Is CV a marketing gimmick in VUL?

Nothing I'm saying should be construed as advice - I do not know the client or the entire situation surrounding the client.

Personal opinion:
I don't understand why anyone would have the entire cash value of a VUL in the Money Market subaccount regardless of age. It totally defeats the purpose of a VUL - trying to get market like returns on the CV. Even for a ultra conservative older client the CV should be invested some type of risk adjusted stock and bond portfolio. Right now, the client is eroding the CV by parking it in a MM account earning 2-4%.

As far as the loan goes, one can always withdrawal CV to basis without any tax consequence, so they could theoretically withdrawal 38K in CV and use it to pay off the loan. I don't know why one would, but it certainly is an option.

If you are in CA and want to talk about it shoot me a PM with your # and I'll give you a call next week - just an unbaised sounding board - no solicition crap from me.

Good luck!
 
Let's face it, any policy that old should be reviewed by a professional. I would personally shy away from any of the NYL-types, I just don't feel they can give unbiased opinions.

The client should have, from the start, decided on how much she would be willing to pay to have a true professional review it (meaning - fee based independent advisor) and present alternatives. This would be the same concept as hiring a CPA to review another CPA's tax return/advice.

Far too often we beleive we are referring people to "professionals" but what is really going on is a commission hungry agent, which is what the Merrill Lynch guy was right from the start. Don't deny it, you know it's true!
 
I have ADD so I did not read thru all of the posts but I got the main idea.

Is it a option 1 or 2. The first thing that would make the most sense would be to change it to an option 1, as the client is quite old. This would help reduce the cost of insurance.

That may have already been mentioned but I did not see it.
 
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She took a loan on policy (of CV) of $20,000 about 10 years ago at about 5.30% interest. She has never paid a dime back into it and now she owes about $40,000 meaning her DB will be $460K.

Yes she has CV but it would be crazy to take $100K now an give up $460K later on (her dad is in early 80s). She can't afford to pay off the $40K loan and she is concerned that it is just eating away at the DB.

She asked if her CV could be used to pay off the loan. I told her I didn't believe so, but it was not my area of expertise and I'm not licensed to do variable anything and sent her to someone else.

Al,

Do you know if the 5.30% interest on the policy loan is the net loan cost or just the loan's interest rate? Either way, it's quite expensive being that most, if not all, VULs of late and present offer zero net cost loans and variable loans that are far more reasonable.

How long is the surrender period on the VUL? I take it it's out of surrender already being that she took the loan out 10 years ago? If the surrender period is up on the VUL then they may be eligible (and I say "may be" because it depends on the actual policy provisions in the contract, but 100% of all VULs I have reviewed in the past year (Sun Life, Hartford, John Hancock, etc.) allow this) to take tax-free withdrawals of cash value. CV life insurance withdrawals under current tax laws are taxed "first in, first out" (FIFO) so she can withdraw the money she put into the policy (her cost basis) without incurring a taxable event.

If you can see if the VUL is out of surrender and if ML allows FIFO partial surrenders of cash value up to her cost basis (have her call her ML broker and ask him the question with that wording)...then I believe you're in business....you would then be able to pull out the 40K of cash (with some, if not all if it tax free depending on her cost basis) and use that to pay off the loan.

Now, understand that if you did this, the DB would still be roughly 460K of the original 500K. What you're just doing is paying off a credit card with your checking account, but in the end your liquid net worth from that transaction is still the same as before.

What your client gains is that by paying off the loan with cash on hand, she eliminates future interest accrual and preserves the cash value remaining.

While you're at it, for Christ's sake, ask ML for a current subaccount portfolio and explain to the client that a 3% Money Market Fund is actually LOSING the client money given today's inflation as well as the internal M&E/COI/policy fee/Subaccount fees from the VUL itself. There are other options such as Investment Grade Bond subaccounts and/or conservative Large-Cap Blue Chip equities that resist volatility yet still provide a better return than 2-3%.

And I'm sure I don't need to remind you, but just educate the client and try not to look like you're giving "securities advice." Before I got my Series 7/66, I was told that it is OK to give the client leads to self-educate themselves about their securities, but not OK if it seems like you're advising them to perform a particular course of action that would alter the current state of the security. Just be wary.....
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I have ADD so I did not read thru all of the posts but I got the main idea.

Is it a option 1 or 2. The first thing that would make the most sense would be to change it to an option 1, as the client is quite old. This would help reduce the cost of insurance.

That may have already been mentioned but I did not see it.

I want to reiterate this because it's a fantastic idea and one that should not be overlooked in this case. Switching the client from increasing DB "B" to level DB "A" would drastically cut down on the VUL's internal COI costs, which would slow down the process of the cash value being whittled away.
 
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The last post about this was over a year ago. The client probably died by now!

Rick

LOL, oh man, I didn't check the date.....

But I'm still curious to know how the client settled this VUL issue, or if the internal fees are still eating her CV away and risking a total policy lapse....
 
Are there folks that still buy VUL? Can't imagine!

As long as their are bad advisors, there will be clients buying that stuff. However, since the market is down now and if you don't think it can go much lower, VUL might be a buy.

That's not a recommendation, just an observation.

Rick
 
The scariest thing about VUL is its compounding effect. The true premium - the cost of insurance - is an annually renewable term that covers the difference between CSV and the death benefit based on current age (not issued age).
You lose 30-40% of your CSV in one year you not only have to produce 50-70% to get even the COI will take a bigger bite into your already suffering CSV to cover the wider margin which will require you to produce more than 50-70% to get even again. With VUL it HAS TO WORK in order for it to work at all but the variable aspect of it assumes it may not work. Try to run a VUL (or any non-guaranteed UL) so the minimum guaranteed DB will last a lifetime. You can't. It won't allow you to; it will MEC. It's "guaranteed" to lapse.
 
Try to run a VUL (or any non-guaranteed UL) so the minimum guaranteed DB will last a lifetime. You can't. It won't allow you to; it will MEC. It's "guaranteed" to lapse.

John Hancock and Lincoln National have no-lapse guarantee riders that you can add. For about the same price as a no lapse fixed UL, in many cases you can buy a VUL with a guaranteed death benefit to age 121 or 100 or 90, etc., but you still get the upside potential.
 
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