by Guest » Mon Nov 23, 2009 12:15 pm
A variable universal life insurance combines the benefits of a variable life insurance as well as universal life insurance policy. So, if your question is does a person have a life insurance policy that offers both benefits of a universal and variable life insurance then you can opt for variable universal life policy.
Advantages of variable universal life insurance
Variable universal life policies offer:
- Premium as well as death benefit flexibility.
- Tax-free investment earnings during the lifetime of the policy.
- Potential increase in cash value depending on the performance of the kind of underlying funds that you have.
- A crucial fencing against inflation depending on the performance of various securities market.
- Permission to withdraw or borrow money from the policy during your life time.
Disadvantages of variable universal life insurance
- VUL or variable universal life insurance is a more expensive type of policy compared to the other types.
- VUL insurance premiums are more expensive compared to the other types.
- You need to have a basic understanding of stocks, bonds and securities.
- You will be the one to be responsible for managing any core investment accounts.
- You may lose value since the success of such policies is dependent on the investments that you make.
Buying variable universal life insurance
Variable universal life insurance will be subject to market fluctuations. The returns on the invested cash values as well as the death benefits are not guaranteed. So you must be prepared for ups and downs when you have decided to buy this variable universal life insurance.
Now, you need to asses how much insurance you may need to secure the lives of your loved ones. Once you have done that, you can seek appointment with an experienced independent insurance agent. The agent will then explain the policy to you and offer different options from different companies. When you choose a policy, you must opt for a company that has high ratings from the major rating services like Standard & Poors, AM Best and the like.
Take a look at the investment goals of the funds that will be available and the respective management fees that is supposed to be deducted from your cash value.
Now, you need to asses how much insurance you may need to secure the lives of your loved ones. Once you have done that, you can seek appointment with an experienced independent insurance agent. The agent will then explain the policy to you and offer different options from different companies. When you choose a policy, you must opt for a company that has high ratings from the major rating services like Standard & Poors, AM Best and the like.
Take a look at the investment goals of the funds that will be available and the respective management fees that is supposed to be deducted from your cash value.
Does a person have a life insurance policy that combines the benefits of both variable life insurance as well as universal life insurance?
Posted: Sun Nov 29, 2009 06:05 am Post Subject:
You can also search more about that topic. Cost Insurance can be given to you by your agent.
Posted: Sun Nov 29, 2009 09:12 am Post Subject: Understanding VUL, UL, EIUL
Contrary to the several statements that cost of insurance is not disclosed in VUL, UL, or EIUL contracts, it is. It must be by law. What you will find in EVERY type of "universal" contract is a Table of Guaranteed Cost of Insurance.
This is the MAXIMUM that the COI will ever be at any age. It will be listed as $$/$1,000 of death benefit (either per month or per year -- watch out for this, because if by month, it makes the cost look very low -- you have to multiply by 12 to get the true COI). The "current" cost of insurance can be obtained directly from the insurer (which is what some of the commenters mean when they write that the agent can get the information for you). It can also be deduced from the monthly, quarterly, or (required) annual statement.
But COI is only one component of the total cost of any "universal" life policy. In addition to this, there is a monthly Mortality & Expense (M&E) charge to support the "Guaranteed Death Benefit", a monthly administrative fee, a sales charge (can be nearly double what you'd pay for mutual fund "A" shares), fees for riders, plus the internal expenses in a VUL's subaccounts, and there's often a special assessment during the first 1-2 years (or more), that helps to offset the commission paid to the agent. All of these charges erode the monthly premium payment, to the point that very little might be going toward cash accumulation the separate account.
VUL polices have a "guaranteed death benefit" and a face amount of insurance. The face amount could be $500,000 while the guaranteed death benefit might be as little as $25,000. The "guaranteed death benefit" is only guaranteed (in most contracts) if ALL premium payments are made, on time and without fail. Miss one payment, and the guarantee could evaporate.
Like all other UL forms of insurance, VUL also has "death benefit options" (A & B, or A, B, & C =or= 1 & 2 / 1, 2, & 3) which correspond to Level and Increasing, or Level, Increasing, and Return of Premium [ROP]). "Level" is the least costly, ROP the most expensive. "Increasing" is usually 25% to 60% more costly than "Level".
Agents will prepare robust hypothetical illustrations that show cash accumulation into the millions of dollars over time, and fail to point out that the policy could lapse without value at any time there is insufficient cash value, together with premiums paid, to cover the cost of insurance, riders, and all other monthly fees.
All UL policies require active management by their owners to prevent the policy from lapsing. Understand that any UL policy can lapse even as premiums are being paid -- if the premium itself is insufficient.
Combine a declining stock market with VUL premiums calculated too low, due to that "robust" illustration, and you have a disaster waiting to happen. Unless more and more money is funneled into the policy. Not usually a wise choice.
If you don't have life insurancec, have never had life insurance, but like the potential of paying money for years only to end up with no insurance, no cash value, and a tax bill from the IRS, then VUL is the right product for you. But if there is one thing in that short list you don't like, then stay away from VUL.
There's nothing wrong with the product itself. The problem is that most agents don't understand it, they sell it because it pays huge commissions and they're often told to sell it, and they illustrate it to make it look like a rocket to the moon. The prospective insured who doesn't know or understand how it works would be better off with some other life insurance product.
Term life and separate savings program of any type is usually a better path to follow.
Send me your questions about any type of life insurance, and you'll get an answer you can understand.
And, please! Don't believe any agent who tells you that a policy will pay for itself after a certain number of years without you paying a premium. Only happens in whole life policies intended to be paid-up after a specified number of years -- RARELY, IF EVER, happens in UL, VUL, EIUL.
Posted: Sun Nov 29, 2009 04:29 pm Post Subject:
The COI is hidden. Is it in the illustration? No. Is it in the prospectus? No. Does the agent discuss the COI with the agent and what it will be every year? No.
The COI is in the contract. When does a client actually get this contract? They don't get it until after a policy has been applied for and approved by the insurance company.
One shouldn't apply for a UL policy without understanding the COI in advance.
Posted: Mon Nov 30, 2009 05:22 pm Post Subject:
If an agent fails to discuss COI during the negotiations leading up to the application for insurance, which is virtually impossible to prove in the absence of witnesses or a recording, he has committed concealment which allows the "injured party" (the policyowner) to rescind.
Every contract of insurance comes with a minimum 10-day free look period during which the policyowner is expected to read, understand, question, and decide to keep or return the contract to the insurer. Most fail to do so, relying on their (usually faulty) understanding of the policy based on the communication from the agent.
UL policies -- particularly VUL, EIUL, and MVA UL -- are exceptionally complex contracts, and include insane formulas that require calculations with numbers that have 6 or 8 digits to the right of the decimal point. Few agents have ever read the contracts they put in the hands of their clients. Most lawyers don't know how to read an insurance contract.
Sadly, most folks choose a UL policy based on the hypothetical illustrations the agent presents. They see $100 (or substantially larger) monthly premiums adding up to millions of dollars over time. Unfortunately, I've never seen a UL policy perform as the illustration projected. Most go in the opposite direction, eventually imploding because the minimum premium was never enough to support the policy to maturity in the first place.
How do I know this? Just take a look at the "Guaranteed Columns" in the illustrations. Unless they have something other than a string of zeroes leading to the last year of the policy, that's what will probably happen -- no cash value and no insurance long before the insured dies.
Does that make UL a bogus insurance product? Hardly. But it makes clear that more than the minimum premiums are needed to support the policy. Few persons, other than corporations and the very wealthy, truly have the financial means to make a UL policy work to its maturity date -- which is now AGE 120/121 in all policies, thanks to the CSO 2001 that has been adopted by all of the states. (It's also the reason life insurance premums have dropped about 5% in the past 5 years -- everyone has longer to pay on paper, so they don't need to pay as much.)
I'll be happy to answer any and all questions on any aspect of life insurance.
Posted: Thu May 12, 2011 01:16 am Post Subject: VUL Policies
What does my Employer stand to gain by offering me a VUL policy, in which I must sign a ten year contract with him, were he is the main beneficiary for thoes years?
Posted: Thu May 12, 2011 04:53 am Post Subject:
Your employer is probably using the VUL policy to fund a benefit plan -- most likely a deferred compensation plan with a forced payout in 10 years (or possibly, but less likely, a retirement plan of some kind). The Internal Revenue Code requires that you give consent to be insured and acknowledge that you (or your heirs) have no beneficial interest in the policy proceeds, otherwise the employer will be taxed on the inside gain as it accrues.
This can only be true if you are an exempt employee or executive of the company. If you punch a timeclock, get paid overtime, are not in management and on a fixed salary, what your employer is attempting to do is probably prohibited by federal and, possibly, state law.
What other information can you provide?
What does my Employer stand to gain
If this is the "backstop" for a nonqualified deferred comp plan (NQDCP), as I suspect, your employer has a liability to you for the unpaid earnings you voluntarily defer. You understand that you have no entitlement to the insurance proceeds, and also that if your employer were to go bankrupt, you would become a general creditor and have to stand in line with all other such creditors to attempt to recover the debt owed to you. In such a case, you could end up losing some or all of your deferred compensation -- money you could have had in your paycheck each week.
The benefit of the NQDCP to you is tax-deferred growth of "principal" (there is actually no money in the plan, unlike a qualified plan such as a 401(k)) -- it's all Monopoly money on paper until you cash in your benefit. You could defer $500,000 over the next 10 years, for example, and grow your account on paper to $5,000,000.
Your employer has to figure out a way to pay that money to you. One possibility is to use a life insurance product, such as VUL, to mirror your salary deferrals and gains on paper. The VUL policy will be the "informal funding" for the plan. The separate account of the insurer will include subaccounts that try to match the performance of the mutual funds you might think your money is being invested into -- only your money is not be invested at all. A NQDCP provider, such as the agency I used to work for, will do monthly analysis of participant deferrals and account balance, and recommend to the employer the need to fund the policy when its cash value lags behind the value of participant accounts.
What your employer stands to gain is the same thing you do. Tax-deferred growth of principal. If you employer actually fully-funded the plan, it would have to "store" that money somewhere, such as a bank account, which would not be sheltered from taxation, their gains would be lost, in part, to taxation, and that would cause them to have to invest more money to keep the plan in balance which, in turn, would increase their tax liability. Not a good scenario.
Life insurance and annuities offer the kind of tax-deferred growth the employer needs, and if they have a policy on your life, if you die, they can use the policy proceeds to fund the payment to your NQDCP beneficiary -- your spouse by default, unless he/she voluntarily gives up that right.
In the vast majority of plans, a NQDCP is a win-win for most employers and their executives. Only if your employer gets into broader financial difficulty might you end up on the losing end. It happens.
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