I have a VUL, do I keep it?

[mcfly09]

This is my first post. I'm at a point in my life where life insurance matters now. I've haven't taken the time until now, to understand how it all works. At the same time I'm getting my personal finances in order.

One thing I did do (thanks to Dad) was to get a VUL policy in 1994. I've been paying $50/mo to it ever since.

By researching online, it seems that most pros don't care for VULs in most situations. I'm wondering if I'm an exception possibly. I'm still not completely clear on all of the inner workings of my VUL but I can offer these stats:

Death Benefit: 107829
Policy Value: 7829
Net Cash Surrender Value: 7829
Death Benefit Option: B
(I'm not sure if the Option is something generic to all VULs or if it is specific to this one. In this case it means the death benefit is the face value plus the policy value)

I'm going to need a greater amount of coverage though. Does it make sense at this point to stay in the VUL and increase the coverage? Would I be better off taking all the money, investing elsewhere and getting a term policy? Or perhaps I stop paying and let the policy value cover the monthly payments until it is depleted and get a term policy to supplement this one.

Is there even enough info here to make a recomendation?

[jIM_Ohio]

I could make a recomendation.

What are you insuring for? What is the insurance need?

If 114k is not enough insurance what amount do you need? What will it cost you to get this in VUL?

What would it cost you to get this in term? What would it cost you to get this with a permanent policy?

Wife and I created insurance polices right after we got married. We did a 2 part insurance strategy.

part 1 was term for 300k for each of us. We were in our 20's, the rates were low (mine was lower!). 20 year term for not much per month. This covered debts at the time (house, student loans, cc debt). It now will pay off house or pay for child care (no other debt).

part 2 was a permanent policy. The policy has a cash value account, which is invested in S&P 500 index fund. The permanent policy is for 25k, which covers funeral costs. The cost of the permanent policy now is less than a term policy would have cost when the current 20 year term policies expire.

In about 25 years, the cash value of the permanent insurance should be between 50-100k, meaning we have more coverage than we paid for, and it would be probable then we would NOT contribute to policy any more (but still have coverage).

[disneysteve]

Almost without exception, the term policy will be the way to go. You'll get far more coverage for far less money. Keep your investments and your insurance separate.

If there is no surrender fee, I'd cash out the policy and buy term coverage.

[anonymous_saver]

If you are unmarried and do not have any dependents, I would suggest not having a life insurance policy at all (although if your employer automatically offers one, I would take it as long as it costs you nothing).

[jIM_Ohio]

The cheapest route now (term) is not always the cheapest long term.

1) it's possible you get sicker when you get older and will be uninsurable at the later age- so when you need insurance the most, it's unavailable.
2) Permanent insurance will be cheaper now than term will be later in many cases.

If 300k term costs a 45 year old in good health $75 a month, and a 25k permanent policy at age 25 costs $75 a month, the $75 at the younger age is a better deal, IMO. The permanent policy has a sub account which can easily get to 300k in 20-25 years (with compounding). Even if compounding falls short (maybe account will only have 75k in it at age 45), the risk of declining health has been removed the equation (the policy is already in effect) and the benefit can be increased with contributions more than $75/month... if the need for the 300k still existed. It's possible the cash value accumulated first 20 years is high enough to keep policy funded without additional contributions and still grow the policy value.

I am not suggesting permanent insurance is a great thing, but completely writing something off because it costs more is not a good idea.

A person will need some level of insurance to pay for burial and funeral. These costs will be required of all people (no one lives forever). So there are many reasons to lock in low permanent rates (at a young age).

[sweeps]

Jim, look at this poor guy. He's been putting in $50 a month for the last 14 years, and what does he have to show for it. A mediocre death benefit and a grand total of $7,800 in accrued value. And this was during the greatest bull market of all time.

The worry about life insurance rates going up in the future is just a scare tactic from the insurance companies. Term life insurance rates have continually gone DOWN over this period. And with term, you're never locked in with a company, you can continually comparison shop for the lowest rate and the most stable insurer. No tricks, no hidden fees, no overzealous salesmen trying to make their quota this month.

99% of the time VULs are a rip off. Period.

[disneysteve]

1) it's possible you get sicker when you get older and will be uninsurable at the later age- so when you need insurance the most, it's unavailable.

You don't need insurance the most when you are old. You need it the most when you are young. As you get older, your need for insurance generally decreases as your children grow up and become independent, you repay your debts and your personal savings grow. I'm 43 and have decreased my life insurance coverage twice in the past 10 years.

A person will need some level of insurance to pay for burial and funeral.

Why? That's what savings are for. Assuming I die at a normal age, or at any age for that matter, we have plenty in savings to pay for a typical funeral. Insurance is to cover major stuff - the mortgage, student loans, kids' college education and living expenses for my wife after I die. It isn't to come up with 10K for a funeral.