Cal Lester <cal-lester[at]comcast.net> wrote:

- quote -

average, $95 goes toward insurance costs, and the rest is presumably
fees or commissions.

If they're pulling out for insurance costs more than 3 times what you'd
pay for equivalent term, something is not right. Not that it would
much surprise me, but that's ridiculous.

The one thing I wonder is if Tom is experiencing front loaded
commissions. Is there a schedule that shows what those costs will look
like in a couple years? It may be that for the first year or two, a lot
goes to comission (but it may come out of an "insurance costs" line
item), and after a while those costs go way down (it's typical for a
large portion of the first year of an insurance contract to be
commission).

To the OP: If that's what's going on, then you really need to analyze
the whole contract. If the VUL company is out to keep your money and
not especially ethical, it may be *very* difficult to get good estimates
from them about what you will actually be paying long term.

Often the expense of VULs that makes them bad decisions goes away after
a year or two of holding and it doesn't make sense to cancel them, but
if the info you've given here is correct and isn't set to change in the
future, it's trivially obvious that you should get out unless there are
very large surrender costs. The "insurance cost" deductions within a
VUL should be comparable to the cost of equivalent year by year term
insurance. Remember you're generally also paying 1-2% wrap fees on the
whole cash value account every year, on top of any expenses in the
underlying subaccounts (that wrap fee is something you don't pay in a
buy-term and invest the difference scenario and often eat up most of the
tax advantage). There can be annuity conversions available at
retirement time, and portfolio insurance options in the VUL that add
something to your benefit on the total package, but these bennies are
extremely unlikely to make up for an order of magnitude difference in
insurance cost over term.


Michael

herlihyboy wrote:
- quote -

Do you know when that will be??
Do you know what the cost of living will be??
Do you know what the value of those investments will be??

once again, since my crystal ball is cracked, I can NOT.
However, I can predict with a certainty what the Death Benefit of a Policy will
be......................
Cal Lester CLU

Cal Lester wrote:
- quote -

But when I reach the point that my beneficiary can live on income from
investments if I die [meaning, my financial contribution to the
household isn't 'required' for my beneficiary to maintain a comfortable
standard of living], haven't I effectively eliminated the need for life
insurance?

Ryan

LavaDude wrote:
- quote -

You are correct in that the Cash Value Account is "invested" in one
or more Mutual Funds THAT THE INSURED SELECTS. It IS the
Insured's responsibility to tomonitor those Funds to be certain that
they are performing as wished.
btw, I in the 44 years in the industry, NEVER sold VUL, for that same
basic reason, mainly that MY Insured'd would eventualy blame ME for
any"failure to perform up to THIER expectations".
The possibility of the loss of Death Benefit is extremely minor.



- quote -


Not could but if the Insured selects OPTION "B" , then it WOULD


- quote -

Unfortunately, MY crystal ball is slightly cracked, therefore I am
unable to predict just what that "required period of time" might be.
I tend to think that ANY Life Insurance policy should be in-force
on the day that you DIE ! ! ! ! ! ! ! !

There is (depending on the wording of the contract) a great deal
of "control" over the investment vehicle.



If tax deferred is the
- quote -

Ain't nothin wrong with an Annuity. Less Death Benefit.
Cal Lester CLU

Aloha Cal!

In Tom's original post, he said that he's paying $115/month for the VUL and
only $12.23 of that is getting invested each month... Wouldn't that mean
he's paying over $100/month for insurance (and fees)? Also, having a VUL,
the cash value growth is probably based on a list of mutual funds that the
insurance company has the client pick out ... What if the performance of
those funds aren't that great? He'd lose out on the $250,000 in insurance
that his beneficiaries may need to replace his income.

- quote -

down depending on the performance of the cash value.

If Tom really wants to protect his family from the loss of his income, than
"buying term" for the required period needed (I think) is a better
choice... He can then "invest the difference" in an investment vehicle that
he has control over... If tax deferred is the way he wants to go, then he
should look into an annuity eh?

LavaDude

"Cal Lester" <cal-lester[at]comcast.net> wrote in news:A5mdnfg3lo0Ix1nfRVn-
jw[at]comcast.com:

- quote -

Tom wrote:
- quote -

Now you have hit the nail on the head....

Although I do NOT have the formula, I suggest that you keep in mind
that funds in an Income Tax Deferred account will grow MUCH faster
and larger than those in which some of the "gain" is drained off to
pay Annual Income Tax.

In addition, please keep in mind that you are NOT paying $95 a month
"for insurance", since some portion of that is going into the Cash Value
Account. One other factor being that under certain conditions, you could
elect to OWN a Fully Paid Up Life Insurance contract, for the
balance of your life ! ! ! ! ! ! ! ! !

Cal Lester CLU

I want to thank everyone who responded to my initial post. I guess it
boils down to "is it worth paying $95/month for life insurance and over
fund the policy, or pay term and invest the difference?"
Unfortunately, I do not know the forumla's to calculate the difference
between tax-deferred and non-tax-deferred investments. If anyone has
those handy, I'd appreciate it.

Thanks again for everyone that has participated in this discussion.

Tom

godescbach[at]yahoo.com wrote:
- quote -


======================================= MODERATOR'S COMMENT:
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- quote -

1) the use of the term "use up your basis" refered to the discussion
that we were having about WITHDRAWING funds. When you have
withdrawn an amount EQUAL to basis, then you have used it up...........

2) First, you can NOT withdraw during the first year (or sometimes 2).
Then ALL of the money that YOU have paid in is IMMEDIATELY
invested by the carrier, and starts to make money for them. There
will always be a limit on the amount that you can withdraw, usually
you can NOT withdraw (or must leave in the account) an amount
equal to one years C.O.I.

3) C.L.U. stands for Chartered Life Underwriter (somewhat similar to CPA)

Cal Lester CLU

Thanks Cal. A question for you below.

Cal Lester wrote:
- quote -

Something I am not clear on, if the basis is *everything* you have paid
into the account (TOTAL cost of the policy, Insurance, fees, and any
riders attached to the policy), how could you possibly use up your
basis. Ins. companies sell policies to make money. How can they make
money if you have to ability to withdraw everything you have paid in?

Also, what is CLU ... some certification/credential, or your initials?

Tom


======================================= MODERATOR'S COMMENT:
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If you die without repaying the loan... the Death Benefit will be reduced
by the unpaid loan amount as well as additional fees/interest...

LavaDude...

"JDAdverb" <jdadverb[at]iwon.com> wrote in news:1120080805.743878.221110
[at]g47g2000cwa.googlegroups.com:

- quote -

JDAdverb wrote:
- quote -

Your "basis" is the TOTAL cost of the policy, Insurance, fees, and
any riders attached to the policy. In your example, your "basis" would
be something like 60k to 70k.



- quote -

That IS correct, as in the eyes of IRS, you have simply WITHDRAWN
YOUR money, a "non-taxable" event


- quote -

That is assuming that you do not contribute any additional funds to
the contract. Since the C.O.I. (cost of insurance) MUST be paid, a
sum of money will be deducted from the Cash Value Account to cover
that C.O.I.

- quote -

Again, IF you do not make any further contributions, then you have
used up your "basis", so that IF you were to WITHDRAW any other
funds they WOULD be Income Taxable. However, IRS says that IF
you apply for and receive a "LOAN", which must someday be repaid
(either from the Death Proceeds, or the Surrender Value), AND If
Interest is charged (NOT paid by you, but ADDED to the loan), then it
is NOT considered Income, and therefore Not Income Taxable.

As mentioned above, if you Die prior to repayment, then the Loan
is repaid from the Death Proceeds. Obviously, the company will
never allow the loan to EXCEED the Cash Value Account, because
they MUST be repaid.

It is a Win / Win situation. You get the Insurance coverage that you need
today, sock away funds that you do NOT need today, get it back INCOME
TAX FREE in the form of Withdrawal's & Loans. The only proviso is that
the contract MUST be in-force at your Death.
Cal Lester CLU

Thanks for the clarification, Cal. These things are complicated!

So to create an example:

- I invest $50k over and above the cost of insurance and other fees.
That is my basis (or is the total I put in even though some goes to pay
for insurance and fees?).
- The $50k grows to $100k over some number of years.
- I can then take a withdrawal of the full $50k and never have to repay
it.
- The remaining $50k continues to grow and is used to continue to pay
my cost of insurance and other fees.

Follow-up question:
- So the only way I can access that remaining $50k is through a loan
that I must repay? What happens if I take a loan and die before
repaying it?

JDAdverb wrote:
- quote -


I personally do NOT concur with item two. However that is PERSONAL.
The last statement is correct to a degree, in that in ANY UL policy
you have the ability to OVER FUND (within IRS guidelines), which
allows you to earn Income Tax Deferred interest or earnings. The
advantage of deferred taxed money over taxed is obviouse.

The "error" is in the latter portion of the sattement. Although it is
true that one could borrow from ANY Permanent Life Policy withouit
incurring a "current tax", the U/L contract has an added benefit not
found in Whole Life. That is the ability to WITHDRAW (just like from
a savings & loan), up to your BASIS, Income Tax Free. If and when
you reach the "limit" of your "basis", you could then consider LOANS.

Withdrawall's are NOT only tax free, but since they are NOT a loan,
they do NOT have to be repaid, and they do NOT incur Interest Charges.
Cal Lester CLU

--
No one else , ever, will think your Great the way your Mother does ! ! !

If you don't learn to laugh at trouble, you won't have anything to laugh at when you are old

godescbach[at]yahoo.com wrote:
- quote -

Tom -

Goes without saying, but make sure you have your term policy in place
before cancelling the VUL policy.

Ryan

I actually also own a VUL policy and I haven't decided yet whether or
not it was a good idea for me, but I did spend quite a bit of time
researching the product. Based on that research, I think it probably
doesn't make sense for you to continue with your VUL. Here's why:

VULs (if they make sense at all) only make sense when you fit all of
the following criteria:
1 - You need life insurance
2 - You've maxed out all your other tax deferred investment options
3 - You are financially able to "overfund" the VUL at least in the
early going (i.e. don't just cover the insurance costs, but surpass
that so you create a chunk of money that can grow on it's own as tax
deferred investment).

I assume you fit #1, not sure if you fit #2, and if you do fit #3, you
aren't following through on it.

The way the VUL should work (I think) when you overfund it is that you
cover your insurance costs and then start to create this tax deferred
investment that, in fact, you can "borrow" against down the road
tax-free (up to the value of the policy).

You got screwed....consider it tuition for your financial education. Why
stay in a bad deal?


<godescbach[at]yahoo.com> wrote in message
news:1119917694.757008.232480[at]f14g2000cwb.googlegroups.com...
- quote -


======================================= MODERATOR'S COMMENT:
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Hi all,

About a year ago my wife and I met a financial planner through my
wife's middle school where she teaches. He worked for Jefferson Pilot.
Long story short he sold us a $250K VUL and our payments are $115
every month. I recently took a close look at our last statement and
our total accumulated value is only $171.18. I called the Jefferson
Pilot and learned they were deducting $95 for my life insurance
premium. After this and fees, only $12.23 is getting invested monthly.
But nowhere on the statement does it show the deduction for my life
insurance premium. I felt both stupid and deceived.

I have emailed the financial planner who is no longer with Jefferson
Pilot. Even though he does not benefit from our continuing with the
policy, he maintains that this is a good investment for us. But I do
not see how. Seems to me we would be better off buying a 20 year term
life insurance which runs $21-$35 and invest the rest.

Right now our investments consist of me maxing out my 401K, my wife
investing about 20% of her income into a 403B, and we each contribute
the maximum into Roth IRAs. Lastly, we invest in the Vanguard Total
Stock Market Index fund.

As far as investment style, I'd rather put my money away and forget
about it. I like Andrew Tobias's advice of saving into index funds and
forget about trying to micro-manage my money trying to beat the market.
In case this has any bearing on investing in a VUL....

I would be grateful for any advice regarding whether we should get out
of the VUL or stay in it. I leans toward getting out of it and getting
term life insuranced and investing the rest.

Thanks,

Tom