Pros and Cons of Having a Variable Life Insurance Plan?

[ALFRED ROSE]

I am thinking of canceling mine and getting some term insurance but I don't want to make any mistakes or moves that I might regret.

 

[briko3]

It really depends on what you need the insurance for. If you're willing to share that, you'll get a more accurate response.

 

[Mark]

I am thinking of canceling mine and getting some term insurance but I don't want to make any mistakes or moves that I might regret.

What did your insurance agent say about all of this??

You do have a lot of different options and I would call your agents or a local agent and let them review all of your options with you.

Variable Life products are right for certain people, but in general, I don't like them...

 

[moonlightandmargaritas]

Variable Life products are right for certain people, but in general, I don't like them...

Are you licensed to sell them? Have a Series 6?

 

[scagnt83]

I am thinking of canceling mine and getting some term insurance but I don't want to make any mistakes or moves that I might regret.

A variable policy is a long term commitment.

How long have you had the policy?
How much cash value has it accumulated?
How has it performed?
How much death benefit do you need?
What are your retirement needs?
Can you still afford the premiums?
What do you plan on doing with the difference in premiums?
Do you still have the illustration you where shown?


Variable Universal Life policies (VULs) usually have long surrender periods, which means that you could loose a certain percentage of your cash value if you cancel your policy before the surrender period ends. Most surrender periods are between 10-15 years.

A VUL policy is designed for someone who needs a death benefit but also is looking for a tax advantaged place to accumulate retirement assets.
As I said before, a VUL policy is a long term premium commitment. Unless it is year one or two... or 15, generally it usually isnt a great idea to cancel a VUL.

All of this and more should be taken into account with your decision.

Tell us more about the reasons why your thinking about canceling your policy.
Is it too high of a premium? Do you think its not a good deal and there are better opportunities? Do you not understand it?
What where the original reasons you took it out?

 

[BNTRS]

I am thinking of canceling mine and getting some term insurance but I don't want to make any mistakes or moves that I might regret.

Please tell us first that you've not fallen prey to the disasterous buy term and invest the difference nonesense touted by the likes of Suze Orman, Dave Ramsey, or Primerica Agents. If this is instigating your decision to entertain this move, you should take a serious timeout.

Let's first understand the mechanics of variable universal life insurance:

It's essentially universal life insurance with the extra cash part going into a subaccount (insurance company equivilants of mutual funds) to be "invested" in some fashion.

Since it's universal life insurance there is no guarantee for mortality costs, expenses (but they are guaranteed to be within a certain range), and performance on investment. You essentially have a term product with an investment account tied to it. The added bonus is unlike tradtional term products, you have the ability to keep the coverage in force as long as the premium (the costs/deductions of the insurance piece) gets paid.

The cash inside is not taxable while it grows and can be accessed tax free, but this is a little tricky given the variability of the products underlying expenses.

The growth of cash can be moved into another life contract or an annuity contract without a taxable event taking place.

I would tell you to be very cautious about making the sort of change you are taking about. It sounds like a potentially bad idea.

 

[Full Throttle]

This has nothing to do with the original poster's question and as I have no idea his or her situation (and I wouldn't give investment advice on an internet forum). That being said, VUL is essentially buy term / invest the difference, it's just that the odds are stacked against you on both ends (investments and insurance).

Take an example, this beats some of the Ameriprise contracts I've seen, I'll leave the carrier anonymous for the now (it is a much more friendly contract than most I've seen for VUL). Let's look at the expenses:

5% Load on Incoming Premium

Ongoing costs:
M&E .35% (why M&E when you are paying the COI?)
Subaccount Expenses .50% to 1.2% (varies)
Face Amount Charge
Cost of Insurance (usually very overpriced)

To make matters worse, what happens on the down years. When the market drops 50%, it takes a 100% return to get back to even. However, when the COI and expenses keep coming out, it takes a much larger effort to recover. That's why a retiree hit with a large loss at the front end of retirement is affected much more than the same loss at the backend.

VUL = overpriced investments + overpriced insurance/charges

I've done the math a few different times, for myself, I decided I couldn't ethically sell it.

 

[scagnt83]

Take an example, this beats some of the Ameriprise contracts I've seen, I'll leave the carrier anonymous for the now (it is a much more friendly contract than most I've seen for VUL). Let's look at the expenses:

5% Load on Incoming Premium

Ongoing costs:
M&E .35% (why M&E when you are paying the COI?)
Subaccount Expenses .50% to 1.2% (varies)
Face Amount Charge
Cost of Insurance (usually very overpriced)

VUL = overpriced investments + overpriced insurance/charges

I've done the math a few different times, for myself, I decided I couldn't ethically sell it.

I respect your opinion and choice not to sell the product. I will agree that it is an expensive investment.... anytime you use mutual funds you pay through the nose....
But there are some good VUL products out there.

-In a recent policy I ran, the COI @ 80 for $350K was under $1K. Many UL products have a very low COI, but they make it up in admin fees and premium loads.
-There are accumulation based policies that have an M&E fee that falls off after 10 years, and its only .15% of premium.

- There are policies that have premium loads or admin fees that are cut in half after 10 years.
The premium load and admin fees are where they really stick it to you.... with any UL policy for that matter.
You have to look at both of them as one expense, because often if one is really low, the other is higher than usual.

Generally speaking, VUL is not a great fit for most clients. They have to have a lot already in other fixed and equity based investments before I ever recommend it. But it has its place.

The extra fees in VULs are why I am a big fan of IUL products.

I see VUL as a true alternative investment platform.
Its for a higher net worth client, somebody who is looking for more avenues to invest in, has a high risk tolerance, and is already very well based in traditional platforms.
Because of the fees, it doesnt make sense unless you go with aggressive funds; if it performs well then you have a nice tax free nestegg, worse case scenario... you can have a DB guarantee rider or product and at least you have your DB left if the funds go south.

 

[K3_insbkr]

if you have a vul, it isnt a bad thing. but why did you get one? did you "need" it? do you still "need" it? did you &/or do you overfund it? What's the purpose?

lots of questions, but these will lead to a series of more questions.

bottom line- it just really depends on your situation.

 

[LGilmore]

"I am thinking of canceling mine and getting some term insurance "

If you own a VUL, then you already have term insurance. As others have said, more detail. Express yourslef as long as you need.