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Author: cfdunton One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75538  
Subject: Variable Life Date: 5/22/2001 12:05 PM
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Yikes. After reading the recent posts on VUL/UVL, I'm feeling very dumb. About 16 years ago my then employer offered Universal Life and I signed up for $40K insurance on me and $20 on my husband plus $50/mth cash contribution. I took this with me when I retired since that was the only life insurance we had on my life once I left my employer and I have been paying in as before.

Now here's where I feel dumb: I don't see anything wrong with it. I have about $14K in the cash accumulation portion which usually pays interest at a point or so above the best CD rates. The interest is not taxable and I can withdraw the cash accumulation portion whenever I like with no need to repay and with no withdrawal or surrender fees. Further there will be no income tax on the interest when withdrawn so long as it doesn't exceed my contributions to the account plus the cost of insurance. The premiums for my $40K have risen to about $37/mth and his premium is only a few dollars less but these rates compare favorably to other life insurance we have on his life.

I've even thought about increasing the cash contribution to take advantage of the tax deferred earnings.

So what am I missing??
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Author: momfsa One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 29837 of 75538
Subject: Re: Variable Life Date: 5/22/2001 12:24 PM
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If you hop over to the Insurance Board, you'll probably get more replies but, the short answer is that VUL is not bad for everyone. If you need the insurance and are willing to accept the cost, you are the person that the product might be designed for. You seem to have a good understanding of its risks/rewards.

However, I don't have enough information to make a recommendation to your, so I'll venture some guesses.

1) I'd guess that, if you and your husband are insurable, you could probably buy term insurance for less than your current required premiums.

2) You seem to be focusing on CD returns so I'd guess that you're not to comfortable with equities. You might get better returns by contributing to an IRA, if you're eligible, and investing in investment grade corporate bonds. The yields are higher, pretty well locked in if you hold to maturity, and the IRA keeps your tax deferral.

Given the thoughts above, the VUL might be the best product for you. I think that alot of the discussion that you've seen focused on those who are not making a fully educated decision. If you have, then CONGRADULATIONS! You might not be missing anything.


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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: 29844 of 75538
Subject: Re: Variable Life Date: 5/22/2001 4:57 PM
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cfdunton, you asked:

<< Yikes. After reading the recent posts on VUL/UVL, I'm feeling very dumb. About 16 years ago my then employer offered Universal Life and I signed up for $40K insurance on me and $20 on my husband plus $50/mth cash contribution. I took this with me when I retired since that was the only life insurance we had on my life once I left my employer and I have been paying in as before. >>

Note, the primary difference between a Universal Life contract and a Variable Universal Life contract is that in a VUL one gets to choose from a set of investment accounts (investment account which operate much like a mutual fund). In a UL contract the investment account it died to the insurance company's general investment account which is invested in bonds. So in a UL one can only earn interest and this interest fluctuates much in relation to the bond market.

Also, like VUL contracts, UL contract's premium payment can vary as one so chooses. On can pay less or more into the policy. One can stop making premium payments. As long as there's enough cash value in the policy to support the cost of insurance, the UL policy will stay in force.

<< Now here's where I feel dumb: I don't see anything wrong with it. I have about $14K in the cash accumulation portion which usually pays interest at a point or so above the best CD rates. The interest is not taxable and I can withdraw the cash accumulation portion whenever I like with no need to repay and with no withdrawal or surrender fees. Further there will be no income tax on the interest when withdrawn so long as it doesn't exceed my contributions to the account plus the cost of insurance. The premiums for my $40K have risen to about $37/mth and his premium is only a few dollars less but these rates compare favorably to other life insurance we have on his life.

I've even thought about increasing the cash contribution to take advantage of the tax deferred earnings.
>>

Apparently the fact that one can earn a decent guaranteed “interest rate” is what you like. Also, you're apparently not using and don't plan to use this policy as a primary or even a supplementary income source (this was the issue in the previous post). What you do seem be doing is using the policy for it's life insurance coverage plus it's providing a place for tax deferred growth of a an emergency fund (a fund that you only plan to use if you should really need to) . . .huh? I don't see anything wrong with this either. . . . especially if you really don't “need” this cash and don't really plan to use. This is common for retires and many retirees are in worse tax situation when they have such money they don't have any plan to use in other positions like IRAs or Annuities.

When you say your premiums have “risen”, I'm not sure what that's all about since a UL has premiums that can vary as YOU may decide. . . . UNLESS you're paying a Minimum Premium that could put your policy in jeopardy of lapsing at a latter date if theirs not enough cash value to support the policy. You may want to clarify this with your agent who can review your policy with you in detail.

<< So what am I missing?? >>

I don't know what you might be missing either. It all DEPENDS on just what your trying to do with this policy.


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