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

By: Zak

Zak — Fri, 05 Mar 2010 03:59:38 +0000

Dan,

Haha, you opened up a can of worms on that one. I’m not sure the exact situation where it works best one way vs the other. I think if the loan nets a 0% interest rate (which many do nowadays), it might make more sense to take loans only. Whereas some of the older policies used to charge a fairly high rate (many as high as 8%) and didn’t credit anything back. In that situation, I would think it would make more sense to take withdrawals first.

Anyways, not saying it isnt better to take loans only. I’m just saying that there are definitely situations where withdrawals first make sense. I think it just depends on the loan provisions of the policy (which has a lot to do with when the poliy was issued). My use of the word “often” may have been strong.

By: Zak

Zak — Fri, 05 Mar 2010 03:44:10 +0000

@Jaymz

“You people realize that a VUL IS a Wall ST security and you have to be licensed to advise people on it.”

No, a VUL is a life insurance policy, not a security. The sub-accounts are securities. You have some valid points (and some invalid points), but if you are going to bash people and look intelligent while doing it, at least make it sound like you know the subject matter well by using the correct terminology.

By: Dan C.

Dan C. — Fri, 05 Mar 2010 03:37:32 +0000

Any withdrawls will just affect the account value of your policy. A small amount could mean a difference of tens of thousands dollars in the years that you go to retire.

In comparison, if you were to take out a policy loan against the value, it does not have to be paid off until you die. It will be taken out of the death benefit + interest on the owed amount.

So why would I want to erode the effect compounding interest has on my savings?

By: Zak

Zak — Fri, 05 Mar 2010 01:32:45 +0000

@ Dan C.

Technically this isn’t entirely true. It can often make more mathematical sense depending on the loan structure of the policy to first make cash value withdrawals in retirement, up to the point of your cost basis (so that the withdrawals remain tax free), and then start taking policy loans after you have hit your cost basis. Or you can take loans right from the start; it’s your choice. But I wouldn’t make a blanket statement about not withdrawing the money.

By: Dan C.

Dan C. — Fri, 05 Mar 2010 01:05:25 +0000

You don’t withdraw the money! You take out a policy loan, which comes out of the death benefit when you die. You can also use the policy to leverage a third party loan (for a car, mortgage, business loan, or line of credit).

By: Dan C.

Dan C. — Wed, 03 Mar 2010 22:26:53 +0000

I feel sorry that these fees were not explained to you. With a bit more patience, the Cash Surrender value would equal the Market Value of the policy. In other words, you get back all the money you put into after surrender charges and deductions.

By: William

William — Sun, 21 Feb 2010 15:21:49 +0000

Taking the time to learn on your own about the variety of investment and insurance products available and which ones are suitable for you makes you the opposite of a moron or idiot. The fact is that VUL’s and similar investment/insurance products are sold to the wrong people. These people, after realizing the bad choice they made, will go on their own or be more discerning when choosing a new adviser. There are good, bad and mediocre load funds, no load funds and insurance/investment products. On your own or with an adviser you could end up with either one of them. You need to research before choosing. Even with an adviser. Don’t take anyone’s word. Among the true idiots and morons out there are those who resort to name calling when challenged.

By: Jaymz

Jaymz — Sun, 21 Feb 2010 04:43:22 +0000

A VUL can be the best investment vehicle out there if used properly on the right individual. Some people make too much money to qualify for a Roth IRA. I challenge any of you morons bashing VULs to find the right recommendation for someone with this type of income that wants tax free growth on their money. Furthermore there are high fees in the first 5-10 yrs typically on VULs. Then typically the policy is surrendur free. There is a reason for every fee. The M&E is charged in the 1st 8 yrs of the policy, TO PROTECT THE SOLVENCY OF THE INSURANCE COMPANY. Then fees can be credited back to the policy owner so that recoups some of the cost. Did any of you idiots look at an illustration? Did you look at the policy values and benefits pages. Oh yeah and idiots that think “no load funds” are the way to go, think about it real hard. The company charging the least amonut to manage your money is the best right. hahahahaha. If you were good at doing something would you charge the cheapest price? Hell no. Simply put the better portfolio managers are going to charge more, BECAUSE THEY GET HIGHER RETURNS, SO THE FEE IS WORTH IT BECAUSE YOUR NET GAIN IS HIGHER. No load funds typically track what the major indices do so they are easy to manage hence cheap. You get what you pay for. In a case study I have seen the average return for do it yourselfers is 3%/yr in a 30 yr sample. Wow you people dont need FAs and are doing a great job on your own. I cant stand people who only know a little bit about how something works and the try to advise people on how it works. You people realize that a VUL IS a Wall ST security and you have to be licensed to advise people on it. I challenge all you people to find your financial independence on your own.

By: SmartMoneyGuy

SmartMoneyGuy — Sat, 20 Feb 2010 19:40:36 +0000

I’ve been an advisor for 35 years, and I’ve sold it all. At this stage of my career, most of my clients are growing older too. The last 10 or 12 year period is a perfect lesson in managing risk. VUL can have it’s place… I’ve sold some over the years, but in the market crash of 2000 / 2002 when the market dropped 48%, many of my clients were hurt. (That’s when I quit selling it) Obviously recovery takes place, but who wants to waste 7 years making up for a 50% drop in value. Fast forward to 2007 / 2009. Here we witnessed a whopping 58% decline in the overall market. Think there might be some desire for a product or a strategy that limits or eliminates downside risk? You bet there is, especially if you are 50 or older and don’t really want to spend the next ten years climbing out of a hole.

To say that Index Annuities or Index Life is a bad plan because they limit the upside is a poor argument. The really ‘poor’ strategy is investing in Mutual Funds, Variable Annuities, or VUL and watching helplessly as 50% of your nest egg goes up in smoke, while paying fees whether you’re account value is headed up or down.

Wharton School of Finance recently did an unbiased, university level study of various investment vehicles over a 15 year period, including the S&P500 versus Index Annuities. Son of a gun if the old, boring, ‘high-fee’ Index Annuity didn’t beat everything else! These products have brought returns averaging 6 to 9% over the past 16 years.

You can’t get around the fact that bear markets (20% losses or greater) appear every 6 or 8 years, where losses average 39% and 5.2 years (on average) is spent in recovery. Avoiding the losses is much more important than chasing the home runs. Just ask Warren Buffet.

Buy the overall market. Limit your risk by using a tool such as Index Annuities, or Index Universal Life (if you can buy it early enough) and you will do just fine. Enjoy some tax advantages and sleep better every night.

By: HNW Male

HNW Male — Wed, 17 Feb 2010 03:45:06 +0000

@ TFB
Several have said that the VUL could be a fit for a very small number. What does the ideal VUL candidate look like? I need tax deferral. We max out 401k, do some deferred comp, etc. My plan is to max fund a VUL (without creating a MEC.) The only thing I may consider is a 529 but I could do both. I am 37 with 1st child on the way. My adviser says that I am “ideal”. Thoughts?