Vul, Ul, Iul

[insuranceexec]

Don't worry, we won't hate you. They're complicated products.

Straight vanilla Universal Life can also be called declared-rate universal life, meaning that growth is credited to the policy based on a declared interest rate. Variable UL and Indexed UL are just policies that use a different crediting method.

With an IUL, the interest-crediting rate on premiums changes with the performance of a selected equity index (S&P, NASDAQ, etc.) instead of an interest rate set by the insurer.

VUL policies require a securities license to sell. With a VUL, money (from premiums and CV) is placed into a Separate Account and the policyowner can decide how to divvy it up into various subaccounts. The subaccounts are differentiated by the level of risk and reward they might offer, as well as the type of investment. Some companies have three subaccounts for their VUL products, some have twenty. If it's three, the policyowner usually has the option of bonds, stocks, and money market investments. More than that, you get into subsets of each of these: corporate bonds, high-yield corporate bonds, and government bonds for example.

The policyowner can usually also place money into a Fixed Account (separate from the Separate Account) which has less of an investment-style flavor. Here, the interest rate floor is declared and the principal is guaranteed.

Hey, just to make things more confusing, VUL policies sometimes offer Option A, Option B, and Option C. Option A and B are the same as always, Option C is essentially a DB plus ROP.

I'm rambling. Did you have any specific questions about how it works, or is the basic overview helping?

Great post, Nick. Keep it up.

 

[ticker_shuffle]

What does e have the insurance for? What is the risk he is trying to protect against? Making 24K a year, the guy might not want to be wasting money on a VUL or UL, IMO.

Is the policy convertible? Who is the carrier?

What is the face value? Cash Value? Does death benefit pay both?

No way any insurance policy can pay for itself in one year. That first year is basically just to cover the front end costs of the policy, like your commission. VUL are neat products and interesting way to protect your cash value against inflation.

Remember Variable means variable death benefit depending on investment results, usually no less than certain value. Investments are held in separate account and carry LOAD COSTS ( management fees) and are selected by the policy owner. These are for more experienced investment people usually.

Universal means flexible premium payments and results in different face/cash values as well. Universal carries a term portion and a cash value portion that is invested. There are often LOAD costs with UL too, since upon premium receipt the account credits the cash/investment portion and debits the cash to pay for the term portion on a monthly basis. Investments usually tied to inflation adjusted index or other safer investment.

You need to find out what he has the policy for in order to figure out where to go from here. At the same time you need to determine either through, needs analysis or life-value analysis he is covered adequately.

Good luck!

http://en.wikipedia.org/wiki/Variable_universal_life_insurance

http://en.wikipedia.org/wiki/Universal_life_insurance

 

[Justin Bilyj]

Can you invest the interest into silver or gold metals for a VUL?

 

[VolAgent]

Can you invest the interest into silver or gold metals for a VUL?

Not sure if that is a joke or not...

But the answer is, it depends. If one of the subaccounts offered is a gold, silver, or precious metal fund, then yes. Otherwise, no. The insurance company determines the subaccounts that are offered.

 

[Justin Bilyj]

It is not a joke. Quite serious, gold IRA's are a great source of protection. And I think the metal markets are poised for a HUGE increase due to the naked shorting done buy all the major banks in the world sponsored by our governments. Keep the price of metals down, inflation is stymied for a while. There will be a huge inflation event when this bubble is exposed which is happening slowly but surely. Why do you think the dollar has lost 95% of its purchasing power (since 1913)? Inflation brought upon by Federal Reserve policies, and the unhinging off the gold standard.
Which companies, or how could I find out which companies would offer metal subaccounts?

 

[VolAgent]

I cannot really think of a source that would list all the sub-accounts in all the VULs out there. Your best bet is to find someone very familiar most of the VULs out there who might know, or check out each companies marketing material and prospectus.

But if anything, I would be looking to short precious metals. It seems too similar to the 1980s. Gold could easily crash and tread water for another 20 years.

 

[Justin Bilyj]

With derivatives in the 55 trillions (unlike the 80's), bailouts left and right, european union on the verge of collaps, and spain and greece provoking global panic (also, don't forget to think of oil, that BP spill, will jack our gas rates up katrina style coming up), this is NOT the 80's. Also, your dollars can be 0, but silver and gold will always be worth something.
Its funny, but being an insurance broker, I believe in the inherent insurance-like power of silver and gold against a hyper-inflationary economy, or atleast in a nominal inflationary economy.

 

[VolAgent]

You may well be right, but I doubt it. You sound like people did just before the tech bubble collapsed, and the real estate bubble. Who knows how much longer until it peaks, it could be days, weeks, or even years still, but it feels too much like a bubble. When there are ten commercials every hour looking to buy your gold, there is too much "fake" demand.

Remember, the actual demand for gold hasn't changed. If anything, companies are using less gold than two years ago. I am also willing to bet that jewelry sales are down. Investors and speculators are stockpiling the stuff, eventually they are going to start selling.

 

[moonlightandmargaritas]

Also, your dollars can be 0, but silver and gold will always be worth something.

They are the only assets that are NOT someone else's liability...

 

[Justin Bilyj]

Which is why I don't invest into Gold, although I consider it more solid an investment than the paper, bonds, and funds of today.
I recommend silver, it is finite, and we are using more and more per year in technology alone. It is easily portable, tradeable, and has a much higher potential for increase and stability in price than gold. Silver will outperform gold in the long run due to its easiness of using it to back a majority of currencies as well.