Any VUL experts?

Discussion in 'Life Insurance Forum' started by NHB_MMA, Oct 11, 2006.

  1. NHB_MMA
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    NHB_MMA Guru

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  2. sman
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    sman Guru

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    I'm no expert, but do know a good bit about VUL. Used in the right situation, it is a great tool. Unfortunately, it is abused as any other product is. I've seen reps recommend people use the money they would have contributed to a 401k or a Traditional/Roth IRA, to put in a VUL. I personally believe you should fund all retirement vehicles available to you and then if you have some extra monies, a VUL MAY be a fit.

    As for the book, I haven't read it. But Ben Baldwin is a legend in the insurance industry and is very knowledgeable.
     
  3. NHB_MMA
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    NHB_MMA Guru

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    Thanks. I think I'll order the book and see what he has to say. I'm sure it will not result in a magic solution for every prospect out there.

    I am not really qualified as an investment expert to say the least. Offhand, I would certainly agree that you should take advantage of anything your employer matches. That's free money! After that, I don't know how these things compare.
     
  4. NHB_MMA
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    I'm curious, do you know of any illustrations that show how a VUL stacks up to the other vehicles you've mentioned above?

    VUL has some of the added benefits of life insurance (bypasses probate, protected from creditors, etc.) that other investment vehicles don't have, so rate of return is not the only consideration. However, that's not to say it still can't suck compared to the others.
     
  5. brookfieldpartners
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    brookfieldpartners Expert

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    This book is a good book and I recommend it, let me know any questions you may have about it.

    I am a big believer in VUL for the right candidate, and agree that they should be exhausting other retirement sources.
     
  6. Death Cab For Tootie
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    I have yet to come across a case where VUL was good for the client or the agent. Insurance companies, however, LOVE VUL. Why? It's all in the way the policy is designed. There are two main parts: The Investments, and the Cost of Insurance (COI). Your premium each month/quarter/year gets split between the two. Let's break them down a bit.

    The investments are in subaccounts, much like you'd see in a Variable Annuity. They carry underlying fund expenses, administrative charges, and M&E. However, what isn't known is that every time you make a deposit into the subaccounts, a maximum sales charge is taken out as well. In other words, it's like you don't get a break point for buying in bulk. The COI is based on Annual Renewable Term insurance. Every year, the cost goes up based on the insured's age. If you look at a graph of ART, the cost is generally managable the younger you are, but after 10 years, the costs go up exponentially.

    So, let's say you're putting $500/month towards a policy. If the subaccount expenses stay the same, theoretically more of your deposit each month will go to the COI. The VUL peddlers would say, "Well, your investments will go up by X%, which will counteract the effect of your values going down because the COI is going up." In theory, this is correct. If you get, say, 8% year over year, this will keep the policy afloat. However, we all know investments don't work that way. When you have a few down years, the rising COI costs (plus the fact that the insurance company can raise overall expenses) makes VUL the most expensive version of BTID there is.

    Bottom line, I've seen literally hundreds of VUL policies on the verge of collapse. Some of them being overfunded (as is recommended by the more client-friendly agent). I have yet to see a VUL do what was theorized. Not one. Not only that, the agent has to do a ton of service work regularly to make sure policy values are holding up the cost of insurance and death benefit. Otherwise, you run the risk of losing the CSV and the DB. In other words, bad for the agent (less productive), bad for the client (potential loss of premiums and DB), but great for the insurance company (use of paid premiums over time AND no need to pay a DB at death).

    Now, don't misunderstand - I love permanent insurance. I love what it can do for clients, and for me as a policy holder and agent. I would rather have one less thing to worry about and give my clients protection, promises, and guarantees. NONE of those are available in VUL, and to a lesser extent, UL. These are only available in Whole Life insurance.

    Let the flame wars BEGIN!
     
  7. dgoldenz
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  8. insuranceexec
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    One good thing is that you can always 1035 the negative cost basis into a Fixed UL.

    Lets see if you can understand that one.............LOL
     
  9. f55c6
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    If the client is insurable. I'm not and therefore stuck in this ever increasing POS.
     
  10. DaKine
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    You can go with a guarantee issue product and get unstuck after a couple of years.
     

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