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VUL & College Savings Plan?

A Financial services guy is recommending I cancel my existing Term Life Insurance and instead put money into a Variable Universal Life Insurance Policy. He also said I should cancel my State 529 plans and put that money into the same VUL. He said you can withdraw or borrow money from a VUL. I told him I don't really understand what he is proposing. He is only recommending a 100,000 policy, but I am still confused as to why one would use a VUL for saving for your kid's college?

Public Comments

1. You wanna know why? Because he will make a really fat commission off this. Insurance companies usually will front a broker upfront commissions for an insurance policy instead of on a monthly basis when premiums are paid. For individual policy the broker will make 55% of target premium. If he sells you mutual finds in a 529 plan a mutual fund company will pay a commission to the brokerage house usually around 5% and from there the broker will get around 50-70% of that. Now since you are contributing to a State 529 plan he won't make a dime since that is through the state and not a broker. When you buy a VUL you will also be paying really high fee's you will be paying Cost of Insurance Charges AND you will be paying fee's for the individual sub-accounts (Mutual Fund type investments). There is defiantly a time and place to use permanent insurance however this is not one if them. This transaction boils down to your broker not being able to make a commission off you state's 529 plan and offering a product he will make a commission on.
2. It seems what he is proposing is a nice sale and commission for himself; it's amazing he's only recommending a $100,000 policy. VULs might actually have some valid purposes for individuals who (1) have maxed out most other tax-deferred investment options and (2) have a real need for life insurance. However I would contend that paying for college is not one of them. Withdrawals from the policy permanently reduced the death benefit. Loans create a liability against the policy that would be deducted from the death benefit if not paid back. And this would be at a time your child would need the most (their college years) from the life insurance proceeds if you were to die.