VUL

Jan 13, 2007

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  1. L5tc
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    L5tc Super Genius

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    The illustrations help to a point but remember the cash value is usually determined by a set ( or dreamed) return. That is you set the returns for 11% and then you'll see the cash flow of the policy. If you look at the guaranteed portion of the illustration you can only show the "money market" numbers which are around 3.5 - 4%.

    So the question is "do you feel lucky today." VUL's are fabulous is you have a market year like the last one. And please spare me the S&P index numbers. Try telling that to a client who bought around 1998 in oh about 2002. Now that it's 2007 they client has recouped and done OK but...ok this is turning into an investment issue. But that's my issue - it's life insurance and as someone else mentioned you better have a client who's maxed out their 401, 403, SEP, roth and traditional IRA options
     
  2. James
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    Oh yea, just what we need another "You Better" type of post regarding insurance. Maybe you best listen to those FP'ers that now espousing MF Investments to secure LTC needs of the future. Sounds good doesn't it?
     
  3. L5tc
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    Huh?

    What are you talking about? Financial planners who say what? to pay LTC premiums with mutual funds gain and interest or to pay for the LTCI and self insure? Huh? And that means I said what?

    OK I'll restate - the VUL is not a concept in and of itself - your money is in the stock market. Either you believe in that investment of you don't. I happen to believe in it.
     
  4. James
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    Re: Huh?

    Well I'm so happy for ya! Not everyone is a raging fan of qualified investments or better, saving accounts.
     
  5. NHB_MMA
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    The topic has been kicked around a lot in recent weeks, since I asked about it. A VUL is NOT the comprehensive, ultimately retirement tool that is "the" answer to retirement planning. Anyone telling a person otherwise is full of B.S. However, I think a person is equally full of B.S. to suggest that the only people that should ever look at them are those that have every retirement avenue exhausted...about .000001% of the population.

    I plan to suggest a VUL plan for about 50K-100K for each of my sister's three children. She can start them for about $100-$150 for the three of them, whereas many companies are going to want $100 or so per month for IRAs and other plans. I could have her put money straight into a mutual fund, where she would not give them tax-deferred growth, for about $25-$50 per month and I would make about 25 cents setting each one up. Yeah...maybe if she pays for my gas to drive the 45 miles to her house...and ONLY because I'm her brother even then.

    The VUL illustrations I have looked at come in consistently lower in premium than the WL I have compared it to. It therefore provides permanent insurance and some potential retirement funding for a lower price than the WL and less expense than most people will set an investment portfolio for. If a person doesn't like the concept, fine, but I assume he doesn't like the idea of permanent insurance for children altogether then. If you're market-phobic, then it is fine to buy a WL for a child. But it makes no sense to not consider a VUL for no other reason than "it's not a Roth" or "it's not a 401k" and then go buy a WL. A VUL and the other retirement vehicles are apples and oranges, fruits in the same family but not the same species.

    That is the greatest application I personally see from a VUL is that when started young it can build to be a substantial asset years down the road. Of course there are years of a down market. There are also years that funds return 20% and far greater. My father was telling me a while back about a Vanguard healthcare fund that has averaged about 20% for the last 10 years!. It was in one of the numerous funds and investing magazines he subscribes to...so he knows exactly what to do with his $200 per year he likes to through in the market, but it makes him happy. Read John Petrowski's post in the other VUL thread and you'll see his funds have kicked ass, not just his DRIP investments. I don't agree with all of John's opinions on investing. I think they're too risky for my own preferences and 95% of the public would never accept the risk, so they're almost irrelevent to compare them to the investments and returns put forth by professionals in the financial/insurance industry. 10% return is difficult to achieve over the long-haul, but not impossible, but I don't accept the idea that you'll only be getting 6% or so from the fund market.

    There is some considerable risk with a VUL in terms of not knowing what the market is going to be when you anticipate you/your child might want to cash it in, if you/he elects to do so. A person can run a 10% illustration on a VUL and show $1M around retirement age. But the market might be down at that time and it might only be 400K, or even 200K. Yet it could be up and the policy could be worth $1.5M or even $2M. As long as the client knows he can't touch it during bad times and understands the risk, you're on the same page.

    As for the guaranteed portion of the policy only showing a money market return, the guaranteed portion of a WL or UL is just as lacking by comparison. If things go poorly in any scenario, you won't realize the returns you had hoped for.
     
  6. NHB_MMA
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    James, just as a sidenote to you and some of the others I've discussed VUL with, I am planning perhaps next weekend to run three equal illustrations between VUL, UL, and WL and see what the illustrations look like and the premium required. It'll be interesting to see how it compares.
     
  7. James
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    I'm a strong believer that in the end, all things consider WL is always cheaper! In fact the cheapest of all, sure they may seem high at first but I guarantee you, if you run a UL or VUL and it shows cheaper that is only temporary. I think the history of the last 20 years since the inception of UL's has proven that. A properly funded UL with the Secondary Guarantee will be as much if not more than most WL Policies. Then again I think illustrating any Insurance Contract above 5-6% is nothing more than pie in the sky.

    Believe what you want but more and more studies are showing on average MF's don't return 5% much or less 10%. Sure you hae a few conservative funds that have ran 8-10% on average but that is few and far between, plus they are not herolded since they don't go high like others in good years but on the other hand they don't loose like others in the bad years.
     
  8. Crabcake Johnny
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    The studies also show and proove that the average insurance agent makes $35,000 a year. So based on that fact I should have never entered this business. After all, I can't live on $35,000. But I knew that if I applied myself I could beat that average.

    Just like mutual funds. The average return, as you pointed out, sucks. Ok, so don't pick funds with average returns. Do some research, which is daunting but the difference between 5% and 15% is well worth it. Just like the difference between the average agent at $35,000 and the effort I put in to make over $200,000 is well worth it.

    There is no reward without effort. If you want zero effort just go grab yourself a EIA. But then you'll see there's also no reward. I put in a great deal of effort into my invesment portfolio. But then again I'll be literally millions ahead of anyone who puts their money in life vehicles.

    And by the way James, when your investment window is 30 or so years like mine I drool over the down years. Those are the years when I can't buy enough stock. Bull markets do nothing for me - it's just a gain on paper since I'm not cashing anthing out. But the bear markets - well that's when a solid company's $75 a share stock tumbles to $55 do to the lemming effect and I feel like selling my car to buy more shares.
     
  9. Guest
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    NHB_MMA

    -If you are interested, a person can open an IRA at www.aarpfunds.com
    for $100.00 (lump sum-no further contributions required). Subsequent optional contributions can be made for $25.
     
  10. Crabcake Johnny
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    Crabcake Johnny Guru

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