Life Insurance Changes

June 27, 2007

 I used to have a Variable Universal Life Insurance, paying $200 / month for a $350,000 death benefit + cash value.

 From Wikipedia:

Variable Universal Life Insurance (often shortened to VUL) is a type of life insurance, that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. The ‘variable’ component in the name refers to this ability to invest in volatile investments similar to mutual funds. The ‘universal’ component in the name is a bit of a misnomer that is used to refer to the flexibility the owner has in making premium payments. The premiums can vary from nothing in a given month up to maximums defined by the IRS code for life insurance. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy.

 The problem was that there are fees with this type of insurance and also, I couldn’t figure the return on my investments since the life policy portion was together with the investment portion.

 So I decided to follow Suze Orman’s advice and keep them separate. I got a 30 year term life insurance for less than $100 / month for a $1 million policy and now I’m free to put the remaining $100 where I want.

 For the majority of people, Variable Universal Life Insurances are not worth it, because we need the extra 0.5% (or whatever fee they charge) return and also. If you’re already wealthy, then these types of policies might make sense for you for the tax-advantages.

Variable universal life insurance receives special tax advantages in the United States IRS code. The cash value in life insurance is able to earn investment returns without incurring current income tax as long as it meets the definition of life insurance and the policy remains in force. The tax free investment returns could be considered to be used to pay for the costs of insurance inside the policy.

 My Life Insurance Investment Value was: $8,302.68 (cash value).

 And since I cashed out the policy in a short amount of time, they charged me $4,221.00 (surrender charges), sending me a check for $4,081.68.

Posted in Finances