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We've been meeting with a financial planner and
he has created a program for us that has us re-financing our home and using the equity to jump start a Variable Universal Life insurance policy. In addition to his I have a 401k account that is in excess of $200k. I am 39 and want to retire when I'm in my early 50's. Several of our friends have told us NOT to invest in the VUL, but the plan looks good to us and allows us to achieve our early retirement goals.

Any comments regarding the VUL?
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No. of Recommendations: 0
We've been meeting with a financial planner and
he has created a program for us that has us re-financing our home and using the equity to jump start a Variable
Universal Life insurance policy. In addition to his I have a 401k account that is in excess of $200k. I am 39 and want to
retire when I'm in my early 50's. Several of our friends have told us NOT to invest in the VUL, but the plan looks good
to us and allows us to achieve our early retirement goals.

Any comments regarding the VUL?


Ask your advisor if he mortgaged his houes to buy a VUL? Anyone in his office do it?

I would not borrow to buy any insurance.

If you need insurance buy term. If you need investments buy stocks, bonds mutual funds.

I would skip annuities unless your tax situation supports them.

I would look for a new advisor since he want you to borrow so he can earn a commission on what he sells you now.
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nordener: "We've been meeting with a financial planner and he has created a program for us that has us re-financing our home and using the equity to jump start a Variable Universal Life insurance policy. In addition to his I have a 401k account that is in excess of $200k. I am 39 and want to retire when I'm in my early 50's. Several of our friends have told us NOT to invest in the VUL, but the plan looks good to us and allows us to achieve our early retirement goals.

Any comments regarding the VUL?"


I did not see you mention any need for insurance.

You should 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.

AND also defintiely read #5188 at http://boards.fool.com/Message.asp?mid=13889886

both on the Insurance board, and then run a search on that board and read - my best sense of the it is that a VUL may make sense for some people (a small percentage) as a part of their overall portfolio, assuming that the terms and provisions of the VUL are fully understood.

For example, read "libc's" recent post about insurance squeeze.

IMO, you do not come close to posting enough information to determine whether a VUL might work for you (and I doubt that many people really want to post that much personal information on a public forum).

Regards, JAFO

PS - Do you use margin in your stock account? If you are too conservative to use margin in a stock account, why borrow money (secured by your house) to "invest" in VUL subaccounts???? I acknowledge that there will be no margin calls for the latter loan, but that would be cold comfort to me if my subaccounts lost money and I was still paying for my house (again) 30 years from now.
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It has been my experience that insurance companies do not have any financial planners - only sales people. IMHO, a financial planner looking out for your best interests accepts only a fee for their service, not commissions.

Lee

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Please read all of the links to the replies to your message. Very good advice. From the information you have in your original message I see no reason for you to buy any annunity of any kind. Annunities are extremely expensive. It is hard to get your money from them early and the returns are subpar. You can do much better with post-tax dollars than annunities. Invest in growth only stocks with no dividends and you will not pay any taxes until you decide to sell. Berkshire Hathaway is one good example, there many others. If you need life insurance, buy term and invest the difference. It would appear that you have a very good start on your retirement investments. I am a leader of an investment and retirement study group and a rule that we try to follow is this:
1. Match employer's contribution
2. Fund Roth for you and your spouse
3. Maximize contributions to your 401k, 403b, etc.
4. If you still have money to invest, buy growth only stocks, no taxes unless you sell. Your capital gain taxes will lower than ordinary income taxes. You have total control of YOUR MONEY, not the insurance company.
5. If you have children or grandchildren, help them get started investing by starting Roths if they have any earned income.
I have a spreadsheet, WHEN CAN I RETIRE, that will help you know when you have saved enough to retire and how much you can withdraw annually to fund that retirement. Contact me at gstipps@iquest.net if you have any interest.
glenn
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Your so-called 'financial planner' is giving out bad advice. As an earlier poster pointed out, anyone who suggests this type of strategy is a salesman, not a planner who is looking out for your best interest.

Since your interest is early retirement, I suggest you ask your question also on the Retire Early Homepage board. You will get a very detailed rundown of the reasons why this plan is a very, very bad one.

EditorialWe
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The Plan may look good, but it does not increase your net worth. A VUL is NOT an investment. It is an insurance contract. I don't know where you found this yahoo to give you advice, but you would be better off without him.

First of all, if you have a sizable amount of equity in your home you will run the risk of buying an insurance contact for all those "wonderful tax advantages" and exceeding the limits. Then it becomes a MEC "Modified Endowment Contract" and you lose the tax advantages.

Second, why move money out a home where its grows (slowly) and is not taxable. You think it is going to help you retire early, what if the markets stay flat for awhile (or worse).
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I am a Financial Planner. I would NEVER take the equity from my house and put it into VUL. The reason it looks so good is that you can manipulate the illustration to make it look that way it isn't real life, real life hinges on what the investments do, not the past. It is illegal to sell VUL as an investment. By the way if you buy VUL the planner makes at least 65% of your premium payment as commission.

That all being said I still love VUL and Whole Life insurance if, and only if, there is an insurance need and you can comfortably (without taking out a loan) afford the premiums. The problem with term is that less than 1% of the people who buy it will ever die with it in force---you are basically just renting insurance and at the end of the period you are left with nothing. With permanent insurance you are building equity.

Hope this helps

Matt Tuttle
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matttuttle writes:

<< I am a Financial Planner. I would NEVER take the equity from my house and put it into VUL. The reason it looks so good is that you can manipulate the illustration to make it look that way it isn't real life, real life hinges on what the investments do, not the past. >>

For the most part, I would agree that taking on debt to "invest", like a VUL or any other investment, is most likely NOT a good idea. But I would never say "NEVER" as I try to always level the door open for special circumstances that just may make some sense. Though I may never do such a thing for myself, there may be cases where it makes sense to do such a things. For me, as a Financial Planner . . . it always DEPEND on the specifics of the circumstances and issues at hand.

Oh yes . . . I did say "investment", didn't I? ;-) By definition of "investment", a VUL is indeed an "investment". See my argument to support this position at http://boards.fool.com/Message.asp?mid=13890944. If you disagree, let's hear YOUR argument to support your position.

<< It is illegal to sell VUL as an investment. >>

Sorry, must disagree. It is NOT "illegal" to sell a VUL as an investment. What IS "illegal" is to sell it as an investment and not disclose the fact that it is a life insurance contract along with a whole set of other issues that must be disclosed.

If anyone is thinking about those suits against some of the insurance companies for selling variable life as a retirement plan . . . it was the non-disclosure that was the problem. It wasn't that the policies couldn't perform as suggested.

<< By the way if you buy VUL the planner makes at least 65% of your premium payment as commission. >>

Let me clarify this better. First, not all "planner" get paid on the basis of commissions and many Fee Only planners will highly recommend a VUL for the right circumstances. Second, it's ONLY on the "Target Premium" that such a commission is paid. Anything premium paid in excess of the Target Premium, the commission is reduced to about 2% - 3% . . . maybe even less. So, any "planner" encouraging a client to "over-fund" the policy (as they should to make it work well as an "investment") isn't doing to so make a great deal more commission. If commission were the driving force, then the "planner" would probably rather sell mutual funds or annuities instead of "over-funding".

<< That all being said I still love VUL and Whole Life insurance if, and only if, there is an insurance need and you can comfortably (without taking out a loan) afford the premiums. >>

Also, as a Financial Planner, I would tend to agree with this.

<< The problem with term is that less than 1% of the people who buy it will ever die with it in force---you are basically just renting insurance and at the end of the period you are left with nothing. With permanent insurance you are building equity. >>

Not that it's a BIG deal, I'm not sure where this figure of "less than 1%" came from. From all the various sources I've seen over many years, that figure is between 2% to 4%.

And finally, if one is "building equity" then I would still argue that we're dealing with an "investment" by definition. ;-)


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