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An acquaintance with Northwestern Mutual Life has been pushing my husband to invest in a VUL - variable universal life policy. We're both 40 - and he works for a Fortune 500 company with a good matching plan, pension, etc.. He already has a $1 million life ins. policy (term) - $93.00/month.

Is it worth it, (he suggests investing $2,000/monthly) - for tax benefits alone?? Do you think this amount of money would be better spent paying off our home or investing elsewhere? Please advise. What are the pros/cons of this investment vehicle?? Thank you!!
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kshouser: "An acquaintance with Northwestern Mutual Life has been pushing my husband to invest in a VUL - variable universal life policy. We're both 40 - and he works for a Fortune 500 company with a good matching plan, pension, etc.. He already has a $1 million life ins. policy (term) - $93.00/month.

Is it worth it, (he suggests investing $2,000/monthly) - for tax benefits alone?? Do you think this amount of money would be better spent paying off our home or investing elsewhere? Please advise. What are the pros/cons of this investment vehicle??"


This issue has been discussed numerous times on the Insurance board; move over and run a search.

From my notes:

You may want to take a look at FoolWAM's post #1913 at http://boards.fool.com/Message.asp?id=1040016000465002 to see if you'd be a good candidate or not.

Also from FoolWAM

1605 on the Ins. board, and its thread

http://boards.fool.com/message.asp?id=1040016000400003

and especially post 1603


In addition, post 1309 from dharmadollars:

"The rule is that the policy must remain in effect until your death in order for policy loans to excape classification as income. Also, remember that all withdrawals up to the amount of your aggregate premium payments constitue return of basis and are not even potentially a taxable event. It is only when you begin to take policy loans that potential tax impliciations arise."

As long as you realize that you are essentially making a lifetime commitment, have let no other tax advantaged options untapped or unfulfilled, and you intend to substantially overfund the policy, and funding the VUL still allows you to acquire all desired insurance, it may hold some interest for your.

Enjoy the reading.

Hope this helps.

IIRC, the insurance pros on the Insurance board do not think that highly of NWM VUL because its underlying chassis is a whole life policy (NWM's strength). Also, check out the huge fees - 8% for sales cost and taxes, IIRC.

A VUL may have a place in an investment portfolio, but you do no come close to providing enough information for anyone on these boards to really make an informed guess.

Regards, JAFO
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An acquaintance with Northwestern Mutual Life has been pushing my husband to invest in a VUL - variable universal
life policy. We're both 40 - and he works for a Fortune 500 company with a good matching plan, pension, etc.. He
already has a $1 million life ins. policy (term) - $93.00/month.

Is it worth it, (he suggests investing $2,000/monthly) - for tax benefits alone?? Do you think this amount of money
would be better spent paying off our home or investing elsewhere? Please advise. What are the pros/cons of this
investment vehicle?? Thank you!!


What are the tax benefits in terms of dollars? If you do not know he probably did not do a good job of explaining.

When I looked at insurance for myself I figured if I was not going to die I was better off investing in something other than insurance. The fees in the insurance plan offset the tax savings.

If you are in a high income bracket the plan maybe ok but you need to provide a lot more info. From what you gave us I would say no since you do not seem to need insurance and a VUL is more insurance than an investment.
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Do you have any reasons for not wanting to pay off your home?
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kshouser, you asked:

<< An acquaintance with Northwestern Mutual Life has been pushing my husband to invest in a VUL - variable universal life policy. We're both 40 - and he works for a Fortune 500 company with a good matching plan, pension, etc.. He already has a $1 million life ins. policy (term) - $93.00/month.

Is it worth it, (he suggests investing $2,000/monthly) - for tax benefits alone??
>>

The answer is . . . . it DEPENDS. It can work out very well . . . or it can work out very badly. It depends on just how, specifically, the particular policy is used within a comprehensive insurance and investment plan.

<< Do you think this amount of money would be better spent paying off our home or investing elsewhere? Please advise. >>

Any advice on a question like this without knowing specific details or your finances as well as your short term and long term objectives would be VERY inappropriate. Advice at this point won't even be worth the 2 cents anyone might try to throw in. ;-)

<< What are the pros/cons of this investment vehicle?? Thank you!! >>

Again, it all DEPENDS. It's simply a financial tool and just how you intend to use it or incorporate it into your comprehensive plan will determine what the pros and cons will be.

I would suggest that your first ask your acquaintance (I assume an agent for Northwestern Mutual) the following and very specific questions: Is the policy being suggest really a Variable Universal Life contract or some other form of Variable Life contract? If not, what is the difference. Can you “over-fund” the policy? Can you actually make “withdrawals” at any time (not loans)?

The reason I suggest these questions are so you can clarify just what type of variable contract is being proposed. The variable type policy that Northwestern has had is NOT a VUL. But they may have come out with a new product recently that acts much “like” a VUL. So, you're going to need to find this kind of thing out to see just what the pros and cons are.
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JAFO, you quoted:

<< In addition, post 1309 from dharmadollars:

"The rule is that the policy must remain in effect until your death in order for policy loans to excape classification as income. Also, remember that all withdrawals up to the amount of your aggregate premium payments constitue return of basis and are not even potentially a taxable event. It is only when you begin to take policy loans that potential tax impliciations arise."
>>

This is actually incorrect. . . . . the last sentence, anway. ;-)


<< IIRC, the insurance pros on the Insurance board do not think that highly of NWM VUL because its underlying chassis is a whole life policy (NWM's strength). Also, check out the huge fees - 8% for sales cost and taxes, IIRC. >>

It's not so much because it's underlying chassis is based on a whole life design . . . it's primarily because this particular chassis doesn't also have provisions for variable premium payments nor withdrawals. Some companies do have a “whole life chassis” yet they work very much like a VUL and so . . . may even then be considered preferable over a VUL depending on the issues of one's interests.


. . . . otherwise, GOOD post. ;-)

Warm Regards,

Ted
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TTRoberts:

JAFO, you quoted:

<< In addition, post 1309 from dharmadollars:

"The rule is that the policy must remain in effect until your death in order for policy loans to excape classification as income. Also, remember that all withdrawals up to the amount of your aggregate premium payments constitue return of basis and are not even potentially a taxable event. It is only when you begin to take policy loans that potential tax impliciations arise." >>

"This is actually incorrect. . . . . the last sentence, anyway. ;-)"

How so? I will correct my saved response.


<< IIRC, the insurance pros on the Insurance board do not think that highly of NWM VUL because its underlying chassis is a whole life policy (NWM's strength). Also, check out the huge fees - 8% for sales cost and taxes, IIRC. >>

"It's not so much because it's underlying chassis is based on a whole life design . . . it's primarily because this particular chassis doesn't also have provisions for variable premium payments nor withdrawals. Some companies do have a “whole life chassis” yet they work very much like a VUL and so . . . may even then be considered preferable over a VUL depending on the issues of one's interests.


. . . . otherwise, GOOD post. ;-)"


Thanks. I inquired about NWM variable whole life on the insurance board relatively recently, as you may recall --- and shortened the no variable payments and
no withdrawals to the whole life chassis, but if that is not entirely accurate, is there a better shorthand description? And based on my very recent discussions with NWM agent, I doubt that a VUL policy has been made available in the last 4 weeks.

Regards, JAFO
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<< << In addition, post 1309 from dharmadollars:

"The rule is that the policy must remain in effect until your death in order for policy loans to excape classification as income. Also, remember that all withdrawals up to the amount of your aggregate premium payments constitue return of basis and are not even potentially a taxable event. It is only when you begin to take policy loans that potential tax impliciations arise." >>

"This is actually incorrect. . . . . the last sentence, anyway. ;-)"

How so? I will correct my saved response.
>>

It's the "only" word. There are tax implications when considering withdrawals . . . . then there are the issues regarding MECing a policy which will also have tax implications, even for policy loans.

<< Thanks. I inquired about NWM variable whole life on the insurance board relatively recently, as you may recall --- and shortened the no variable payments and
no withdrawals to the whole life chassis, but if that is not entirely accurate, is there a better shorthand description? And based on my very recent discussions with NWM agent, I doubt that a VUL policy has been made available in the last 4 weeks.
>>

About the only "shorthand description" that would best apply would be to call it a Variable Life contract. Those variable contracts with a whole life chassis can best be described as Flexible Premium Adjustable Variable Life contract. But one always needs to keep in mind the policy construction varies from company to company making it hard to apply a "shorthand description" to a large group of policy styles.
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