Variable Universal Life
Insurance: Beware Of Universal Life II
Permanent insurance such as Whole Life, Universal Life, Equity-Indexed Universal Life and Variable Universal Life is regularly promoted as the perfect retirement vehicle or the new way to create wealth. This week I will expose the fallacies of the arguments.
First, I believe that the need Life Insurance must be met as economically as possible. With universal insurance, which combines life insurance with investment, you end up paying too much by insurance while earning very little investment. It is the worst of both worlds. Term Insurance allows you to buy life insurance you need at a lower cost, while that gives you flexibility and control over their investments.
Universal policies unnecessarily lock in. You are committed to paying a high annual premium. By example, the annual premium of a million dollars of universal life for a healthy male, 45 non-smokers is about $ 8,000. That's $ 8,000 each year — For the rest of his life.
Moreover, the annual premium of a million dollars of term insurance for 20 years is about $ 1400. That is a difference $ 6,600 each year. With universal insurance, most of this additional premium is based on cash value policy. But due to administrative and other fees, the amount added to their cash value is reduced each year. Indeed, his agent has said there is a way to purchase a Universal Life Insurance no load?
Insurance agents tout universal policies as a wonderful investment vehicle. They are not. better returns can certainly be found elsewhere. Many of these policies are in tune with people in their prime earning years, most of whom are raising their families.
These investors will get a much better performance in the first place to pay their debts. That's a guaranteed return of up to 20% on credit card debt. For those without debt, any extra money they have is better used for 401k, IRA, etc.
The tax benefits heavily promoted as a major benefit of universal insurance are suspect too. It is true that money out of these policies for retirement spending is not taxed, but that's because this money is actually a credit. In Essentially, you're borrowing your own money. And since it is a loan must be repaid.
If you hold the policy until death, a part of death benefit is used to repay the loan. If you surrender the policy, the cash value is used for this purpose. Suddenly the money is tax free. As you may have to pay capital gains taxes when you sell your home, you have to pay taxes on the amount of cash value that is greater than the amount you paid in premiums.
Finally, we must be aware of agents have been enormous financial incentives in the sale of universal Life Insurance Policies. Universal insurance commissions of 70% or more of the premium the first year, then 5% of the premium each year thereafter.
One of the most heinous sales tactics aimed at promoting universal policies as an investment is that you should take the equity in your home and "invest" in a universal life insurance. The argument is that home equity is an asset to be used, not left idle. The tax advantages are also promoted – the transfer tax-free growth is free of taxes and the distribution is tax free! That's triple composition, they say.
Do not fall into this trap. Frankly, the recommendations should lose their licenses. The arguments used to support this scheme are all smoke and mirrors. The tax benefits are false, you lose control of their money and the agent earns a great day Payment of fat.
Neither the gains that you expect. Most times you end up paying more in interest on their home equity loan you will make in politics. The distribution is tax free, but all death benefits paid by life insurance are tax free. So you can leave the value of your home, buy a Term Life policy and have the same distribution of tax-free benefits.
About the Author
Nationally-syndicated financial columnist and Certified Financial Planner Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He will answer your financial question FREE at http://www.guardingyourwealth.net/
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