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Ten years ago I started contributing into a universal life insurance plan. The plan attracted me because I could reclaim the monthly premiums and interest made in the account, minus a modest relinquishing fee. The policy would have provided a $50,000 life insurance payout to my family upon my death. The policy also had a feature that would have paid me $50,000 at the age of 95; I remember making the policy agent laugh when I teased that this was their way of saying, "OK, OK you win. Now get out of here old lady!"
Ten years ago a $50,000 life insurance policy seemed like a reasonable way to ensure that my family had some breathing room to financially adjust to the event of my death. In 2012, $50,000 just doesn't go far. An inquiry with my life insurance provider revealed that it would take an additional $40 a month to increase my universal life insurance policy to $100,000. (Thus my new monthly premium would be $88.) I had heard too many radio advertisements for $250,000 term life insurance policies that cost $30 a month; there was no way I was about to spend $88 a month to only insure that my family receives $100,000 in the case of my death.
I shopped for a company to buy my term life insurance policy with the belief in mind that an insurance policy is only as good as the company who issues it. Thus I did not base my choice on cost alone. I bought the policy through my well-established credit union with whom I have over ten years of positive banking experience. I purchased a $150,000 term life insurance policy for a monthly rate of $23. It is nice to know that my family will receive this healthy amount of cash in the case of my death but there are a few disadvantages to term life insurance.
Unlike a universal life insurance policy, the premiums from a term life insurance policy cannot be relinquished by the policy holder. Another disadvantage is that after twenty years the policy runs out and new terms and monthly premiums have to be arranged; it will certainly cost more to insure a twenty year older me. My children will be adults by the time my term life insurance policy expires though; it is my hope that in twenty years our kids would not depend on a life insurance payout to survive financially. Thus our plan is to purchase a policy that provides a lower payout in order to offset the increase in price due to older age.
After considering the disadvantages of a term life insurance policy, I determined that the advantages were much greater.
- For $23 a month my family is assured to receive $150,000 in the case of my death; by making this change I saved $25 a month while at the same time increased my life insurance pay out from $50,000 to $150,000.- After I paid out the policy relinquishing fee, I received a check for $2,800 from my universal life insurance policy. This windfall was used to pay off credit cards and to grow my kids' college funds.
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