Comments on: $10,000 Lesson On Variable Universal Life (VUL)

By: William

William — Fri, 04 Sep 2009 16:11:00 +0000

Indexed universal life insurance for college savings? My instinct says do not fall for it. The sales man will likely get a nice commission from the sale of this product. Don't stop 401k contributions. Don't you get an employer match for you contributions? And aren't contributions tax deductible?You should be maxing that vehicle out. I'm not sure about 529s. You might qualify to contribute to a roth ira. Earnings from a roth are withdrawn tax free after 59 1/2. Principal can be withdrawn tax and penalty free at any time. The principal balance of a roth ira can be a good source of college funds, held in your name, for your children. Think about it. If you start when the child is 8, at $5000 a year, you will have $50,000 at your disposal,tax free, when the kid is ready for college. The earnings are yours, tax free, after 59 1/2. You may need other sources like a 529, but its a start. Stay away from insurance as an investment vehicle. I know from experience. Buy term life insurance. It is a good value these days. Insurance wrapped in investments can cost up to from 5x to 10x what a term policy of the same face value would cost. Educate yourself before you commit to this type of insurance policy.

By: TFB

TFB — Tue, 01 Sep 2009 21:27:27 +0000

@Lory - After the surrender charge period is over, you will have to see what the cash value is compared to your cost basis (get both numbers from Ameriprise). If your cash value is above your cost basis, you can just cash out. You will have to pay taxes on the gain. If your cash value is below your cost basis, you can do a "1035 exchange" to a low cost variable annuity that does not have a surrender charge, such as variable annuities offered by Vanguard. Let the market value catch up to your cost basis before you cash out from the variable annuity. @anon - Indexed Universal Life is most likely NOT the best retirement and college funds savings for you and your family. Don't just take my words for it. Also read this article by Money Magazine senior editor Walter Updegrave: Investing in a pricey life insurance policy

By: anonymous

anonymous — Mon, 31 Aug 2009 19:41:49 +0000

Can someone tell me more about the Indexed Univeral Life? For example those of Life Insurance of the Southwest? Is this the best retirement and college funds savings for me and my family? What are the tax implications when I need to take the money out for my children's education, say 10-15 years from now? I was looking to eliminate their 529 and stop my 401K contributions to participate in these policies. I have been informed that this is the best tax-free retirement income and college funds when the child is 18. After reading all these posting, I'm reconsidering what I'm about to do. Please advise.

By: Lory

Lory — Thu, 27 Aug 2009 06:47:11 +0000

My husband and I purchased VUL's as an investment vehicle. We didn't put any money into them upfront except for our first premium fee's. We pay our premiums monthly and have been slowly accumulating money. They are Ameriprise/Riversource VUL's. I believe that our SC will be over after 10 years. If we want to save money overtime and also invest it I take it after reading the previous comments that this is a lousy vehicle! What would you suggest we do after out SC period is over?

By: TFB

TFB — Tue, 25 Aug 2009 05:00:00 +0000

Max – Index Universal Life (IUL) is still a type of Variable Universal Life (VUL). Instead of using mutual funds in the sub-accounts, it uses Equity Index Annuity, which is worse than regular mutual funds in the long run. Equity Index Annuity is always pushed during a bear market. It gives you some downside protection in a bear market but it limits your upside in a bull market. Buying downside protection when substantial downside has already happened is exactly the wrong time to do it.

Index Universal Life is still VUL. It's worse than regular VUL.

By: Max

Max — Mon, 24 Aug 2009 01:56:44 +0000

Now there is new type of life insurance called Index Universal life(IUL), would you like to provide some inputs in this subject too?

By: TFB

TFB — Fri, 07 Aug 2009 06:29:08 +0000

@aldo – "All in all, VUL work extremely well for certain people." I can't disagree with that. That number of certain people pales in comparison to the number of people who are sold VUL though. Marijuana has some medicinal use. It also works extremely well for certain people. But that's not how the vast majority of it is used.

By: aldo

aldo — Thu, 06 Aug 2009 17:04:48 +0000

to the comment of Captain of my ship.

"The lesson here. I am my best adviser when it comes to my money. So is everyone else with their money. Libraries, bookstores and the internet have more than enough information to help the average person take control of their financial future."

Really? Well why use CPAs, Lawyers, Doctors if you can find all that information out there. My example is extreme but you get the point.

Don't let a bad experience send you the wrong way… just get yourself a good financial advisor.

The real advisor sees his payout through referrals/introductions and does not focus solely on commissions. If you are a good advisor you wouldn't sell what is not suitable. Trust the commssions paid don't go that far.

By: aldo

aldo — Thu, 06 Aug 2009 16:57:32 +0000

all good points.. but all I read is complaints from people that have VUL that were not qualified propespects. A lot of VUL are sold as Executive Bonues compensation, Estate Planning purposes and to qualified prospects. It all boils down to time horizon, the prospect needs to make enough money because he or she needs to overfund the policy by at least 100% of target premium. And if it used indeed like a Roth Alternative then you really have limited options when it comes down to tax free income at retirement.

And it also does not help if you did it with an advisor that is looking for a quick buck.

All in all, VUL work extremely well for certain people.

By: captain of my ship

captain of my ship — Fri, 24 Jul 2009 00:37:48 +0000

I filed a complaint with my state's banking and insurance dept. against the adviser who sold me a VUL. It was not an appropriate product for me and other, less expensive options were deliberately not brought to my attention. I was ignorant. The adviser was greedy. It took a while but eventually the insurance company waived my surrender charge and returned the cash value of my policy. I hope the adviser had to return his commission. The lesson here. I am my best adviser when it comes to my money. So is everyone else with their money. Libraries, bookstores and the internet have more than enough information to help the average person take control of their financial future.