Variable life insurance is a type of permanent life insurance with a varying cash value. The long-term savings, aka investment aspect, of variable life insurance provides a tax-free sum to beneficiaries. The amount of the policy’s total death benefit payout goes up or down depending on the performance of underlying securities held in the policy.

The volatility involved with variable life insurance is paired with tax-free benefits. The potential tax savings can be significant as taxes aren’t required on distributions.

Of course, there are higher risks involved with owning a variable life insurance policy versus a universal life insurance policy, which has a minimum guaranteed return each year.

It’s up to you to decide how much risk you are willing to take over the long-run with the cash value portion of your life insurance. During bull markets, policyholders can expect the returns to be higher than when the markets are down. During bear markets, the opposite is true.

Prospective policyholders who are risk-averse are typically better off with a universal life insurance policy, also known as a standard life insurance policy that has a pre-determined total death benefit amount. The fluctuating nature of variable life insurance’s cash value and its more complex structure tend to turn away the average consumer.

However, if you study the stock market performance over the long run, stocks have shown to return 10% on average per year since 1926. Therefore, if you have a long-term time horizon, going the variable life insurance route may perform better.

Think about a variable life insurance policy like investing in stocks and a universal life insurance policy more like investing in bonds. Bonds have returned closer to 5.4% a year since 1926.

We’ve talked about all the different types of auto insurance. I’d like to now talk about whether you should get an umbrella policy given this was the most brought up next step in the comments section. An umbrella policy is also known as a personal liability insurance.

When you’ve spent a lifetime building assets for your retirement, the last thing you want is to get sued for all your’re worth. Accidents happen all the time and the more you are worth, the more the injured person will go after you.

Umbrella Policy In Action

If someone in a $160,000 Porsche 911 Turbo GTS runs you over after running a red light, you’re probably more inclined to hire a lawyer and sue for big bucks than if you were run over by a 1985 Honda Civic!

Auto insurance policies only cover so much. My auto insurance policy has a maximum $500,000 liability per accident. I could get more liability, but the increase in premiums would make my insurance less worthwhile. Because I have assets over $500,000, I elected to get an umbrella policy to cover the rest of my net worth.

The chances of me getting sued for over $500,000 is slim because: 1) I’ve got to be found negligent in the accident, 2) I’ve got to create massive damage in the accident, 3) The victim needs to go through the process of suing, 4) The victim needs to win, 5) Cases are usually settled out of court for less, 6) I drive half the national average, 7) I’m a pretty careful driver with a slow car, and 8) I’m a nice guy!

Unfortunately, even nice guys get unlucky sometimes.

If I do get sued for say $1 million, I’m safe because my auto insurance coverage will kick in to pay the umbrella policy deductible, and then my umbrella policy covers me for the rest. The only out of pocket expense I incur will be my auto insurance deductible of $1,000.

Why Get An Umbrella Policy

1) You drive a fast car and have a net worth of $1 million dollars. You enjoy hitting the bars and clubs every weekend in your $75,000 BMW M3. Your hobbies include snowboarding, rock climbing, sky diving, and poker. Given you go out on the weekends, you also tend to have at least one drink before getting behind a wheel. At the age of 36, you just don’t want to settle down and have amassed a nice nut.

Assessment: You are higher risk than average. Get an umbrella policy with liability coverage of at least $1 million if not $2 million given you’re in the growth phase of your career. Also get comprehensive auto insurance that covers the damage of your car and liability of around $500,000 per accident.

2) You drive a $12,000 SUV, have a 12 year old son, are a homeowner, and worth $3 million dollars. You never go out to party on the weekends anymore. Your idea of a good time is snuggling up with your husband to watch Revenge on DVD. In six years, your son plans to go off to college at a cost of $50,000 a year for 4 years. You also have a homeowners insurance policy with $500,000 in liability coverage and a $5,000 deductible.

Assessment: You are an average risk person. Get an umbrella policy with liability coverage between $2 million to $3 million. Weight the value of peace of mind vs. the increase in monthly premiums for higher coverage.

Make a decision what the likelihood is that you will be sued for your entire net worth. $3 million is a nice figure that lots of people would love to lay their hands on. Your SUV is probably not worth getting comprehensive auto insurance, so just got with liability. If it gets destroyed, it sounds like you can easily buy a new one.

3) You drive a $8,000 Honda Accord, are the only working spouse, have three children, are a homeowner, and worth $800,000. You spend all your time at the office and then at home with the kids. Seldom do you ever go out. You’ve sworn off alcohol ever since you drove your car straight into a tree six years ago. You are working like a mad man to provide for your family and wonder whether tuition costs will continue to spiral out of control. Every time you think of the fact that three people are depending on you, you start to get a panic attack.

Assessment: You are an average risk person who definitely needs an umbrella policy. You do everything a normal person would do as determined by the insurance actuaries, but you’ve got three dependents. If something happens to you, or you cause an accident, a lot of people will be negatively impacted.

Not only get a $1 million umbrella policy get another $1-2 million in term life insurance policy that will go towards your kids if you die. A comprehensive auto policy is probably a waste of money, but it depends on your liquid assets and how safe of a driver you are now.

4) You have two teenagers and a net worth of $600,000. Try as you may, you feel you can no longer control your children. They aren’t very good students, aren’t going to win any athletic scholarships, hang out with the wrong crowd, and have a lot of angst. Because you don’t want to be the uncool mom, you allow your teenagers to drive.

Assessment: Your teenagers put you at huge risk because you are responsible for all their actions before the age of 18. Everyday you pray they come home safe. Absolutely get a $1 million umbrella policy! Your teenagers could bankrupt you in a heartbeat!

5) You are a landlord and/or business owner with a $350,000 net worth. When you have customers, you invariably open yourself up to more risk. I feel sorry for doctors who are trying to save lives but constantly operate under the assumption they will get sued by their patients. As a landlord, no matter how hard you screen your tenants or assess the safety of your unit, something bad may happen. Same thing goes from running any business.

Assessment: You absolutely should get an umbrella policy worth $1 million or greater for potential garnished wages. Landlords should have landlord insurance and business owners have various business insurance options. The world is a very litigious place. Live the American dream but protect yourself.

Example that does not need an umbrella policy: You drive a $27,000 Jeep, earn $65,000 a year, are married with a non-working spouse, have no children, do not own a house, have $8,000 in credit card debt, and are worth a combined total of $60,000.

At the age of 27, your vehicle is a blight on your finances because of the cost. All that money spent paying the monthly payments could go towards a downpayment on a house, or investments in the stock market. You still feel young and invincible with an attitude that you can work forever!

Assessment: You are a risk taker because you’re putting your life in harm’s way with poor financial habits. As a result, you will likely never amass a net worth even close to $1 million. This is great because you therefore don’t need an umbrella policy. Your expensive comprehensive auto insurance policy which acts as a lead balloon on your net worth will do.

Don’t Get To Big Of An Umbrella Policy Either

How much insurance you have can be estimated via public records. If you are deemed at fault in an accident, by the time a lawyer calls you they will make a guesstimate as to how much insurance coverage you have.

If you have a net worth of $1 million, but have an umbrella policy of $5 million, guess what? The lawyer is probably going to be more motivated than if you had a smaller policy. After all, it costs the same to sue someone for $1 million or $5 million. 

The irony is, if you had no umbrella policy and only an auto insurance liability coverage of $300,000, the lawyer may not want to pursue, or will go for a maximum of $300,000, even if you have millions of dollars in net worth. This now becomes a game of how good you are at hiding your assets!

Insurance companies also don’t want you to have more umbrella policy than you need due to their liability reasons obviously. You pay the monthly or yearly premiums, but they pay the full amount. The good thing to note is that the higher your umbrella policy, the more inclined your insurance company will be to fight for your rights!

Umbrella Policy Insurance Amounts Depends On Your Situation

You can certainly go without an umbrella policy, but I wouldn’t recommend it if you have a net worth beyond your auto or homeowners liability coverage. My auto insurance liability covers $500,000 per accident. Sounds like a lot, but what if I cause a 10 car pileup on the freeway? Suddenly, $500,000 doesn’t seem like that much anymore.

You’ve got to check the latest insurance rates and make an informed decision. According to the Insurance Information Institute, a $1 million umbrella policy typically costs between $150 to $300 a year.

Each incremental $1 million dollars of personal liability insurance costs on less and les. Here is what it will cost me for various levels of umbrella policy with my insurance company. Here is what an umbrella policy will cost me after checking with AllState, a trusted insurance provider.

* $182.77 a year for a $1 million umbrella policy.

* $304.62 a year for a $2 million umbrella policy.

* $414.28 a year for a $3 million umbrella policy.

* $577.56 a year for a $5 million umbrella policy.

As you can see, it only costs about $150-$185 a year for $1 million more umbrella policy coverage. If you are worth in the millions of dollars, you won’t even notice a difference in premium costs. Even if you are only worth $500,000, $185 a year is chump change for your peace of mind.

Hence, my recommendation is to cover yourself for the full amount of your net worth up to 50% more to account for growth. In other words, if your net worth is $2 million dollars, get an umbrella policy worth $2-3 million dollars.

When it comes to insurance, I always believe it is better to be safe than sorry. If you are wavering to get an umbrella policy, then you most definitely already need one!

Related Reading: Three Things I Learned From My Estate Planning Attorney Everyone Should Do

Recommendations To Protect And Build Wealth

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Updated for 2021 and beyond.

There are so many life insurance options that the complexity can paralyze you into not making a decision. This is a problem since life insurance is important if you have dependents, are a sole or majority income provider, and have major debt.

Personally, I took out a 10-year, $1 million term life insurance policy when I was 28 when I took out about $1.2 million in mortgage debt. I didn’t want to saddle my girlfriend at the time, the burden of having to may off that mortgage in case I were to die. She lived with me in the house and was the beneficiary of the house. I already knew I wanted to marry her.

Then I decided to take out another 10-year term life insurance policy in my later 30s in anticipation of having children. Three years after I took out the policy, I had my son, who is a miracle. Then we miraculous had a daughter 2.7 years later! It was then that I realized I should have taken out a 20-30-year term life insurance policy instead..

When I went back to try and get more life insurance at age 42, I was met with a surprise that my premium would go up multiple fold because I was over 40 and had gone to the doctor to check out my snoring, for fun! Lesson learned. Never see a doctor for a non-life-threatening health issue before getting the ideal life insurance policy you want.

Not only do I regret not getting a longer term life insurance policy, I kind of regret not getting a permanent life insurance policy that could have taken advantage of the bull market since 2009.

To minimize confusion, let’s have a detailed look at all the various life insurance options so you can make the best choice for you and your family. I’ve spent over 30 hours analyzing all the life insurance options.

Have you ever received a selfless act of kindness? Perhaps the car ahead paid your bridge toll. Maybe a stranger helped pick up your groceries when the bag ripped open. Or perhaps you received a life insurance payout when a loved one passed away.

I hate bad luck. And dying prematurely is the worst bad luck there is! Do you have dependents, best friends and extended family that you love dearly? Getting a life insurance policy is a selfless act of kindness you can bestow upon them.

Life Insurance Is A Bad Luck Insurance Policy

I don’t know about you, but I go through strings of bad luck every several years. This makes me question whether I’m sometimes cursed.

For example, my car Rhino wouldn’t start one morning. I had to call roadside assistance to have them jump him so I could then drop him off at the service department. He was in the shop for a couple days and the day after I picked him up, he wouldn’t start again!

I had to cancel my road trip to Lake Tahoe that morning to take him back to the shop and waste another couple hours of time. While I was driving around in a rental car, I was pulled over and given a $160 ticket because I was looking (not touching) at my phone on the center console for directions while stopped in traffic.

If Rhino had never died, I never would have gotten a ticket because my phone would be in the phone mount as usual. Curses!

The reason why I hate bad luck is because it’s outside of our control. We can do everything right, but still not succeed due to unfortunate circumstances. As they say, it’s better to be lucky than good! I see life insurance as a bad luck insurance policy.

Understanding what natural disaster insurance is and whether it’s worth it is important if you live in a high risk area. Let’s learn how floods, wildfires, hurricanes, and earthquakes are covered under an insurance policy for natural disasters.

I’m a multiple property owner in San Francisco which is a high risk area for earthquakes. Over the years I’ve felt dozens of earthquakes here. Fortunately, none of them were large enough to cause any damage. Since I moved here, I’ve researched natural disaster insurance for earthquakes quite a lot over the years.

A Natural Disaster Can Strike At Anytime

Before I sold my house in the Marina district of San Francisco, I always had a slight worry whether it would survive the next big earthquake. The Marina district is a highly desirable neighborhood in the north end of San Francisco. But, it is mostly underlain by saturated silts and sands that may liquefy if another large earthquake hits.

The last big earthquake in San Francisco was the Loma Prieta earthquake on October 17, 1989. It killed 63 people and collapsed a section of the Bay Bridge. In addition, it caused several buildings to burn down in the Marina due to ruptured gas pipelines.

Natural Disaster Insurance Is Expensive

However, each time I got a mandatory earthquake insurance offer in the mail, I passed. The deductible (10% of value of home) was so high and the premium ($5,000+/year) was too expensive.

I’d ignore the risk I was taking until I’d get the same offer in the mail the next year. I figured worst case, I’d have to spend $650,000 rebuilding a 2,300 sqft structure.

Now that I don’t own a home surrounded by liquefaction, I do feel a sense of relief. It’s as if I “escaped” almost 13 years of ownership without experiencing a natural disaster.

Fear Mongering Abounds

So many people who don’t live in San Francisco constantly reminded me about the risks of earthquakes before I bought. Then after I bought, even more people from SF who didn’t/couldn’t buy a home tried to instill fear in me.

What gives folks? Can’t you just be happy for someone’s largest purchase?

As a result, I worried about earthquakes while I was in the process of selling my home. Selling a home is much more stressful than buying a home.

If you don’t buy a home, there is no loss except for dashed dreams. If your home falls out of contract when selling, vultures will start circling.

Devastations seem to happen around the country every year. Thus, I’ve begun to wonder again if I should get natural disaster insurance to cover my remaining properties.

My homeowner insurance policy already covers fire damage. Yours may or may not.

Related: Does homeowners insurance cover fires?

Cash value life insurance is a type of permanent life insurance policy. Unlike term life, which only has a death benefit, a permanent life insurance policy has a death benefit and a cash value.

Cash value life insurance is just another name for permanent life insurance or whole life insurance. The names are often used interchangeably.

It’s strange how the life insurance industry has so many different names for the same product. But now you know.

Universal life insurance is a type of permanent life insurance policy. A permanent life insurance policy is a policy that lasts a policyholder’s entire life. There is a death benefit paid out to beneficiaries and a cash value that builds up over time.

Universal Life insurance is one of the most popular types of permanent life insurance. The other popular type of permanent life insurance is whole life.

This article will focus on defining universal life insurance, comparing universal life to whole life, and describe how both works.

Have a teenager? Get an umbrella insurance policy asap if you don’t want the risk your teenager bankrupting you. Yes, you love them, but they can put your finances at risk due to all the trouble they get into.

Even though my kids are young, I’m not waiting for their teenage years to get insured. In fact, I got an umbrella insurance policy many years ago before they were born. And here’s a story of one of the reasons why.

Accidents Happen Every Day

I was driving downtown to drop my wife off at the museum when a car started drifting dangerously into my lane. Instinctively, I beeped the horn to alert the driver. Then, when I drove by, the teenage kid in the back seat flicked me off! 

I didn’t have a long annoying horn, nor a machine gun type rat-ta-tat-tat beep. All I did was beep once so we wouldn’t collide. The father was reading a map and driving at the same time.

I have to admit that my blood started to boil. Teenagers! I was tempted to blast him a new one when their car stopped next to me in front of the light.  Instead, I buzzed down my window, stared intently, and told the kid, “Don’t embarrass your parents.  I beeped at you guys because you were halfway in my lane and didn’t even know it.”

The dad was still clueless as to why I was talking to his punk kid and he also rolled down his window to ask, “What’s up?”

“You’re kid gave me the finger, that’s what’s up. You’ve got yourself a live one,” I said. The mom in the front passenger seat started questioning her son and then started screaming at him. She apologized on his behalf and said in an exasperated voice, “Teenagers!”

Teenagers Are Liabilities

In my earlier days, I may have got out of the car and lost it. Maybe we’d have a rumble in the middle of the street, I don’t know. 

What I do know is that teenagers create a ton of trouble and are one big fat liability for parents. I should know, because I remember almost burning down my parents’ apartment when I tried to set my bed on fire!

If your teenager gets into a car accident and injures someone, you as parents are the ones liable for all the damages!

Umbrella Insurance Policy (AKA Excess Liability Insurance)

An umbrella insurance policy is simply an added insurance policy that kicks in after your auto and home-owner’s insurance runs out. 

Some people make the mistake of getting an umbrella policy that matches their assets and no more. 

But what if you have $500,000 in assets, and someone sues you for $1 million for slipping on your front steps? 

It’s better to get an umbrella insurance policy with coverage of at least 50% more than your total assets.

Protect Your Financial Health With An Umbrella Insurance Policy

You spend your entire life building your assets. Thus, you owe it to yourself to protect your financial health with an umbrella policy. We’re in lawsuit happy land, so better safe than sorry, especially if you’ve got a teenager! 

If you entertain a lot, have a home business with clients coming and going, or drive constantly for work, these are other reasons why you should consider an umbrella policy.

In a good way, it’s nice having very little to your name as an adult. If you’re found liable of something bad and lose in court, what are they going to go after, your underwear?

During open enrollment season, study your employee benefits carefully, and do your best to forecast your anticipated healthcare and insurance needs. Are you getting Lasik corrective eye surgery?

Max out your Flex Spending Account (FSA), which is a pre-tax expense. Anticipating visiting the doctor next year to check out a chronic knee injury? Perhaps go from a high deductible medical plan to a low deductible plan since you may need surgery.

Make sure you have long term disability in case you get injured and can’t work for months.

Furthermore, get as much supplemental life insurance as possible if you have dependents. Lack of insurance is one of the leading causes for financial ruin, so make sure you have at least the minimum coverage to protect yourself if disaster strikes!

Be well! Do you know where your teenager is?

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Recommendations

Get Affordable Term Life Insurance

Check out PolicyGenius, an independent insurance broker that is revolutionizing the way we shop for life insurance – for free!

Answer a few simple questions on PolicyGenius’s website and instantly receive free, personalized and comprehensive life insurance quotes. 

PolicyGenius provides free, unbiased advice on more than 25 A-rated top life insurance companies they have thoroughly researched and vetted.

Because life insurance prices are regulated, you don’t have to worry about not getting the best deals. PolicyGenius helps you compare the best quotes all in one place.

Track Your Wealth For Free

In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools.

You can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their fantastic Retirement Planning Calculator.

Those who are on top of their finances build much greater wealth longer term than those who don’t. I’ve used Personal Capital since 2012. It’s the best free financial app out there to manage your money.

Updated for 2020 and beyond.