What your agent is trying to sell you is a Variable Universal Life Policy. I would only recommend that you consider this option if you meet the following criteria:1. Do I need life insurance or any additional life insurance? The reason this is important is that a variable life policy is insurance first and foremost, not an investment!2. Am I healthy? This is important because your health will determine the internal cost of insurance of the policy. If you are a substandard or poor risk, the internal costs will drastically eat away at your cash accumulation. Therefore, you may only want to consider one of these polices if you can get a standard or better rating from the insurance company.3. Have I maximized contributions to my tax-favored plans such as my company 401(k) and IRA? This should be your first priority before you consider investing through a variable life policy. Because of the tax deductibility, tax deferral and the dollar-for-dollar matches many companies make on their retirement plans, these vehicles should be considered first. As well, the Roth IRA offers tax-free growth of assets to everyone who qualifies.4. Am I going to be making substantial withdrawals from this policy, and, if so, am I willing to wait at least 10 years to do so? This is important because these policies work best when allowed to accumulate cash over a 10+ year time period. The first years of these policies tend to be expensive, and time is needed in order to allow the cash value to gain some momentum.5. Am I willing to fund this policy well above the recommended target premium? The target premium is set by the insurance company and will typically cover the internal costs of running the policy while still allowing some excess dollars to be invested. These policies work best when funded well above target premium and close to the upper limits set by Section 7702 of the Tax Code because every premium dollar placed in the policy over and above the internal costs will be invested on a tax-deferred basis.6. Am I willing to keep the policy in-force my entire life? This is important because it is the only way you will be able to enjoy the tax benefits of these policies. They must stay in-force during your lifetime, or you may be subject to ordinary income taxes on your gains, loans and withdrawals.7. Are you an aggressive investor willing to place the majority of your premium dollars in the equity-based sub-accounts? This is important because the stock market is about the only place an investor has been able to achieve superior returns. Superior returns will mean excess accumulated cash for the insured. If you are only going to invest in the fixed accounts, you would probably be better off in a non-variable whole or universal life policy.I haved used a small variable life policy as an adjunct to my brokerage account and IRA, but you must overfund this vehicle to get the maximum benefit. I personally have about $1.25 Million in life insurance, $1 Million is in level term and the other $250K is in a variable life policy that I overfund using the Index 500 account. It has the lowest fees and should produce good returns in the long run. I would recommend that you go to Ameritas.com and check out their low load Variable Universal Life. It pays no commissions, the internal costs are low, and their are no surrender charges. However, the tax rules stay apply! Going this route will also give you limited help from an agent.Hope that helps!Alan McKnight, CFP
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