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I met with a planner this week here in Atlanta to discuss VUL. I am in 401K which I max out at $10,000 per year, so does my wife.
We also have IRAs that we contribute $2000 each per year.
I don't have a retirement plan at work, no pension etc. so I thought that VUL is the next thing to put away for retirement. The planner told us to view the VUL as a GIANT ROTH IRA. This sounds pretty intriguing, but... is it true?

We have 2 kids in high school and their college is pretty well set (grandpa will pay).
So, the question is , for retirement, if I don't use the VUL, what other vehicle is there to use?

Roos
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Roos Date: 4/2/99 3:08 PM Number: 9632
for retirement, if I don't use the VUL, what other vehicle is there to use?

I don't know what VUL is - sounds like a new Variable Annuity Scheme. Most of these are loaded with fees and limitations that can severely limit their value as a wealth creation tool for you (as opposed to wealth creation for the sales person and his company), so look closely. We frequently see posts from people desperate to get out such arrangements after they understand them.

A normal, taxable account would be the standard alternative after you have maximized the tax-advantaged options. Taxes on long term capital gains are lower than taxes on ordinary income, and you have control over whether you pay it in any given year because you control when the stocks are sold.
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William Lipp wrote,

<<A normal, taxable account would be the standard alternative after you have maximized the
tax-advantaged options. Taxes on long term capital gains are lower than taxes on ordinary
income, and you have control over whether you pay it in any given year because you control
when the stocks are sold. >>

I agree. One way to accomplish this is with a Tax-managed mutual fund like Vanguard's Tax-Managed Growth and Income Fund. This fund has low expenses and is managed so as to reduce or eliminate capital gains distributions.

intercst
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Roos says "I met with a planner this week here in Atlanta to discuss VUL".

Roos, I personally think that Variable Universal Life can be a good tool. It is cash value life insurance but the money is invested in your choice of the mutual funds offered by the company. It is a way to invest in mutual funds without having to consider the gain on your taxes every year. Also, you can borrow the money out at a low interest rate, just as in the old traditional life insurance policies. However, you need to be young enough that the true cost of the life insurance won't be too expensive compared to term. I have a VUL which I took out about nine years ago and the monthly "cost of insurance" is about equal to what I would pay for term insurance.

It is like a Roth in that you pay for it with after tax dollars, but differs from a Roth in that you are not limited to $2,000 year. It also gives your family the life insurance benefit if needed. If you can, why not do both the Roth and the VUL?

Mary
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Thanks for the input Mary,
I am 48 years old. I know that the VUL is supposed to be held for life and that I probably wont take advantage of the cash buildup for 10 years or more. I think I am prepared to do that. At least I know I can max out the VUL payments. Who knows about the future , though? Anything can happen, loss of job, economic dive, etc.

I can't do a Roth now because We make too much. We are over the limit. As one of my friends said to me' Roos, you have a pleasant problem"!
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Hmmmm, Tax Managed funds. What are those? How are cap gains managed? Is it like an index fund that has little churn?
I am familiar with Vanguard. I own a couple of funds with them already. I'll look into this fund.
thanks for your input.

Roos
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Roos, I posted an answer to your question yesterday but have not seen it. Let me post it again.

It sounds like you are a good candidate for a VUL. Let me outline the criteria I use for deciding whether someone qualifies. Do you need life insurance or additional life insurance; are you in good health; are you willing to overfund the policy well over target premium; are you willing to place all your premium dollars in the equity subaccounts; are you willing to wait at least 10 years to make withdrawals of cash, are you willing to keep the policy in force your entire life, and have you already maximum funded your 401(k) and IRA's? If you answered yes to all or most of these questions, you are probably a good candidate.

I would recommend that you buy the smallest policy that you can overfund and max that baby out! Have your planner run illustrations at 10%-11% gross return, not net, and use that as your guide.

Someone else recommended tax efficient funds in lieu of the VUL. That comaprison is irrelevant because taxes will never be due on VUL withdrawals and loans if done properly. If you were comparing this to a variable annuity, I would say the comparison to tax efficient funds would be very relevent. A VUL though is not the same thing as a Variable Annuity.

Alan McKnight, CFP
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<<Variable Universal Life can be a good tool>>

For who? You? Or the insurance company? In my experience linking together two different things result in one mediocre (at best) mish-mash. Better to independently select a good insurance policy and a good investment vehicle.

Buying SPY will give you almost everything that the investment part of a VUL will give you. But with lower fees and lower taxes upon withdrawal. Plus you can get out if you need to, without having to leave a pound of flesh behind. (There is no exit or penaly fee for selling SPY, you just have to pay the tax--reduced capgains rate if you have owned for more than one year.)

Ray
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And what is your specific experience, personally or professionally, with VUL?? Care to explain the pros and cons of a standard policy?

All I hear on these boards is to never put your investments with your insurance. I have never advocated the use of VUL as a primary invest tool. I ALWAYS tell people to invest via their company retirement plans and IRA's first.

I personally carry $1million of term insurance on myself, but I have a small VUL that I overfund. It will ultimately provide me with a huge tax benefit.

If I can find one person on this board that can give me good reasons why VUL is not a viable tool in planning, I will listen. But all I ever hear is the same old drivle espoused by everyone else knowing little or nothing about the product.

Alan McKnight, CFP
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Alan, do you know of any VUL companies that use the Vanguard Index 500?? An agent told me that Ameritas does, but I don't know anything about Ameritas.

I personally have a VUL and don't understand why a lot more people don't have them. Life insurance has certainly gotten a bad rap in the last few years but I have yet to hear a survivor complain that they were left too much life insurance!!

Ten, twenty, thirty year level term policies are excellent for people bringing up children for life insurance that is not needed for a whole lifetime. However, the VUL will ride out dips in the economy (both in cash value and in the ability to move money from one sub account to another) and provide an element of stability.

Thanks. Mary
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Most companies I have dealt with in the past, and the company that I have a policy with usually have an Index 500 fund available as a sub-account option. Who cares whether it's Vanguard, Fidelity or whomever??? The expenses are extremely low none the matter.

Ameritas is an excellent company offering low load and no-load VUL policies. So for all you guys out there who can't stand to see an agent get paid commission, their no-load product should make you happy! ;-)

Alan mcKnight, CFP
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Mary,

Ameritas has a web site that briefly describes their VUL offerings and the Vanguard Funds they use.

http://www.ameritasdirect.com/types/vul5.htm

Regards,

intercst
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I have a VUL with Reliastar, which I started after attending one of their retirement planning seminars. Do you know anything about them?

By the way, are you (Alan) an independent CFP?

Thanks.
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> I have a VUL with Reliastar, which I started after
> attending one of their retirement planning seminars.
> Do you know anything about them?

Hi Amy,

I went to a similar seminar entitiled "Successful Money Management" that was sponsored by the AAA in my area. One of the teachers has met with my wife and I and is recommending that we purchase a similar VUL with ReliaStar. I was wondering what experiences you have had with this company? Do you like what you have purchased?

-IgD
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Igd,

ReliaStar is a good company and as with so many companies these days with mergers and acquisitions, it's hard to follow just what's going on with them all. Security Connecticut, well know for their term policies, is now ReliaStar. If one really wants to check out the company, one needs to go to the reference section of the library and look them up in the A M Best for Life Insurance book.

The VUL (Variable Universal Life) contract that ReliaStar is selling is quite new for them. But that doesn't mean it a questionable product. In fact, it's a pretty good one . . . . .though there are others one might consider much better depending on particular features that one may put more importance on.

Note that VUL's are very complex policies and are best suited to the more financially sophisticated. VUL's are great products and can be a great addition as PART of one's life insurance portfolio as well as PART of one's retirement program, but they are NOT for everyone . . . in fact, there NOT for most people. Most financial advisor don't understand them well nor do most life insurance agents.
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