What to Do with my VUL.

[guest1234]

Hello all,

I have had a $100K Ameritas VUL for about 20 years (I'm now 48), and it has a cash value of about $14,000. I haven't put any payments into it for over ten years, but I have also taken a couple loans out against it since that time. So it hasn't grown too much. These days, I have a loan out against it which now has a balance of roughly the same amount ($14K).

For the first time in many years, Ameritas is now asking me to replenish the account to the tune of $1,200 in order to keep the policy active, and then continue to pay in about the same amount each year, to pay for the insurance and principal (I presume).

I am a novice at all this, and the friend that sold it to me 20 years ago is no longer in the insurance biz. I'm thinking I should just let it lapse, but she thinks I should keep it.

So now I'm wondering what some other experts out there might think.

Some additional details about my situation:
(a) I also own a 10 yr term life insurance policy with $1 million death benefit -- term is up in 5 yrs, and my plan is to renew at that point.
(b) I have a Roth 401(k) which I haven't funded in years, but which I have had minor success with some investments (worth about $15K).
(c) I have a gov't retirement plan (from a prior job) that I can't touch until 2020, worth about $125K today.
(d) My net worth is about $1 million, but most of that is from equity in properties and a strong, successful business.
(e) Take home income is about $120K per year -- self-employed.
(f) I'm healthy and relatively fit, but have a family history of heart disease and diabetes; no cancer in my family.
(g) My cholesterol is slightly on the high side, but low blood pressure.
(h) Married (she stays at home), one teenage son (probably going to take over the business).

My question is: Is there an advantage of putting the initial $1,200 back into the Ameritas VUL (and eventually paying off the loan), or are there better investments and uses of the $1,200, given the above?

Thanks in advance.

 

[BNTRS]

VUL's are known for their somewhat high expenses, but Ameritas is well regarded for it's low cost products, so that's probably less of a worry here.

Could you do better than the Ameritas VUL? Probably. It depends on your intentions. I'm not trying to demean you in anyway, so please understand that I'm speaking purely from a numbers and cents point of view when I say that when it comes to $14,000 and ~$1,200 per year good decisions vs. great decisions aren't so much a concern because the numbers are so small the difference really won't matter a whole lot.

There's another option you likely have, that Ameritas hasn't made you aware of and that is simply reducing the death benefit to knock the cost of insurance down. There may be some grumbling over recalculating the reduction to ensure 7702 compliance, and you should probably check to ensure that a reduction is expected to remain compliant to age 100 if you continued to place $1,200 into the policy per year. You would take this option if you wanted to preserve and optimize cash while not really caring about the death benefit.

Regarding other options that exist outside of VUL, the sky is almost the limit.

 

[Norwayguy]

Some additional details about my situation:
(a) I also own a 10 yr term life insurance policy with $1 million death benefit -- term is up in 5 yrs, and my plan is to renew at that point.

Just my initial thought is if you can. You are healthy now there is no guarantee you will be in 5 more years.

 

[scagnt83]

Hello all,

I have had a $100K Ameritas VUL for about 20 years (I'm now 48), and it has a cash value of about $14,000. I haven't put any payments into it for over ten years, but I have also taken a couple loans out against it since that time. So it hasn't grown too much. These days, I have a loan out against it which now has a balance of roughly the same amount ($14K).

For the first time in many years, Ameritas is now asking me to replenish the account to the tune of $1,200 in order to keep the policy active, and then continue to pay in about the same amount each year, to pay for the insurance and principal (I presume).

I am a novice at all this, and the friend that sold it to me 20 years ago is no longer in the insurance biz. I'm thinking I should just let it lapse, but she thinks I should keep it.

So now I'm wondering what some other experts out there might think.

Some additional details about my situation:
(a) I also own a 10 yr term life insurance policy with $1 million death benefit -- term is up in 5 yrs, and my plan is to renew at that point.
(b) I have a Roth 401(k) which I haven't funded in years, but which I have had minor success with some investments (worth about $15K).
(c) I have a gov't retirement plan (from a prior job) that I can't touch until 2020, worth about $125K today.
(d) My net worth is about $1 million, but most of that is from equity in properties and a strong, successful business.
(e) Take home income is about $120K per year -- self-employed.
(f) I'm healthy and relatively fit, but have a family history of heart disease and diabetes; no cancer in my family.
(g) My cholesterol is slightly on the high side, but low blood pressure.
(h) Married (she stays at home), one teenage son (probably going to take over the business).

My question is: Is there an advantage of putting the initial $1,200 back into the Ameritas VUL (and eventually paying off the loan), or are there better investments and uses of the $1,200, given the above?

Thanks in advance.

Of course your friend says that she thinks you should keep it.... she isnt going to say that what she sold you was a waste.....

Im not saying it was a waste. But I would listen to an agent who specializes in this area, which she clearly does not.


Even with the detailed info you gave there are still too many variables to give you a good answer. And those variables have to do with the specs of the policy.


Basically, there was a failure at some point in the timeline:
1. The policy could have been poorly designed and not overfunded (paying extra premium over the required base premium).
2. It could be a crappy policy in general no matter the design.
3. You could have taken out too much or not paid the premium for the planned period.
4. Poor performance from investment sub-accounts could have blown the performance of the policy.
5. A combination of all or some of the above.


Ameritas can run what is called "inforce illustrations" to show you expected performance of the policy under different scenarios.

I would not recommend allowing this policy to lapse. This will most likely create a taxable event for you!

It might be possible to convert to a new policy with a reduced death benefit and a set guaranteed premium. This would be up to Ameritas, and would depend on their business policies and the current state of your policy.

It might be possible to do a 1035 exchange and transfer the CV (and the loan) over to a new company with a more favorable loan rate or policy parameters. This might allow for smaller premiums to keep the policy inforce.

There are a lot of possible options here. You just need a knowledgeable agent and get them full info about your current policy.

What state are you in?

 

[Norwayguy]

Of course your friend says that she thinks you should keep it.... she isnt going to say that what she sold you was a waste.....

Im not saying it was a waste. But I would listen to an agent who specializes in this area, which she clearly does not.


Even with the detailed info you gave there are still too many variables to give you a good answer. And those variables have to do with the specs of the policy.


Basically, there was a failure at some point in the timeline:
1. The policy could have been poorly designed and not overfunded (paying extra premium over the required base premium).
2. It could be a crappy policy in general no matter the design.
3. You could have taken out too much or not paid the premium for the planned period.
4. Poor performance from investment sub-accounts could have blown the performance of the policy.
5. A combination of all or some of the above.


Ameritas can run what is called "inforce illustrations" to show you expected performance of the policy under different scenarios.

I would not recommend allowing this policy to lapse. This will most likely create a taxable event for you!

It might be possible to convert to a new policy with a reduced death benefit and a set guaranteed premium. This would be up to Ameritas, and would depend on their business policies and the current state of your policy.

It might be possible to do a 1035 exchange and transfer the CV (and the loan) over to a new company with a more favorable loan rate or policy parameters. This might allow for smaller premiums to keep the policy inforce.

There are a lot of possible options here. You just need a knowledgeable agent and get them full info about your current policy.

What state are you in?

I wouldn't say there is a failure in design....The policy has been in force for 20 years based on the OPs statements. Premiums have not been paid for 10 years and multiple loans have been taken out. Even with that the policy still has a CSV of $14k.. What we do not know is what was contributed during the first 10 years...

 

[guest1234]

What we do not know is what was contributed during the first 10 years...

I seem to recall $85/mo payments for about 10 years, starting about 1993. It was worth about $12K when I took a $10K loan around 2004, and paid back by 2007. In 2011 I took the current loan.

What state are you in?

California.

 

[scagnt83]

I seem to recall $85/mo payments for about 10 years, starting about 1993. It was worth about $12K when I took a $10K loan around 2004, and paid back by 2007. In 2011 I took the current loan.

Ok. This clears things up a bit.

That is a very large % loan. What was the 2011 loan amount? And what was the cash value at the time you took it?


Also, given the above info, there is a chance that the policy wasnt fully overfunded. (poorly designed)

Over your first 11 years you had around a 2% annualized return, or a 22% cumulative return.

But the S&P has a 116.93% cumulative return over that period.

That means it was either poorly designed, or you had very poor sub-accounts (investment options).



This helps narrow down your options a bit.

There is a chance that you can just lower the Death Benefit. This could reduce the required premium or possibly (but not probably) eliminate the need for more.

Also, you just need to get an inforce illustration showing what they expect the 1200/y to do for the policy. This will let you know if the 1200 is really going to be enough. Because paying the min (which is what they are requesting) rarely solves things.




You could also do a tax-free exchange (1035 exchange) and transfer the cash and loan over to a new policy with another company.
This would allow a portion of the cash value to pay down the loan upon transfer. And by using a company with preferable loan rates, the loan can stop being such a detriment to the policy.

Using your example, and a 5.5% assumed crediting rate (this has close to a 100% historical accuracy over 100 30 year periods); you could pay $200/m until age 70, and have almost a 3% return by age 70.
This is using a Fixed Indexed Universal Life Policy. It credits yearly gains up to a specified cap (limit), but does not credit any negative years in the Index.
This policy would also have overloan protection. So if the same thing ever happened, you could simply loan out whatever is left, and the policy would revert to a $5000 DB paid up policy. This eliminates any possible tax burdens.

Obviously this option requires a commitment of keeping a policy. But at 48, and as a business owner, you could use some permanent insurance. Especially if you plan for your son to take over the business.

 

[bigjake]

There are 2 easy ways to look at this:

1) It has served its purpose. Lose it. You did not pay premiums for 10 years and took two loans, one of which you paid back. There is enough cash there to pay the loan now. You are even. You have other insurance now, so if you do not need $86,000 more coverage (face-loan), then drop it. Pay the taxes, if any, and be done.

OR

2) You were only 28 yrs old when you bought it. You will never get those rates again. Keep it, paying closer attention to the investments, and fully fund it. Should you find the results aren't good enough in 2 or 3 years, take the cash out and end it then. You may find better performance in other instruments, you may not.

 

[SDCLife88]

I am in CA and I specialize in UL Insurance, annuities and retirement planning. If you want to run through your situation, just give me a ring. I deal with these policies 24/7 in the county and school districts in Southern California.