All Life Insurance Tips

What is your opinion of VUL? Variable Universal Life?

I know their fees are ridiculously high and their returns aren't anything special. I feel that it's smarter to buy term life insurance and invest in no load mutual funds versus putting money somewhere that charges fees for everything.

Public Comments

1. term life is better. never use insurance as an investment.
2. Not only their fees are high, the cost of having it increases internally. In all universal life policies, the insurance part is always annual renewable term insurance. Lets say your premiums is $1200/year at the beginning. To keep things simple, lets say your premiums are paid for two things, which is insurance and cash value. Breaking this $1200/year apart, this is how your premiums will split over time (this is a hypothetical illustration, but you will find a page in the policy that shows you how much is going into each part. It will look similar to the illustration below): Year 1: $240 goes toward term, $960 goes into cash value. Year 2: $300 goes toward term, $900 goes into cash value. Year 3: $360 goes toward term, $840 goes into cash value. Year 4: $420 goes toward term, $780 goes into cash value. As you can see, more and more of the premiums is going toward the insurance and less and less is going into the cash value. Eventually, all your premiums is going toward cash value and if you don't pay the full premium, the cash value will be used to pay the difference. In Universal life policies, your premiums are flexible. You can pay the minimum premium or the target premium or you can skip it. If you skip it, the insurance company will use your cash value to pay for it. Anyway, you want to make sure you get the right length for term insurance. I recommend a 20, 30, or 35 year term insurance. Many insurance companies will sell you an annual renewable term insurance, meaning your premiums goes up every year. Many will sell you a 5 year or 10 year term. These are very short term policies. When the term ends, the agent who sold you this short term policies will sell his point that cash value life insurance is better. If you are not educated, you will fall for his deception and covert your term policy into a whole life or universal life policy. So avoid short term policies. Stick with 20 year and above term policies so you have enough time to build wealth for the future. Remember, no term policy are the same. Every insurance company writes their life policies differently and have different convertible options. My company doesn't convert term insurance into a cash value life policy. Instead, they let the client make up their own mind when they outlive the term. They can exchange the term policy for a shorter term policy. They can lower the coverage to keep the premiums low. They can cancel the policy. Or they can keep the policy and pay the renewal term. While you are investing, you want to invest on a monthly basis. If you understand the Dollar Cost Averaging concept, you would see it would be beneficial to invest once a month.
3. This'll be the shortest answer on this subject from me- You don't need me to answer for you!!! You have the answer that you need. Don't listen ti insuranceguy, he'll tell you that you have a chance to make 91k in just a couple of years!!! Sorry, I almost laughed myself off of my chair thinking about it.
4. If you're going to do it, you should generally pay the maximum non-MEC premium, or close to it. Maximum so that more of your premium goes towards the investment portion, and down the road as the corridor of insurance between your cash value and face amount gets smaller, your cost of insurance should go down even while the cost per thousand goes up. Non-MEC so that you don't violate the rules of TAMRA and you have a chance of pulling money out beyond your cost-basis income tax-free. Fees and charges alone aren't enough to evaluate an investment. If they were, the other agents on this forum would have addressed your no-load comment. As long as you plan to hold the contract longer than the surrender period, which any agent should be able to point out, the main drawbacks in my eyes are the limited investment world and the volatility of the insurance charges (see previous posts on this topic). Oh, and the average length of time a person owns any one term policy is 5-8 years because of changes in market pricing and changes in the owner's life. Buying a term policy for an overly long period of time may just be putting more money in the agent's pocket unless you have a specific goal. Especially with gross commissions to the agent and general agent of 90% to 150% of your first year premium. Loaded insurance can still be more competitive than no-load if you shop around.
5. My opinion is that insurance is a financial tool. With ANY product, you need to define the goals, and then it's SMARTEST to pick the most effective, least costly tool to meet the goal. I have never seen any goals, where VUL was the most effective, least costly tool.
6. It's a great deal for everyone but the insured/policy owner (hereafter referred to as insured). The insured assumes the market risk. The insured assumes the investment risk. The insured assumes the cost of almost all fees associated with the policy. And, most of the costs are not clearly identified to the insured. Insurance is a risk management vehicle. Not an investment.
7. Always keep you investments and insurance separate. VUL's are just high commission products.