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Well, here goes. In 1985 I purchased a “Flexible Premium Variable Life Insurance” contract from the Equitable. Been piling money into it ever since, but mostly in the past 6 years or so. After reading Dave and Tom's first book, I began to ask questions regarding costs (2% plus 6 bucks per deposit; figures to be about 2.5% per year), returns after insurance costs and “other charges" are deducted (I'm still waiting for an answer to that one), and others. Regarding costs, my agent replied, “that's no higher than a load mutual fund”, and “that's how I get paid”. My next question needs to be, what are you doing for me to earn that? I see the upsides of the contract to be, tax-deferred growth, tax-free withdraws at retirement (first the cash basis, then loans which are not repaid), total liquidity, and decent investment options that seem to be expanding all the time (There is even an index fund!), and a large life insurance benefit that allows me to take a larger pension from my job as a state employee. Now, what I need is some unbiased, in your face advice on how to proceed for the next 23 years. Should I stick with this program? If not, what are the tax consequences of pulling the money out and reinvesting directly in stocks? Am I being totally taken for a ride here? The account value is $31,000. The death benefit is $450,000 (yes, I do need that much insurance) and the monthly insurance cost is $66. Thanks for any and all responses.
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Greetings, donolson, and welcome.

<<Well, here goes. In 1985 I purchased a "Flexible Premium Variable Life Insurance" contract from the Equitable. Been piling money into it ever since, but mostly in the past 6 years or so. After reading Dave and Tom's first book, I began to ask questions regarding costs (2% plus 6 bucks per deposit; figures to be about 2.5% per year), returns after insurance costs and "other charges" are deducted (I'm still waiting for an answer to that one), and others. Regarding costs, my agent replied, "that's no higher than a load mutual fund", and "that's how I get paid". My next question needs to be, what are you doing for me to earn that? I see the upsides of the contract to be, tax-deferred growth, tax-free withdraws at retirement (first the cash basis, then loans which are not repaid), total liquidity, and decent investment options that seem to be expanding all the time (There is even an index fund!), and a large life insurance benefit that allows me to take a larger pension from my job as a state employee. Now, what I need is some unbiased, in your face advice on how to proceed for the next 23 years. Should I stick with this program? If not, what are the tax consequences of pulling the money out and reinvesting directly in stocks? Am I being totally taken for a ride here? The account value is $31,000. The death benefit is $450,000 (yes, I do need that much insurance) and the monthly insurance cost is $66. Thanks for any and all responses.>>

Long time readers of this folder know I abhor variable life products. Always have and always will, and that's basically because of the outrageous fees they levy as you have outlined in your post. I subscribe to the adage one should buy life insurance as just that, and NEVER as an investment. That said, I will also say in your case the damage has already been done. You encountered your highest fees and expenses in the first few years of your policy. While I find the 2.5% continuing annual fee outrageous, you also say you need the insurance coverage of $450K. The big questions then are: Can you replace that coverage at your age for $66 or less per month? If you surrender that policy, what will the charges be and how long will it take to offset those charges plus taxes on gains in other investments?

With 23 years to go, you may very well be able to do better for yourself by dumping this detestable product. Just be aware that will be a cost involved, determine how much that will be, determine how long it will take to recover those costs, and then compare with what you have now against what you will use to determine both of those values 23 years from now. Only you can do that analysis, and that's the only way you can determine what the best alternative will be for you.

Regards….Pixy
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I think you have properly identified the disadvantages and most of the advantages of this type of policy. Have you priced equivalent term insurance to see what's out there, and figured out how you would invest whatever you save in premiums? You could get your agent to help you figure out what your annualized rate of return on the existing policy has been (after the costs are deducted, of course), and then you'd have a good basis of comparison.

It seems to me that you are getting a lot for only $66 a month. I pay $50/month for $150,000, my husband pays hundreds a month for about $400,000. His costs are so high because he added a policy after he was diagnosed with heart disease. The problem with term would be renewing it if you become less insurable.

Also, the variable policies can be part of your estate, if that is important to you. I know one of the advantages of term is supposed to be that it's a cheap policy that protects you when your family needs protection, and then when they don't need it any more it lapses or you don't renew it. This assumes that just that protection and not estate planning is important to you. You should weigh this too before you decide.
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Hi Pixy, and thanks for your reply. Would it make sense to continue the contract, but only pay into it enough to cover the life insurance, and just allowing the 31K to grow for 23 years? Other replies from the folder indicate that $66 is not bad for 450K of coverage. I could also withdraw by basis without capital gains and lump sum that into a FF portfolio right now. I suppose eventually as the insurance cost increases (I'm 37 now) and my need for insurance decreases, I will be forced to cash out the policy and pay the taxes. I am confused, and every time I sit down with my agent, I become more confused. But, I'll just keep asking questions and get it sorted out eventually. Again, thanks for your reply.

Don
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Don,

<<Would it make sense to continue the contract, but only pay into it enough to cover the life insurance, and just allowing the 31K to grow for 23 years? Other replies from the folder indicate that $66 is not bad for 450K of coverage. I could also withdraw by basis without capital gains and lump sum that into a FF portfolio right now. I suppose eventually as the insurance cost increases (I'm 37 now) and my need for insurance decreases, I will be forced to cash out the policy and pay the taxes. I am confused, and every time I sit down with my agent, I become more confused. But, I'll just keep asking questions and get it sorted out eventually. Again, thanks for your reply.>>

It might, but it depends on your policy. This is something you need to discuss with the agent. You want to know what happens to the insurance premium and the coverage through the years if you simply pay enough to cover that premium and nothing towards the investment. The agent should be able to provide you with an illustration that shows the impact of such a decision on your part.

Regards…..Pixy
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