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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: After meeting with a Financial Advisor Date: 10/3/2003 5:26 PM
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Aida2003, you wrote:

<< Here is what my DH and I heard...
In order to have calculations prepared how much we will need in the retirement years costs starting $750 and up depending on the complexity of the calculations.
>>

Hmmmm??? Then $750 for a “simple” calculation looks pretty darn high. . . .when it might take all of 1 hour to do. I would think that such retirement income planning would tend to start more around $250 to $350. But, maybe the person simply doesn't want to do anything “simple” to at least get a minimum billable time of $750.

<< Since we said we have little Term life insurance (thru our companies and at the time being we're not concerned about extra because we have no kids yet), the advisor suggested buying a Variable Universal life insurance. So, we discussed both UL and VUL insurances, but for some reason he talked more about Variable UL. According to him, Variable UL insurance costs almost the same as UL but it has investment opportunities.>>

COI (Cost of Insurance) and a few other insurance related charges may be about the same (maybe this is what he was referring to). BUT . . . . .the investment side of a VUL has MUCH higher costs involved than a UL due to the likeness of the separate account to mutual funds (from in insurance policy point of view). From an investment point of view, the “investment” has the COI as an added cost that can weigh heavy. A comparable comparison for a VUL is much like buying term insurance and investing in loaded mutual funds in some kind of tax shelter. So, the “costs” in a VUL really are NOT “almost” the “same.”

<< He mentioned Phoenix Life Insurance is a good company to buy VUL insurance. >>

Phoenix Life does have a “good” VUL contract. That doesn't mean that there aren't other that might be better.

<< He said that even though having a VUL insurance is not a great investment but it makes you to be disciplined and in the retirement you can take loans against the cash value. Besides, whatever we take out, we will not be taxed. >>

Whether or not you'll be taxed DEPENDS on just how much you take out and when . . . . AND particularly HOW you “take out” the money. There are caveats he should be talking to you about . .. like: If you have outstanding policy loans, what happens if the policy is surrendered or lapses for some reason?

<< We will just have to make interest payments back to our policy. >>

Actually one doesn't HAVE TO make interest payments. There are other options to include letting the interest accrue. Some VUL contracts have what's called Zero Net Interest where the funds used for collateral for the loan(s) earn a fixed rate the same as what is charged.

<<Also, as long as “there is $1 left in the bucket, your beneficiaries will receive a full death benefit after you die.”>>

Be VERY careful about taking that literally.

<< What is your opinion about having a VUL insurance for let's say $100,000 just to cover most important expenses when my DH passes away? >>

I really like VUL's. I own 3 of them in addition to other types of life insurance contracts to include a lot of Term. But, VUL or any type of variable life contract is NOT suitable for most people . . .even the great majority of people. It's a very complex type of contact and best suited to those who don't mind complexities AND has a very high risk-tolerance.

<< As the advisor puts “Term Life insurance stays term and nothing is yours, but it's different with VUL insurance, because it's always yours unless you let the policy lapse.” Is it true, that if we pay the same premium every year/month without skipping any, we might accumulate the cash value that we'll be able to stop paying, but instead borrow the money against it? >>

Yes, it is true with careful planning and managing. A lot depends on the investment assumptions you make. The key to keeping the policy in force is that as long as there is sufficient cash in the investment accounts to pay for COI and the other policy expenses (including the investment expenses), the policy will stay in force. What affects whether or not there is enough there is how much you've put in AND how well the investments you choose perform – and of course, amount “withdrawals.”

<< With regards to investing, he said that Vanguard is a great company (who doesn't know that yet??!!). I said to him that I want to have a Roth IRA for myself and I asked him if he would do it for me (in case we want him to be our advisor), or I just go and open an account with Vanguard or Fidelity. >>

A Roth IRA and term insurance can be a better choice assuming you stay insurable long enough to redo the insurance and keep it well into old age.

<< His answer was “Vanguard and Fidelity are no-load funds, so you can do that by yourself. If you wanted me to do, then I would offer load mutual funds such as Oppernheimer <wrong spelling?>, Templeton, Fidelity Advisors, etc. that are good load mutual funds, but I cannot really say anything right now because for my advice I would expect to be paid.” Then I thought to myself that performance of load mutual funds does not differ much from the no-load mutual funds, so at least I would save on expenses if I go with Vanguard. Am I right? The advisor said that load mutual funds have 4-5% expense ratio. >>

Well, he has a good point as is appears he can only get paid by way of commissions. So, if you want help with investment issues from a professional, you'll have to weigh the costs of doing business by way of commission or on a fee bases with someone who will charge fees. Otherwise, yes . . . you can just go at it on your own and save the expense of using any professional advise.

<< Well, the whole meeting lasted 3 hours, and after that I and my DH decided not to have a financial advisor and try on our own, unless we decide to buy a VUL insurance. However, before I decide, I must get lots of information of pros and cons of UL and VUL, because I don't want to have surprises in 10-20 and more years. >>

From the sound of it, it doesn't sound like you and your DH are good prospects even suitable for a VUL. As I said, I like them and own them but that doesn't mean I think everyone should have one. The issues involving VUL or even UL are really too complex to provide any specific advice. But as you want to “get lots of information” you might settle on just getting a term policy (maybe an Annual Renewable Term with Phoenix Life that is very inexpensive for a couple of years) to get coverage in place and give you time to make a well informed decision.
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