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Assuming that someone absolutely, positively decided they wanted to buy an insurance product for an investment, what are the pros & cons to investing in a variable universal life policy vs. a variable annuity?

Are there any links with this info?

Zev
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Zev,

<<Assuming that someone absolutely, positively decided they wanted to buy an insurance product for an investment, what are the pros & cons to investing in a variable universal life policy vs. a variable annuity?

Are there any links with this info?>>


You may want to pose this one on the Insurance board where many who deal in these products hang out.

Regards..Pixy
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Zev - I would stand by VUL as an insurance policy with an investment component. Its claim to fame is its flexibility & utility to provide long-term insurance protection & allow for some capital growth opportunity above the rate of inflation.

Variable Anuunities (VA), on the other hand, are more of a capital accumulation program that have a bit of "insurance" to them. They are best used to supplement other retirement savings programs because they build capital on a tax-deferred basis.

Consider this: If you paid $100/month into a VUL and another $100/month into a VA, at the end of a year the VUL's cash surrender value would be minimal (a few hundred dollars I guess), while the VA's would be $1200 + the actual growth produced by the separate investment subaccounts. Of course if you died at that time the VUL's payout to your beneficiary would be much greater ($100k or so, depending on your actual face amount provided through underwriting), whereas the VA would pay your beneficiary only the actual cash value ($1200+ growth). Another difference for the beneficiary: the proceeds from the VUL are tax-free, but the VA's are taxable to the same extent as they would be to you!

Hope this helps... Good luck & best wishes, PP
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peppermintpatty,

In addition to what you said, doesn't the cash value in the VUL also get applied to the death benefit, if necessary?

So, you are saying there are two scenarios, insurance and captial accumulation. If I want insurance with tax-deferred capital accumulation, although at a slower rate, go with VUL. If I just want the tax-deferred capital accumulation, go with a VA.

When I pull the money out of either, I pay regular income tax. OTOH, if I die beforehand, the VUL death benefit is tax-free to my heirs.

Zev
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Zev,

To add to what I last said, the cash value of a VUL may be added to the face amount of the death benefit (this is often referred to as Death Benefit Option B - its premiums are higher), or the death benefit may stay level (Option A) at a lower premium cost.

Your outlook on the tax situation is essentially right, except you may withdraw from the VUL's cash value up to the amount of your basis (total premiums paid) without triggering a tax because it's a return of principle & not a withdrawal of gain. And furthermore any withdrawal (principle or gain) is not subject to any IRS penalty, like pre-59 1/2 withdrawal from VA...

Got it? For more info, go to the Insurance Board & pose your question for a variety of opinions! PP
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