Dave Says

Friday, June 27, 2008 at 4:02am

Dear Dave,

My life insurance agent recently sold me a universal life policy. When I mentioned your name and asked if term life insurance was better, he laughed and said term insurance is horrible. I’m a little confused right now. What’s the truth here?

—Guy

Dear Guy,

The truth is that universal life insurance is one of the worst financial products on the planet. You need to find yourself another insurance agent!

If a 30-year-old buys $125,000 of universal life for 20 years it will cost around $145 a month. That same person can buy $400,000 of 20-year level term insurance for about $15 a month. That’s a savings of $130 a month! The term life may not have a savings program attached, but you can do your own saving using good, growth stock mutual funds and get a much better return.

Within the first three years you’ll generate nothing with universal life, because it all goes to fees and commissions. Plus, studies show that the average net yield on universal life is only two to five percent. That stinks! The 30-year-old who bought universal life will turn around 20 years later to find it has a cash value of about $27,000. By the time he or she is 70, the cash value will only be about $66,000.

On the other hand, if you buy good, level term insurance and invest the difference you’ll see in savings in good, growth stock mutual funds, it will be worth $133,000 at age 50. By the time you’re 70, it will be worth about $1.5 million!

Which one sounds better now?

— Dave

Dear Dave,

We’re so close to being debt-free, but I can’t get my wife to stop using credit cards. We pay them off every month, but it still scares me. I’ve tried to get her to use a debit card instead, but she doesn’t like the idea of having $500 in the bank and seeing something she wants that costs more. Any ideas?

—Dan

Dear Dan,

I think the real issue here is that the girl is just a little bit spoiled. I also think that you guys aren’t working together on your money. It sounds to me like she does whatever she wants, and then you guys cover it. That’s not togetherness.

To most people credit cards represent three things. One, they represent convenience. They’re easier to use because you don’t have to fool with a checkbook in the grocery store line. Two, they represent security. If you’re away from home and need money, you can just pop it into a machine. And No. 3, they’re a way to get stuff you can’t afford. This doesn’t sound like the case here, because you pay them off every month. But the fact remains that a debit card will do virtually anything a credit card can do.

I want the two of you to sit down together and start doing a written budget every month — on paper, on purpose before the next month begins. Ask her how much extra she’d need in the account each month to feel comfortable, and come to a reasonable, affordable agreement on this. Then, you pull out the scissors and cut up the credit cards — together.

You need some flexibility here, Dan. But she needs to grow up and get over the idea that she’s supposed to have whatever she wants the second she wants it!

— Dave

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