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Is VUL life insurance a smart thing to go into? How does it stand comparing to others? Thanks.
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Is VUL life insurance a smart thing to go into?

Depends on what you need life insurance for. If it basically for the care of family or replace your income for a period of years, term insurance is the best. If you are trying to "save money", IMHO, it is better to get term and invest the cost difference in an index fund. For very few people, high income earners, can variable or universal life be beneficial as a tax deferred savings. However, I would still bet term insurance and investing in index funds would be better.

JLC
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Is VUL life insurance a smart thing to go into?

If, by "go into", you mean sell, I'd highly recommend it. You can make a fortune in commissions due to the outrageous hidden fees you'll charge customers, including the sales fee (3%-6% on each dollar invested), contract charge, administration charges, insurance charges on money invested, management expenses, and the cost of the life insurance.

If you meant buy, I wouldn't go near it...see above. Always buy term.

Nick
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Buying term and investing in index funds works great for most people.

But a "no load" VUL policy with low annual costs will provide high income earners the ability to avoid the drag of current taxes.

Some people call VUL the rich man's ROTH because you borrow against the policy which is generally is not taxed.

Unless you are in a high tax bracket VUL is likely not your best option.

buzman

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I would say in the majority of cases VUL is great for everyone EXCEPT the person who buys it.

JLP
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To my last post I thought I might add:

Although I would say I'm hardly against insurance in general, I am against salespeople preying on people's fears in order make a sale. In most cases with products like VUL and even Variable Annuities, that is exactly what happens. I am almost certain that in most cases the buyer is not aware of what they are buying.

JLP

http://AllThingsFinancial.blogspot.com
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I found an interesting article on VUL's. I have a coworker who is going to retire and start a new career selling this stuff through an insurance company. I am educating myself so I can sit down and listen to how he tries to BS me into buying one of these policies.

This article was rather enlightening:

www.consumerfed.org/VULReport0203.pdf

I am going to take his prospectus and try to determine the true cost of the VUL, then compare that to buying a term policy and investing the difference in a Vanguard index fund.

I already carry a policy through work so I am not shopping around. I just have a thing about the financial industry and the different ways they rip people off. Maybe I'll be wrong, but VUL's have such a crappy reputation that I suspect there is something to it.

-helen
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I have a question. What do you do when the term life premiums go up too high, and you can no longer afford them?
It seems like the annual premiums are fixed with VUL? I am a complete novice at this but this seems like a flaw, perhaps, with the 'buy term and invest the difference' philosophy everyone espouses.

I am aware of the higher fees.

If someone could explain in some/few details, I'd really appreciate it.

novice to this,

Naj
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In theory, the whole purpose of insurance is to protect you and your family from loss during your wealth-building years. Eventually, you should get to the point to where you no longer need insurance (except for maybe estate planning purposes).

That said, a person could buy a 30 year term insurance policy when he's 30 years old and be insured until he is 60. If he were to take the "difference" in what you would pay for a VUL policy and invest it, by the time he was 60, he would have a lot more money than he would have had in the VUL.

The real clincher in all this is you MUST invest the difference. If you simply buy a term policy but do nothing towards building your wealth, then you would have been better off going with the VUL.

Make sense?

JLP

http://AllThingsFinancial.blogspot.com
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Make sense?

JLP


Yep, so if I am planning for estate purposes, presumably a VUL makes more sense given that I can pass significant wealth down tax-free to the next generation? That's gotta be the reason, I assume?

thanks for your assistance,

sincerely,

Naj
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"...so if I am planning for estate purposes, presumably a VUL makes more sense given that I can pass significant wealth down tax-free to the next generation? That's gotta be the reason, I assume?"

I think that depends on each person's individual needs. If you have all your networth tied up in illiquid assets, then your beneficiaries might need an insurance policy to help pay the estate taxes. But, keep in mind that this comes with a significant cost for the insurance policy. For many people, it might make better sense to simply have some liquid assets available to pay the estate tax with.

JLP

http://AllThingsFinancial.blogspot.com
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so if I am planning for estate purposes, presumably a VUL makes more sense given that I can pass significant wealth down tax-free to the next generation? That's gotta be the reason, I assume?

Yes, for some the fees in a life insurance policy are less than the taxes on other options. For those people, the policy can be a mutually beneficial arrangement.

However, most of these policies are "sold" not "bought." Anyone in a situation where this might be appropriate, likely has enough money involved that they should consult a fee only financial planner (with rates comparable to a lawyer).
-Joe
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I have a related question and thought I'd just continue this thread since there's some great info in the previous posts. My situation might also help anyone who is considering a VUL.

I bought (was sold) a $350k VUL in October 2002. I'm seriously regretting it now. My monthly payments are $510. Out of this, $115 goes toward the cost of insurance and another $40 goes to various expense charges. In other words, I'm paying $115 a month for insurance that I could get with a term policy for around $40 a month.

The worst part is that now that I realize my mistake, getting out of it will cost me the majority of the money that I already have in it. Of the $15,300 I've put into it (30 payments x $510), my accumulation value is around $9k (obviously this number varies based on fund performance). Unfortunately, my cash surrender value is only around $2600 because I have to pay surrender charges of over $6,300 (these charges start to gradually decrease beginning in year six of the policy).

So my question is, should I just cut my losses now and get out of it or continue to pay into it? I hate to lose that money but I also don't want to continue "throwing good money after bad". Any advice on how to make the best decision? Thanks!
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So my question is, should I just cut my losses now and get out of it or continue to pay into it?

need more info...
What is the total monthly cost of keeping it relative to what you would otherwise do (cheap insurance, low cost investments)?
How quickly does the surrender charge decrease after the 6th year?

Then use a spreadsheet to track your situation starting today.
One column (#1) for accumulation value (9k today, plus each monthly increase)
Another column (#2) for the surrender charges (and how it drops off starting in the 6th year).
Another column (#3) for your additional monthly payments

Then one more column that will tell you what to do. Each line in this column is equal to column #1 - column #2 - column #3.

This column tells you what your additional gain/loss will be each month you keep the annuity. Initially the number will be increasingly negative each month. Once you hit year 6 when the surrender charges start to drop, your additional loss will drop. If it drops enough to make your gain/loss column go positive, you will benefit by that amount by keeping it until that date.

-Joe
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