Life insurance: Best to keep universal life policy – or drop it?

Life insurance packaged in a universal life policy is rarely the best investment. Term life insurance is cheaper; other investments, better. See question No. 4 in this Reader Mailbag.

By , Guest blogger

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    When she was married Ruby Campbell did not have life insurance, but now that she is the sole provider, the Nampa, Idaho, mother of two, Amanda and Cody, she has a policy. Most of the time, universal life doesn't offer the best deal.
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What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Relocation decision
2. Filing internet documents
3. Roth IRA novice
4. Universal life insurance
5. Exchanging money
6. Graduation gifts
7. Cooking a whole chicken
8. Blogs and giveaways
9. Reversing charge-offs
10. Mortgage now or later?

It is absolutely amazing to watch my five year old son and his one year old little brother interact with each other. They’ve been playing a game that they’ve made up with a green ball and a pink ball for half an hour – seriously – and they’re both still laughing. They entertain each other so much.

Q1: Relocation decision
I have a college degree in journalism, I worked in the field successfully for 10 years. However, I was faced with constant cuts in benefits, low pay (highest I ever got was $27,000 as a weekly newspaper editor), low morale, positions eliminated and being told to take on the extra work, but yet not allowed overtime or comp time, etc. etc. Oh, and at my last job, the ceiling was literally falling down on us. The last straw was last month the owner of the company told me to ignore certain “controversial” news stories and write more “positive” stories. I was told to ignore elected officials’ violations of the law. This was in direct violation of my professional code of ethics, and like I said, it was the last straw. I resigned.

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I am now at home with my 7-month-old son. It has been an adjustment, I have worked all my life. My husband is an EMT and makes decent money (around $26,000 a year base salary) and gets lots of overtime whenever he wants, especially now I’m at home for childcare. He really likes his job. I am bringing in money as a SEO content writer. Writing comes easily to me, and I can make the same money I made as a journalist in half the time. Neither one of our jobs offered good health benefits so we always bought our own insurance, so we’re ok on that.

We do have quite a bit of consumer debt, one car loan, and some smaller medical debts from our son’s birth. I have worked so hard this year paying the smaller debt off. I’m paying the minimum on the credit cards and hopefully will be able to focus solely on the credit car debt by the end of the year. We live in western Kentucky which thankfully has a low cost of living.

I have a job opportunity in June back in our hometown. We have lived four hours away from our families for 10 years, we miss them so much. And they miss us, and now the grandbaby (first grandchild on both sides of the family!). The job opportunity is a reporter position at a newspaper — $27,000/year with decent benefits. However, they were upfront about pay freezes and furloughs (4 unpaid days every quarter). The company that owns the paper is hurting, as are most print newspapers.

If I take that job, we will have to move in with my in-laws until my husband finds a job. They have an apartment in the basement, and an already set-up nursery. I love my in-laws, and I project we’d probably be with them for about six months until my husband gets a job and we can find a place to rent of our own.

But I am torn. I’m stating to like being a work-at-home mom! I worry that SEO writing may not always be a good option though. I used to do merchandising, court research and mystery shopping for side income, and I could always get back into that. I feel there are lots of ways I can bring in money but also be here for my son. My husband and I have our routine down with childcare and balancing our schedules. We rent a little house that’s perfect for what we need. Working from home I am so much less stressed. I’ve started writing a book! The house is cleaner! We plan and cook our meals more! We have inexpensive family outings once a week now!

So our two options are: A. Stay where we are, four hours away from family, and I work on diversifying my work-at-home options while writing SEO content articles. Keep working on our 3-year plan to get out of debt and have a second child. Or B. Move back home, and I take the reporter job, which is a more guarenteed income — maybe. My husband is unemployed for a while and we live with family. Our debt repayment plan will probably have to take a backseat for a while till we get re-established. But at least we have the support of our family and my son will grow up around his aunts, uncles, grandparents, etc. What do you think?
- Sarah

If you are surviving financially in your current situation, your biggest consideration should be to create the best life for you and your family. The decision to move back home depends heavily on your relationship with your family.

It sounds like moving back there would give you income equivalence with what you have now (you’d have a job that paid roughly what your husband’s job pays now), so there’s not a big difference there.

If you’re deeply concerned about the bottom dollar, are you sure there isn’t an option C, where you move back home, take the job, still do some freelance writing in your spare time, and see what happens? After all, you’ll have the support of family, which should make it easier to find some spare time for things like this.

Q2: Filing internet documents
You talked about the electronic filing system in the 100 things to do during a money free weekend. You wrote that in 2007 and talked about scanning all your documents. For the most part almost all my bills etc. come via the internet, at least all my regular ones do. Does that change anything about your system? If I can access all those bills via my different accounts with do I need to save them additionally as well? I also keep 7 years back worth of my financial papers but then I shred (and burn) the years previous to that each year. I thought that was as far back as was necessary to keep?
- Andy

The solution here is easy. Just save copies of the electronic statements you receive in the folders you use for your document filing. If it comes in an email form, save that email. If you retrieve them from a website, log onto that site and save the statements.

The key is to have easy access to all of these statements in one place on your computer. If you’re getting most of them electronically anyway, this process just becomes much easier.

If you’re keeping everything electronically, there’s no reason not to keep older statements. It’s just a tiny slice of hard drive space.

Andy had another question of interest, too.

Q3: Roth IRA novice
Should we work with a financial planner to establish Roth IRAs or is this something a novice can do? Honestly I have read the investment stuff in the past and learned a lot through the Motley Fool back a decade ago but honestly that sort of thing makes my eyes roll back in my head and my mind swim. My husband and I both work in education (elementary teacher and librarian) so our jobs everyday require lots of thought, decision making and learning. This aspect (index funds, company financials etc) of taking care of our finances just feels like it sends my brain into meltdown mode.
- Andy

I did my Roth IRA myself with little difficulty. I spent some time researching various investment houses, settled on using Vanguard, and then they walked me through setting things up. I then spent some time looking at the various investment options there before settling on just using a Target Retirement Fund.

The advantage of using a planner is that you don’t have to spend the time researching. The disadvantage of using a planner is that you’re hoping they don’t have their own agenda and are genuinely picking the best option for you. For example, planners will sometimes steer people towards certain investment houses and plans so that the planner can earn commissions, even though the option isn’t really the best one for you.

The piece of the puzzle that usually pushes me to encourage people to do it themselves is that you tend to learn quite a lot during the process.

Q4: Universal life thoughts
I wanted to get your opinion on Universal Life policies and whether or not the savings mechanism built-in is worth it as compared a simple Term Life policy and a separate savings account. I know Dave Ramsey’s take is that it not really worth it which for the most part I can see the argument, I just think at this point in time it might be worth it for us. My Husband as a $100K Unviersal Life policy with a monthly premium of $100. Basically $24 of the monthly amount goes to account expenses/fees and the actual premium for the coverage. The remaining $76 is put into account with a declared interest rate of 4.75%. So for us right now its basically a forced savings account. I like to think of it as our Emergency Fund since basically that is basically what it has become at this point since we have no savings. We are currently in a position where due to decrease in income (45% of my husband’s income), past poor decisiosn and spending habits, we have more going out than coming in. Our current take home is $6200 on a low month and $7700 in a good month at this point. We have a high mortgage (1st has been modified and we are working on the 2nd), a high car payment that will be paid off in 28 months, $55K in Credit Card Debt, plus the standard monthly utilities bills, gas, groceeries, etc. We are trying to get back on track and are committed to getting out of this mess. My husband has a second job which has for right now temporarily supplemented an additional loss of income from his 1st job – my husband is self-employed. We’ve cut the cable which saved us $70 a month which then immediately went to pay for the increased gas budget. But I’m glad we cut it. My question is given our situation are we better off actually having a regular savings and getting rid of the policy (he does have another $250,000 Term Life policy) and just create our own forced savings plan since for the most part the interest earned annually only partially covers the expenses on the account, or for the time being keep it and reevaulate in a few months? Your thoughts would be greatly appreciated.
- Ron

If you look at the components of a universal life account, what you’ll find is that you’re usually buying an overpriced term life policy packaged with some sort of savings account opportunity. Taken alone, the savings account option often looks really good, but what’s often neglected is that in order to put money into that account, you have to buy a really suboptimal policy. While I can’t quote you a life insurance rate, I would not find it surprising that your husband could get a term life policy for $16 a month rather than the $24 a month you’re paying into the universal policy.

So, if you run the math there, you could either have that universal policy in wich $76 a month goes into an account that returns 4% or, with a separate term policy, you would have $84 a month to put into an account that earns, say, 1% or 2%. It will take a decade for the universal life account to catch up to the ordinary savings account, and if you’re looking at that kind of timetable, you’re better off putting that money into a diversified stock investment (which gives you a solid likelihood of earning substantially more than 4% per year).

In other words, if you’re looking for a short term investment, like an emergency fund, you’re better off with a term policy and a savings account. If you’re looking for a long term investment, you’re better off with a brokerage account and a term policy.

The only advantage that universal policies have is the idea of “forced” savings, in that you’ll lose the policy if you don’t pay in. With a separate savings account, you don’t have that pressure to pay up, so it’s easy to slack off.

If you don’t have a history of keeping up with a regular savings plan, the “forced” aspect of the universal policy is a good option. Otherwise, it’s not a great investment.

Q5: Exchanging money

I am traveling to Europe in a couple of weeks, and I’m not sure what to do about money. I called all my credit/debit card companies, and they all charge a fee for international transactions. It depends on the card, but it’s about 3%. That 3% can add up pretty quickly. Should I exchange all my money before I go, and if so, where should I exchange it? The dollar-euro exchange rate sucks right now, so I want to make sure I’m getting the most bang for my buck.
- Michelle

Almost every exchange you do will have some sort of fee attached to it. If you find an exchange that’s fee-free, you’re probably getting an awful exchange rate. Businesses have to make a profit on the exchange. They’re providing a service and you have to pay for that service.

Although you have to check on the current rates, the best rates are generally those from ATMs. Currency exchange booths often offer a poor exchange rate and a fee on top of that. Banks typically charge a fee, but usually have a good exchange rate, particularly if it’s a large bank that operates in that country.

Unfortunately, you’re probably going to be losing 2-3% on your exchanges when traveling abroad. It’s just unavoidable.

Q6: Graduation gifts
Do you have any good ideas for (relatively inexpensive) high school graduation gifts?
- Sherry

It really depends on the graduate. I find that a well-thought-out gift that connects with that particular student can often be far less expensive and more meaningful than a generic gift.

For example, I know one particular graduate this year quite well. I’m planning on getting him a gift that’s very in tune with who he is, but it’s not an expensive gift. On the other hand, we’re almost spending as much on another graduate that we don’t know nearly as well.

If you don’t know a graduate well, do some research into that graduate. Find out what you can about them. Use their “likes” on their Facebook profile as a guide. Talk to the graduate’s parents a little bit. You’ll eventually find yourself going in a sensible direction.

If all else fails, get them a copy of Your Money or Your Life.

Q7: Cooking a whole chicken
A few days ago,I purchased a whole chicken (instead of my usual frozen chicken breasts). I recently bought a slow cooker so I slow-cooked it today and intend to make stock on Saturday (I re-read your post from a couple years ago about cooking a whole chicken).

I have 2 questions and I need answers so I can make the stock on Saturday. I do appreciate a quick response.

1) what was I supposed to do with the giblets? I took them out and put them into a bag before I cooked the bird, now it occurs to me that maybe I should cook them before I throw them into the stock pot with all the other stuff that’s already been cooked. Should I have cooked them with the bird and then pulled them out? Should I boil them before making the stock? Or is it safe to throw them in the pot raw because they will get cooked there?

2) what about the liquid left in the slow cooker? I tried to screen out all the solids (bone, pieces of meat, and onion) from the drippings and ended up just putting all of it into a container. Should I/can I use the liquid in the stock? Wouldn’t adding this to the stock increase the fat content? (I’m using fat and skin in the stock so maybe that’s a moot question).
- Kelly

With the giblets, you can certainly cook them either before or in with the stock you’re preparing. I would have no objection cooking the giblets right in the stock if the water was nearly simmering (around 200 F).

The leftover liquid, on the other hand, is gold. Don’t throw that out. That’s the truly flavorful part of the stock.

If you don’t want “lumps” in your stock, you can always strain it through a cheesecloth or through a very fine strainer. A cheesecloth will leave you with a pure liquid. A fine strainer will leave you with a liquid with some small particles in it. Personally, I don’t worry about tiny bits of vegetables when I make vegetable stock (or tiny chicken bits with chicken stock). I just fish out the big pieces and call it good.

Q8: Blogs and giveaways
I’ve been contemplating for some time trying to monetize my blog, and try to get into doing reviews and giveaways. You probably don’t follow “mom blogs” but reviews and giveaways are All over the place there, for a variety of products – “green” things, cloth diaper related items, big ticket items like car seats and other bigger ticket items, and things in categories I don’t even know about. I admit that I am especially interested in getting new “free” things.

My readership isn’t very big, but I have slowly found new readers by participating on other blogs, and a little bit through twitter (most of that all related to participating in giveaways). A significant number of my readers view the posts/comment only on my personal facebook profile, and I don’t know how that would translate over.

Part of my struggle in going for it is that I don’t want to push away family and friends from reading my blog because of too much advertising/reviews/giveaways. I don’t want to clutter their twitter feed with all of that either. However, I don’t know that starting a new blog just for the purpose of reviews or giveaways is quite what I want to do, since I like the idea of having more than just review after review. I’ve already created an “alter-ego” on twitter, but it’s separate from my personal blog.
- Ellen

Many blogs get into a habit of giveaways because giveaways provide a “spike” to your traffic numbers. If you do a giveaway that lots of people know about, you’ll get a very short term jump in traffic. This translates not only to immediate ad revenue, but also makes it easier to sell your site for future ad revenue.

The problem, as you’ve seen, is that loading your blogs with too many giveaways will drive away the actual readers, so if you start having a lot of giveaways, you have to keep them up to maintain the traffic numbers you need. Instead, your “readers” will be people who just hop to your blog for the giveaways, never to return.

If I were you, I’d separate the two. Start a Twitter account and a Facebook fan page related just to your site, then tell your family and friends about it. If they’re interested in such things, they’ll follow the new Twitter account and the Facebook fan page. If they become disinterested, they can always un-follow the Twitter account or un-like the Facebook fan page without deleting their connection to you.

Q9: Reversing charge-offs
After several years of job insecurity and random financial mess, I am finally in a place where I am paying down my debt in a significant way. Although many of my debts were consolidated through a CCCS-approved plan, there are a few that were “left behind,” because they declined to participate.

These debts are now charged-off, I believe, and have been sold to outside collections agencies. Since I am in a better and more stable situation, would it be possible to get in touch with the original creditor to try to salvage the relationship and pay them back directly, or do I have to deal with the folks who purchased my debts?

I want to make repairs to the damage I’ve done to my once perfect credit report / score as soon as possible, and move on with my life without having the specter of poor credit follow me for another seven years, but it seems like it’s going to be impossible.
- Kevin

You can certainly try, but most of the time, the original company will simply just refer you to the collection agency. Their hands have been washed of the situation and they no longer own the debt, so they don’t have much reason to get involved. They may be willing to clean your report a bit if you get things fixed, but that’s never a guarantee.

Your best bet is to negotiate with whoever holds your debt now. You want a settlement that will clean your credit report as much as possible. Be up front about this and keep on them if they don’t quickly fix your report after you’ve paid up.

It’s likely that you’ll never be able to clean up everything, but you should be able to clean up some of it.

Q10: Mortgage now or later?
I am days away from being 28 years-old and am currently in the market for a multi-unit home. This will be my first home purchase and I have around 50K prepared for any up front costs (down payment, settlement costs). These savings are in addition to an emergency fund, as well as other misc. investment and retirement savings. The homes I am considering are in the 175-225K price range, and I am just starting to evaluate my financing options (30 vs 15 vs ARM). Specifically, I question whether or not any specific option is better for someone who only plans on residing in the home for 5-7 years, and then renting out both units, or possibly selling the home. It would seem best for me to seek low to medium up front costs even if that brings a somewhat higher APR. Any thoughts or insight would be warmly welcomed!
- Amy

I would choose a 15 year mortgage over a 30 year mortgage, given a choice between the two. A 15 year mortgage is almost always coupled with a lower interest rate, and between the lower rate and the longer term, you’ll find yourself spending far less in interest than with a 30 year mortgage.

As for the ARM, I would avoid it. ARMs are prevalent because people who sign up for them are under the belief, just like you are, that their future is smoothly charted and they’ll be selling the house in five years just like they planned.

Real life doesn’t always work that way, though. Your financial situation in five years might not make selling that house a good move, in which case the adjustment will be incredibly painful. You’re far better off locking down that interest rate via a 15 year fixed rate.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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