy called Indexing, where the interest earned on your money is tied to the performance of a index like the S&P 500, but you are protected from market losses. In other words, you get to participate in market gains, but you never participate in market losses. This chapter is on of the most important aspects of the book. The indexing strategy is one you’ll want to definitely learn about – especially since Wall Street doesn’t want you to know!

Real-life Examples

Finally, you’ll read about some real life examples of people who have successfully put these strategies to good use. The book concludes with profiles of “normal” people as well as the rich and famous. Notably, you’ll learn about Walt Disney, Ray Kroc (McDonald’s), J.C. Penny, and Doris Christopher (The Pampered Chef).


If you would like additional information about this book and the strategies that is explains, please get in touch with me. I am a qualified Safe Money Millionaire advisor and can work alongside you to determine if these approaches might be a good fit for your particular situation.

If you’re not quite ready to begin a dialogue, that’s fine. You can check out a series of four videos and instantly receive the first chapter of Safe Money Millionaire at this link.

The REAL Cost of Term Insurance

The financial gurus on the radio and TV love to rave about term life insurance being the only way to go.

Here’s an interesting quote from Thomas Smoot, a VP at Guardian Life:

Term insurance isn’t designed for lifetime coverage. In fact, term insurance is prohibitively expensive to maintain for the average U.S. life expectancy of 78.9 years, never mind to age 100. Term costs can average a staggering $700,000 per $1 million of death benefit, and more than $4,000,000 to age 100 for a $1 million policy.

If you just need a death benefit for a few years, term is the best bargain. However, if you want to know that your life insurance policy will still be in force when you die (not just if you die), then permanent insurance is the best long-term strategy.

Source: National Underwriter Life & Health, September 2014

Universal Life Insurance [Clear Explanations]

What is Universal Life Insurance?

Universal Life (UL) is a type of permanent life insurance. (Remember, “permanent” means you keep it your entire life, as opposed to “term”, which is meant to cover a specific period of time.) With UL, both the premiums and the death benefit amounts can be adjusted according to your changing needs.

With a UL policy you have stated premium, which is the amount that needs to be paid to cover the death benefit and the administration costs for the policy. Payments made in excess of the premium build cash value, which over time accumulates interest. Eventually, the cash value can be used to pay premiums (not recommended) or as policy loans (i.e. tax-free access to your principal and earned interest.)

Types of Universal Life Insurance

There are three main types of UL:

  • Guaranteed Universal Life (GUL) – guarantees the death benefit for a certain number of years if you pay the required premiums.
  • Variable Universal Life (VUL) – invests the cash value of the policy in sub-accounts that may offer higher returns. However, you could also LOSE money in these sub-accounts, just as you could in a mutual fund or other security.
  • Index Universal Life (IUL) – credits interest to the policy’s cash value based on the performance of a stock market index, such as the S&P 500. See this post for a more detailed discussion of IUL.

What’s the Different Between Whole Life & Universal Life?

Whole Life and Universal Life are both permanent life insurance policies. The main difference between the two is that whole life has guaranteed fixed premium payments that you pay until age 100. With UL, you have more flexibility to adjust premium payments if you need to, as well as decrease or increase the policy face amount (provided you are still insurable.)


Let me know if you have any questions!

Indexed Annuities – Know the Basics in 3.5 Minutes

I ran across this short and helpful video on Index Annuities today. This is a great explanation for everyone, but especially for visual learners.


The Wall Street Conspiracy [Movie Review]

I watched The Wall Street Conspiracy this week on Amazon Prime. I thought it was very interesting.

The documentary explains and exposes the practice of “naked short selling” stock shares.

When someone “shorts” a stock, they are hoping to make money as the price declines.

When you think a stock’s price is too high, you “borrow” shares and wait for the price to go down. When/if it does, you buy shares at the lower price and then replace the borrowed shares. Thus, you keep the difference – like you would in a traditional buy-low / sell-high strategy. This time, however, you borrow-high and then buy-low to replace the borrowed shares.

Naked Short Selling is when you never actually borrow the shares before you sell them! This actually increases the number of shares in circulation and you have essentially created shares out of nothing.

It’s definitely worth checking out, even if it is somewhat depressing to see that people were trying to raise awareness of loopholes and cheaters and the Powers That Be refused to act.

The Wall Street Conspiracy

Indexed Universal Life Insurance / IUL [Clear Explanations]

Money TreeIndexed Universal Life Insurance is a type of cash-value life insurance that bases the growth of the cash value on the performance of a stock market index, such as the S&P 500.

You may have heard the “experts” on the radio and TV advising “buy term and invest the difference.”

Indexed universal life is one way – a safer way – to buy term and invest the difference! The “term part” is your death benefit. The “invest part” is the cash value that grows.

If someone tells you IUL is a bad idea, they either don’t understand it, or they’re trying to sell you something else (like whole life or trying to get your assets “under management.”

There are a slew of reasons why IUL is a more secure foundation to build wealth vs. risky investments. Here are a few high points:

  • Investment Safety: You CANNOT lose cash value due to market losses. As such, any gains you experience are locked in and CANNOT be subsequently lost.
  • Tax Safety: Your cash value grows tax-deferred (i.e. you don’t get taxed annually like dividends), you can access it tax-free (through policy loans), and your heirs inherit the death benefit without paying income taxes.
  • Lawsuit & Government Safety: In many states, cash value life insurance contracts are exempt from lawsuits, creditors, and bankruptcy. Also, access the cash value through policy loans will not count towards your income tax calculations for social security.

Indexed Universal Life can be an intelligent choice for legacy planning, wealth creation and transfer, Infinite Banking, and college funding.

Get in touch if you would like to discuss if IUL may be a good fit for your needs.

Becoming Your Own Banker by R. Nelson Nash [Book Review]

Becoming Your Own Banker ReviewBecoming Your Own Banker by R. Nelson Nash is the original and definitive treatise on the concept of Infinite Banking.

Infinite Banking is the process of using the cash value in dividend-playing whole life insurance to finance your major purchases. Since you borrow from yourself, you are “becoming your own banker.”

BYOB (coincidence?!) was first published in 2000, and is now in its 5th edition in print (the Amazon Kindle version is apparently the 6th edition.)

Despite the various editions, portions of the text read as if they have not been updated with newer figures or examples.


This book is very highly recommended, and inspired a number of similar books that address Infinite Banking.


Becoming Your Own Banker is divided into five parts:

  • Part I – Becoming Your Own Banker
  • Part II – The Human Problems – Understanding Parkinson’s Law (which is “expenses rise to equal income”)
  • Part III – How to Start Building Your Own Banking System
  • Part IV – Equipment Financing
  • Part V – Capitalizing Your System and Implementation

The book’s 20 chapters (plus each “part” above, each comprising one chapter), explain the Infinite Banking Concept through clear analogies and understandable examples.

Bad Government

As you make your way through the book, you will notice Mr. Nash can’t help but take a few tangents about the government.

“Government is a parasite and lives off the productive taxpayers, the host.”

And this interesting Q&A:

“Question: who is the biggest thief in the world? If you answered the Internal Revenue Service you are correct!”

How Infinite Banking Works

As mentioned above, after you build cash value in your policy you loan it out to yourself and eventually return the loan with interest. There are three key concepts to understand:

  1. Even though you are “using” the cash value through a policy loan, you aren’t actually withdrawing the cash value.
  2. The full account value continues compound uninterupted, as if nothing has happened.
  3. Plus you keep the interest payments that would usually go to the bank.


Mr. Nash’s book is excellent, although it does have a few quirks. Overall, he explains the subject well and provides clear examples.

There is power in this concept and, used properly, it can be a vehicle that you drive to the ultimate (earthly!) destination: financial freedom.

Whole Life Insurance [Clear Explanations]

Whole Life Insurance is permanent life insurance that last for… wait for it… your whole life.

Remember that Term Life Insurance just lasts a specified period of time (e.g. 10, 20, or 30 years) and then it ends. If you are still alive at the end of the term, you have no life insurance and all the money you have spent is gone (unless you paid for a return of premium rider – that usually doubles the premiums that you pay).

Whole Life Insurance policies build cash value. This cash value can be used to pay ongoing premiums, purchased a “reduced paid-up” death benefit, or accessed as a loan.

Traditionally, Whole Life Insurance policies “endowed” or were “paid-up” at age 100. You would pay the level premiums until you turned 100, at which time your cash value would equal the stated death benefit and you would “cash out.” This was when it was almost unheard of to live to age 100. Now, some policies endow at age 120. There are also limited pay options, so you would only pay for 20 years, or until you turn age 65 or 80.

Whole Life Insurance policies should be tailored to the individual’s long-term needs and goals.

You can accomplish some amazing things with Whole Life Insurance and other permanent life insurance. (Stay tuned!)

The Retirement Miracle by Patrick Kelly [Book Review]

The Retirement Miracle by Patrick Kelly (Book Review)The Retirement Miracle by Patrick Kelly is a well-written book that effectively explains a powerful strategy for retirement planning. Kelly writes in an informal, conversational style that makes the subject matter easy to understand and accessible for people who don’t routinely read books about money or finance.

Shocking Truth About America’s National Debt

The first chapter reveals a little-revealed secret about the U.S. government’s debt obligations, especially pertaining to social security and Medicare. Shockingly, the reality is that the American Government’s fiscal issues are MUCH larger than most people know. We always hear that the national debt is $16 or $17 trillion. The truth is that it is really $76 trillion! This topic is so important, I wrote another complete post about it here. There are only two solutions to this impending disaster:

  1. Spend less
  2. Tax more

Chapter 2 ends with the question, “Which one do you think is likely?”

The #1 Principle for Wealth Accumulation

Kelly goes on in Chapter 3 to say “Protect your investment capital at all costs!” Really, he advises to never take losses! Impossible, right? What if there was a way to:

  1. Capture each year of positive gains, up to a maximum cap
  2. Never participate in a “negative” year in the market, making your worst possible return 0% 

(Hint: there is a way!)

The Somewhat Ugly History Universal Life Insurance

In Chapter 4, The Retirement Miracle gives a quick overview of the first two iterations of Universal Life Insurance were introduced in the 1980’s and 90’s.

  • Traditional Universal Life was issued during the highest period of interest rates on record. (The prime rate was double digits from October ’78 to May ’84.) These policies projected great results based on continued high interest rates. When the rates eventually reduced to “normal” levels, the policies crashed and burned.
  • Variable Universal Life policies were created to give people the opportunity to invest the insurance policy’s cash values in the stock market. Just as no one really thought about interest rates eventually going down, no one really considered whether or not the stock market could ever go down. When it did, these policies crashed and burned.

Third Time’s a Charm

In Chapter 5, Kelly introduces the third generation of universal life insurance: Indexed Universal Life. This policy combines the strength of the first two (growth potential) while offering peace of mind. The Top 15 characteristics of almost all Index Universal Life policies are then explained.

  1. Death Benefit: after all, this is life insurance
  2. Cash Accumulation which can be accessed tax-free up to the amount of paid premium
  3. Protection Against Market Loss guarantees the policy can NEVER have a negative return due to market losses
  4. The Annual Reset Provision that locks-in gains in positive years that can NEVER be lost in subsequent market down-turns
  5. Upside Growth Potential allows the cash value to grow with the indexed market, up to a ceiling amount or “cap”
  6. Tax-Deferred Growth means you don’t pay taxes until you withdraw more than your principal basis (which is the amount of premiums paid)
  7. Tax-Free Access to Cash Accumulation through the Policy Loan Provision… that’s right you can get ALL of your cash value back without paying taxes!
  8. No Minimum Age or Income Require so policies can be purchased for anyone at any age (e.g. children)
  9. No Mandatory Distribution – unlike IRAs and 401(k)s, which require you to take payments at age 70.5
  10. Access at Any Age – again unlike “qualified plans” which make you wait until you are 59.5.
  11. Protection From Lawsuits, Creditors, and Bankruptcy (in many states)
  12. Continued Investment if Disabled through a Waiver of Premium for Disability, so your policy continues even if you can’t work and earn money
  13. Does Not Make Social Security Income Taxable – if you have a higher income, your social security benefits become taxable. “Qualified plan” distribution plans count as income, policy loans don’t
  14. Avoids Probate after death since your designated beneficiary gets the proceeds
  15. Accurate Return Figures unlike most other financial products

 A Story

In Chapter 8, Kelly tells the story of “Tom”, who retired on the day he turned 65 on November 20, 2008. On this day, the S&P 500 ended down 52% from its all-time high on October 9, 2007. The index was actually closed at its lowest point in 11.5 years. Tom’s retirement account shrank from $2.5 million to $1.2 million in 13 months. To make matters worse, every dollar that Tom withdraws is taxable.

Accessing Money Tax-Free

Strictly speaking, life insurance cash values grow tax-deferred, not tax-free. If you wanted to cash out your policy, you would have to pay taxes on the difference between the value and the premiums paid. However, insurance companies provide a Policy Loan Provision that allows you to borrow against the cash value of your policy. There’s a big difference between borrow against and borrow from. Borrowing against is leaving your cash value as collateral. With a Fixed Loan or a Wash Loan, you earn the same rate on your collateral that you pay on the loan. For example, if your loan interest is 4%, your collateral would also pay 4%. The net cost of your loan is zero. Since this is a loan, it’s not taxable as income. This is tax-free money. The loan is paid back by deducting the amount from your death benefit when you die. Accordingly:

  • You must be sure to not borrow too much!
  • You must be sure that the policy stays in force until the insured’s death!
  • Be conservative with your projections and be sure the policy is illustrated to age 120 (vs. 90, 95, or 100.)

Never Lose Money!

Chapter 10 is so short, I’ll quote it in full:

With Indexed Universal Life Insurance, you will never lose money due to a market decline … ever! How good is that? (End of chapter. Really!)


So far in this review, I have essentially provided an overview and synopsis of The Retirement Miracle. If you’ve read this far, hopefully you are intrigued by the topic and the potential utilizing it in your financial plan. Kelly finishes the book with seven more chapters giving some more practical illustrations and answering some what-ifs. I strongly recommend this book as an introduction to the power and possibilities of Index Universal Life insurance. You can purchase your own copy of the book here on Amazon.

Copyright © 2016 by James L. Mahaffey II and Safe & Simple Financial, LLC .