Variable Universal Life Insurance at age 22

Hi there,

I am age 22, have no kids, and I am not married. However, my financial adviser soled me a Variable Universal Life Insurance at age 21.

This investment vehicle has many fees because only $92.91 from $150.00 per months is going towards the investment. I believe this money would do much better on my Roth IRA, or my 401K.

This is my situation:

Cash Value: $1,874.70
Loan Balance: $0.00
Surrender Value: -$1,475.30
Total Premiums Paid $2,677.62
Death Benefit $500,000.00
As of: 05/19/2008

I feel trapped with an unnecessary monthly cost. Any help on how to get my money out of this investment would be greatly appreciated.

Best regards,
Anardo

Unless you are fully funding your Roth and deferred retirement accounts (401k, etc.), then you are likely correct about a VUL that size ($500k) being unsuitable for someone your age and with your limited financial obligation to others.

Unfortunately, the only way to get completely out of it is to request a full surrender which looks like you might walk away with only obout $400 of your original $2677.

You may also want to consider asking about changing it into a paid-up term policy (no premium payments), reducing the face amount $100,000 and see how long the cash values will support it. For example, ask what will happen if you reduce the face amount to $100,000 and stop making payments completely as a paid-up term policy. At least this way, the cash values won't be entirely sacrificed and you can get a least some benefit out of it.

Or, if you like the idea of of having a VUL in the future (for whatever reason), then you can reduce the face amount to something entirely more managable, such as $100-$150k. This way the surrender charge clock keeps ticking and your cash values are left entirely intact.

anardo, how much money do you make and how much and into what are you funding your retirement?

Anardo,

Two thoughts.

1) If you feel you've been hood-winked into doing something that you didn't understand, you might consider confronting your advisor and threatening to file a complaint if he/she will not assist you in getting the insurance company to rescind your policy. This will depend on the documentation both you and your advisor kept, as well as the length of time that has passed since your purchase. Not likely to work if the policy is older than 6 months, which it sounds like it is.

2) No one is going to be able to give you good advice on recovering your cash value without reading your insurance contract to see its provisions for reductions in face amount, etc.

I hate to say it, but it sounds like you got hosed.

im witholding my thoughts on whether he got hosed or not till we know a little more about his situation.

im witholding my thoughts on whether he got hosed or not till we know a little more about his situation.
Fair enough. The facts already stated are enough to "indict," but not "convict" . . . yet.

I can give you more information.

My current income is 50K per year.

My Roth IRA looks like this
Cash Value: $150.28
Margin Value: $0.00
Securities Value: $1,894.65
Total Value: $2,044.93
Available Balance: $150.28
as of: 05/21/2008

My 401K is brand new, so it only has $150.00 in it.

i agree with Noah's Arch ... you are getting screwed. you need to fund your Roth IRA completely and your 401K completely before you start trying to leverage your insurance as a tax qualified investment. If you need insurance later on (wife, kids, business, etc) then VUL may be something to look into again ... dont be scared off by it because of this bad experience.

i would probably recommend a life policy for you NOW even though you have little or no need to protect your insurability (usually due to medical issues) in the future when you will need coverage. a small whole life policy with guaranteed insurability or a long term convertibility feature with a term policy.

sorry to say this, but dump the VUL and dont worry about what money you lost ... you got an education for it that will pay dividends for decades!

Thank you very much 1_more_opai.

I will look into it some more, and see if there is something I can recover. I personally do not want to continue paying for it, so I will probably terminate it if I can't get no money out of it.

Thank you,
Anardo

At your age friend experience is what you get when you dont get what you want.At a needs approach simpilar steps could have been taken.
Good luck

I am a Farmers Agent and the majority of my work is as a Financial/Estate Planner. VUL is our flagship product and we make the most commission on them because of their high premiums. Although I believe it is oftten best form of investment after the Roth and 401k, most people are not suited for them. They are very complicated in nature because the tax shelters are so incredible that the IRS has a tight grip on them. Additionally, the between the ME fees, the mutual fund's deduction from the net growth, and the cost of insurance, you cannot afford to under fund them. Even if you are buying the policy strictly as a form of life insurance as opposed to an investment vehicle, you must fund them correctly for at least a given period of time, usually 10 to 15 years.

My best advice is only carry as much VUL coverage as you can completely over-fund. If you know anything about VUL, you know that the money going into the separate account must be proportional to the money going into the face value of the insurance. Anything over that amount MECs the policy and erases the tax benefits in taking out the loans. For healty individuals the miniumum face is 150K. If you cannot fund the policy at or near its TAMRA maximum you are better off with Term Insurance and converting it to VUL when you have the money to do so.

If you do have the money to overfund a policy, determine how much life insurance you need. In my case I need 3 Million coverage, but I only have enough income to overfund a 300K policy. Therefore I have 300K VUL and 2.7Mil Term. As my income stream grows and I have more money to invest, I convert small chunks (150K) into VUL, but only if I can max out the contributions to that policy and the other VULs already in force. As the cash values grow and I convert more and more of this Term to VUL, I will no longer need the term insurance to cover the 3Million insurance need.

The point of my example is that if you do not have enough money to overfund it completely, get a term policy that has convertibility options to VUL.

I am friends with the daughter of the gentleman that authored the Roth, and I believe that it is by far the best thing going, if you qualify (2010 - everybody does). However, after that I am all about VUL. In my opinion, these two plans provide for the best tax strategies FOR MOST PEOPLE. Self employment can throw a whole other wrench into the equation.

I also believe in VUL because I feel that eventually Congress will eliminate the tax free loans, while grandfathering in policies written before the new tax policies. So in essence, I believe that you gotta get it when you can!

NO SINGLE INVESTMENT OPTION IS PERFECT FOR EVERYBODY, THE QUESTION IS: IS IT PERFECT FOR YOU!!!!! Invididuals have different needs, incomes, risk tolerances, etc... But all individuals need retirement funds.

If you have any questions for me about what I said, or disagree with any of it, let me have it!

i disagree with roth then vul.

i think most professionals would advise to:

1. contribute to 401k up to the match.
2. contribute then to roth up to maximum.
3. contribute excess investable dollars at this point back into your 401k to limit.
4. then start whickering other investment opportunities (possibly VULs)

finally, i know that Farmers (your company) uses primarily VUL, but i found it interesting that no mention was made of WL or UL-NLG for insurance coverage. term is great and so too are VUL ... but as you said, each consumer should be given the full spectrum of information on legitimate options and only offering a couple of options (whether you are offering "education" or "sale" is a disservice).

welcome to the forums.

Anardo, if you're still out there, I second what pricespector told you. You're not getting enough of an advantage out of the VUL right now. You should consider just lowering the death benefit as much as you can, and using the cash value to cover you for a while.

I can see how 500k was calculated for you (10x income), but with no kids or spouse, you hardly need a death benefit at all. I'm surprised your advisor didn't have you put the same amount into a policy with a much lower benefit so you could get more cash value out of it. Maybe the expectation was to underfund it for now, and then add more once your income increased over the years. It assures that you will qualify for that death benefit later, rather than risking underwriting at an older age. But honestly, you were 21, so not a lot would affect your insurability in the next decade.

You probably kinda sorta got "hosed." Don't file a complaint. Don't waste your time. No one is getting "indicted" (really, Noah?). Just move on. Start maxing out that roth.

I am curious about kbesada's insurance need though. How is it that you need 3,000,000 in benefit, but can only afford to max out a tenth of that size? What do you have, like 10 kids? The math's just not clicking for me.