VUL Insurance
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[quote=CashFlow]Once again guys you are providing some excellent feedback so with that I say thank you.
Our team has made a decision to expand and grow our business over the next 20 years so yes I have very little experience in life insurance, but I have the skills to learn this world. Like investing you learn from those that know and the trick is in finding someone who can train you the right way where you have a client centered practice. I don't expect to be the "expert" by next week, but I do anticipate getting pretty good at this over the next 5 years. We have the book, fee based business and high net clientele to venture off into this world, but I want to make sure we do it right for them. Here is a current example I have just started working on. Client, male age 49 high net worth and in a senior position of a decent size small business. Has a UL policy set up in 1989 with 200k cash value that the company has been funding at an annual premium of $9500 and a death benefit at $719,000. Policy is paying 4% and has for a while. When I got in front of him we re-negotiated the company contribution and they have agreed to now make contributions for him of $20,000. His priority is cash value accumulation with a tax efficient income upon retirement (62-65 depending on health) and has little interest in a death benefit. Ran an analysis for a VUL which at 6% would increase his death benefit to $1.2 million, but more importantly would allow him tax advantaged income of $75,000 for many years if we can maintain some type of return. Again I feel 6% is conservative and understand this doesn't guarantee anything. Too me this plan makes a great deal of sense, but as I said before I am just not sure. I had two different general insurance agency partners quote this for me and both came back with this similar plan. Any thoughts or additional questions? Thanks again for your thoughts as I do value most of you and your insights.[/quote] Cashflow, what happens when he is taking out $75,000 a year and the market has a major downturn at the same time and he's not fortunate enough to die? I'll answer the question for you. The policy is going to lapse and to the extent that he borrowed more money than he paid, he will have to pay a tax on what was previously a loan. VUL illustrations make zero sense when one is removing money because averaging 6% is very different than getting 6% every year.[quote=3rdyrp2][quote=deekay][quote=army13A]
I don't usually post during the day and was going to respond to all of the other posts over the weekend but I had to clear this one up. Deekay, you have a lot of knowledge but that is flat out wrong because I just showed THAT EXACT scenario the other day. You can show negative returns. And as for counting on 6-7% over the long period, that's a bet I'll always take. Even after last years market thumping, large and small caps have beat that since the inception of the market. If an individual can't get a client 6% return over the long haul (20 to 30 years and beyond), they shouldn't be in this business. [/quote] Interesting. I stand corrected. Can they show maximum insurance charges and investment charges while showing those down years? In other words, can they really illustrate a worst-case senario? [/quote] I believe army works for the same company as me, and all our VUL illustrations have the "worst case scenario" feature on the signature page. We have 3 columns, 1 that shows year by year cash value if the policy grows by your assumed rate with guaranteed expenses, 1 that shows year by year cash value if the policy grows by your assumed rate with maximum expenses, and year by year cash value if the policy grows at 0% gross with guaranteed expenses. Now whether or not the advisor spends much time on that 3rd column is that advisors perrogative, but it is there.[/quote] Since when is 0% the worst case scenario? I won't take issue with 0% being a worst case scenario long term while a policy is growing, but in the spending phase, it is easy for it to be much worse than 0%.army13A:
You can't, per se, show one negative year. You can, however, show a distribution from the cash value as a one time distribution, which will pretty much have the same effect. [/quote] Army, can you illustrate someone in the distribution phase who is taking $50,000 of income at the same time that the market goes down 40% one year and then 20% the next year.[quote=deekay]Ahh, so you’re saying that the investment returns will be illustrated based on a straight line, say 8%, 5%, and 0% gross return? Can you illustrate how a negative year will impact the illustration?
[quote=3rdyrp2][quote=BerkshireBull][quote=deekay][quote=army13A]
I don't usually post during the day and was going to respond to all of the other posts over the weekend but I had to clear this one up. Deekay, you have a lot of knowledge but that is flat out wrong because I just showed THAT EXACT scenario the other day. You can show negative returns. And as for counting on 6-7% over the long period, that's a bet I'll always take. Even after last years market thumping, large and small caps have beat that since the inception of the market. If an individual can't get a client 6% return over the long haul (20 to 30 years and beyond), they shouldn't be in this business. [/quote] Interesting. I stand corrected. Can they show maximum insurance charges and investment charges while showing those down years? In other words, can they really illustrate a worst-case senario? [/quote] Why is it prudent to show something that's never happened and has a .001% chance of ever happening? Do you really want to be running around telling prospects that in the future people will start dying early in life and in large numbers?[/quote] I tend to agree with Bull here. If we are analyzing a clients case and determine that a VUL is the best strategy for the client, why spend a lot of time going over situations in which the product WON'T work and give the client a handful of reasons to not buy the product and go against your recommendation? Let the client know that you'll work hard to make sure the policy grows at the rate you are planning on according to their goals, but that there may be some bad years like 2008 where it doesn't exactly go as planned. Why wouldn't you advise them the same way you would a regular brokerage account or retirement plan? If things don't go as planned and your client averages 5% return per year in their 401(k)instead of the 8% needed to retire, your client ends up needing to work 5-6 more years. How is that different than a VUL gone bad? The client doesn't reach their goal and is pissed. But we don't hear about 401(k) illustrations or Roth IRA proposals. [/quote] A VUL gone bad is very different than getting a lower return on one's investment. When one gets a lower return on their investments, they have less money. A VUL gone bad often means that the person ends up with no insurance and no investments. When a VUL goes bad, the charges eat up the cash surrender value which simply leaves someone overpriced annually renewable term insurance that they can't afford. Hasn't anybody ever noticed that you virtually never run into somebody with a 25 year old VUL policy?[quote=army13A][quote=anonymous][quote=army13A] [quote=anonymous]I often call these laboratory products because they work much better in a laboratory than in the real world. Human nature and VUL don’t go together.
Let's ignore that and keep it simple. First of all, you need to understand the basics of VUL. VUL combines annually renewable term insurance with a side fund of investments. There are two basic problems with this. 1)Annually renewable term insurance isn't designed for a permanent insurance need. 2)The investments are very expensive. I am not a fan of buy term and invest the difference. However, this is exactly what VUL is, but done in one policy. Whenever I compare VUL to BTID, the term insurance with a side fund blows away the VUL. This is because the insurance in VUL is overpriced and the investments are overpriced. I've put the challenge out there for someone to put together a scenario where VUL would beat BTID, but nobody has done it. If you'd like, we can through a prospectus for a VUL product and you'll quickly see why it's not an appropriate product.[/quote]Anon, I know you have a lot of knowledge b/c I've read your posts. But here is where I'm coming from on this.
With the investments being expensive, that is why I use a majority of index funds inside of a VUL. I recently consturcted a pfolio with a total expense ratio of 0.34. Ins companies try to push their asset allocation models but they're too expensive for my taste (1.4 or 1.5).
When you use BTID, what kind of account are you putting the cash in? Taxable brokerage account without the tax benefits of a side account inside of a VUL. For the taxable account to beat the VUL with all things being equal, the taxable account has to WAY OUTPERFORM the VUL just to be equal in order to make up for the lacking of tax benefits b/c you have capital gains you're paying along the way. And let's just pray that the capital gains rate stays at 15% but with Dems in office, that doesn't seem likely.
[/quote] Instead of arguing, post a prospectus and then let's go from there. There are a few things to keep in mind. 1) All of the expenses must be examined. These can include: A) Front end sales charge with no break points. B) Annually increasing cost of insurance C) M&E Charge (same impact as having higher fund charges) D) Miscellaneous charges 2)Index funds are very tax efficient. In a brokerage account, for the most part, they will be growing tax deferred. At death, they will receive a step-up in basis. My point is that the tax drag will be minimal. When you are looking at real numbers, you are going to see that the side fund doesn't have to outperform at all. In fact, I'm talking about the term + side fund outperforming using identical funds. The fees of the VUL are an incredible drag on performance. Again, instead of arguing with me, post a prospectus, and you'll see that I'm correct. Even if we can come up with an example where I'm wrong, I'll be wrong by such a little bit that I'll only be wrong in hindsite (person dies at the precise best time) and it doesn't make up for the fact that there is such a strong real world possibility of something going wrong.[/quote] I'll do better than posting a prospectus. With any illustration, the costs are already included inside the illustration and the entire illustration can be exported to Excel. It'll take me some time to put together b/c I have so many other things to do but I will post up an illustration with the VUL case. Then you can put together the BTID with the costs and taxes and we can compare. [/quote] That's fine, but link the prospectus also. Have you noticed that the prospectus doesn't include the cost of insurance charges? Isn't this pretty important information to not include? When you sell a policy, do you know the cost of insurance at age 70? 71? 72? I bet that you don't. It's pretty important information. I bet that your clients don't know this information. Am I correct?
[quote=army13A][quote=anonymous]
2)Index funds are very tax efficient. In a brokerage account, for the most part, they will be growing tax deferred. At death, they will receive a step-up in basis. My point is that the tax drag will be minimal. [/quote] You're absolutely right that index funds are very tax efficient but I think you're wrong when it comes to the brokerage account. When we're talking about socking away high premium dollars a month (over $1,000), it's going into a Single or Joint non-retirement brokerage account. That is not growing tax deferred; they're paying taxes along the way. Yes you are right at death, there will be a step up in basis for the heirs but you can't have both. If an account grows tax deferred, there is no step up in basis at death because it's an IRD (income in respect of a decedant)asset (example IRA, 401k, annuity). If it's a taxable account, you're paying taxes along the way and that's why you're getting a step up in basis. If I'm wrong, please correct me because that is what I was taught. [/quote] You are wrong, sort of. One will be paying taxes along the way. However, index funds are very tax efficient. Therefore, there is very little tax on an index fund until the fund is sold. If it isn't sold and death occurs, it will get the step up in basis, thus resulting in very little tax ever being paid. Think, for instance, of an individual stock. As the value of the stock grows from $10 a share to $11 to $20, etc., no tax is paid. It's only paid upon the sale of the holding. If death occurs, there is no tax because it is getting a step-up in basis.3rdyrp2:
Good point...also with parents saving up for kids college, VUL's don't count towards household assets for purposes of determining eligibility for financial aid or grants. [/quote] That's true, but income is much more important than assets. Someone who can afford a VUL isn't getting any need based money other than some loans at best.[quote=army13A]Also forgot that all the cash inside a VUL is creditor protected as well while a standard brokerage account isn’t.
We should be able to agree that VUL can only make sense if it beats BTID with the same investments. I'm pretty sure that it won't. Someone will post real numbers and we'll find out. When ever I've done it, there has been no comparison. VUL has gotten crushed.
If VUL does come out ahead, we can then move into all of the real world "outside of the laboratory" situations. However, I don't think that we'll get there because it's going to lose to BTID. Army, please prove me wrong. I have no problem changing my mind. My experience is that the internal expenses combined with the ever increasing COI combined with the huge front end load makes this a product that simply doesn't work well. P.S. I happen to think that term insurance is best in some situations. Whole life is the best in some situations. Universal Life is the best ins some situations. Variable Life can even be the best in some situations. I'm just waiting for someone to show me a situation in which Variable Universal Life is the best.[quote=anonymous][quote=3rdyrp2][quote=deekay][quote=army13A]
I don't usually post during the day and was going to respond to all of the other posts over the weekend but I had to clear this one up. Deekay, you have a lot of knowledge but that is flat out wrong because I just showed THAT EXACT scenario the other day. You can show negative returns. And as for counting on 6-7% over the long period, that's a bet I'll always take. Even after last years market thumping, large and small caps have beat that since the inception of the market. If an individual can't get a client 6% return over the long haul (20 to 30 years and beyond), they shouldn't be in this business. [/quote] Interesting. I stand corrected. Can they show maximum insurance charges and investment charges while showing those down years? In other words, can they really illustrate a worst-case senario? [/quote] I believe army works for the same company as me, and all our VUL illustrations have the "worst case scenario" feature on the signature page. We have 3 columns, 1 that shows year by year cash value if the policy grows by your assumed rate with guaranteed expenses, 1 that shows year by year cash value if the policy grows by your assumed rate with maximum expenses, and year by year cash value if the policy grows at 0% gross with guaranteed expenses. Now whether or not the advisor spends much time on that 3rd column is that advisors perrogative, but it is there.[/quote] Since when is 0% the worst case scenario? I won't take issue with 0% being a worst case scenario long term while a policy is growing, but in the spending phase, it is easy for it to be much worse than 0%.[/quote] Assuming 0% growth (-2 to -2.5% net after expenses) is more than a good description of a worst case scenario over a 25-30 year period. You say there are no -25% years included in there but you're also not including periods like 03-07 or 96-99 in there where there is significant accumulation. Again, I don't even sell the things because they cause too much of a headache for me to want to put up with, but I hardly think one of the fundamental problems is that not enough illustrations include years in the withdrawl phase with significant market decline.anonymous:
There is a cost of insurance section in the illustration that will tell you each year what the cost of insurance will be every year. Again, this is one of those things that is up to the advisor as to whether they actually show this to the client or not.That’s fine, but link the prospectus also. Have you noticed that the prospectus doesn’t include the cost of insurance charges? Isn’t this pretty important information to not include? When you sell a policy, do you know the cost of insurance at age 70? 71? 72? I bet that you don’t. It’s pretty important information. I bet that your clients don’t know this information. Am I correct?
Read my post again. I did say that I wouldn’t take issue with 0% being the worst case during accumulation. I’m talking about what can happen to the policy during the distribution phase when there is a large down year.
3rdyrp2:
There is a cost of insurance section in the illustration that will tell you each year what the cost of insurance will be every year. Again, this is one of those things that is up to the advisor as to whether they actually show this to the client or not.[/quote] Isn't it interesting that this info is not included in the prospectus? I do believe that most people who buy it don't know about the COI, nor do most sellers.[quote=anonymous]That’s fine, but link the prospectus also. Have you noticed that the prospectus doesn’t include the cost of insurance charges? Isn’t this pretty important information to not include? When you sell a policy, do you know the cost of insurance at age 70? 71? 72? I bet that you don’t. It’s pretty important information. I bet that your clients don’t know this information. Am I correct?
anonymous:
The variable products we use actually have take the expenses out before it hits the investment account. All of the expenses are taken out of each premium before the remainder goes into the variable account. So for example, a 30 year old is doing a minimum face policy with a $10000 premium a year. When the premium goes into the policy, let's just say $100 covers all expenses the entire $900 goes into the side account and the only expense in the side account once the $ hits is the expense ratio. So when I run an illustation with a $10K premium, what it shows in the investment account for the first year is $8855 and that takes into account all of the expenses including an initial death benefit of about $390K. That $8855 is what is illustrated at a 6% gross, 5.83 net based on the S&P index. So that is what I meant by the gross versus net return; sorry if I wasn't clear.
When we do an apples to apples comparison of BTID and VUL, we need to compare cash value and take into account the death benefit as well.
Uh-oh. I'll try to take the time to respond to lots of this thread later, but for now, this tells me there is a huge problem in your understanding of the product. If you invest in an S&P index fund with an ER of .17% and the fund gets 6.17%, you will have a net return of 6.17% and not 6%. This is because the net return of the fund includes the ER. However, if the underlying fund gets 6.17%, the gross return in a VUL can't be 6.17%. In order for that to happen, the administration costs would have to be $0, the COI would have to be $0, the M&E would have to be $0, the premium charge (sales load) would have to be zero. In terms of a comparison, it is not relative whether expensive or cheap funds are used because we will compare the exact same funds. The point is that all of the costs of the VUL can easily be a 2% drag on performance. Over a long period of time, this can easily cut the amount of money that one would have by 50%. Heck, let's use an example where all of the expenses are only a 1% drag. Jim and John invest $10,000 a year for 40 years. Jim gets 6%. John gets 5%. Result: Jim: $1,640,000 John:$1,268,000 (with a 2% drag, he'd have $988,000)[/quote][quote=army13A] [quote=theironhorse]i think we all agree army, but that usually means 8-9% gross in a vul to achieve the 6% net.[/quote]
8-9% gross for a 6% net? That again depends on the investment options inside. If you choose an emerging market or commodoties fund and even then, I haven’t seen a 3% expense ratio. S&P 500 index fund, 0.17% ER, so you need 6.17% gross.
The variable products we use actually have take the expenses out before it hits the investment account. All of the expenses are taken out of each premium before the remainder goes into the variable account. So for example, a 30 year old is doing a minimum face policy with a $10000 premium a year. When the premium goes into the policy, let's just say $100 covers all expenses the entire $900 goes into the side account and the only expense in the side account once the $ hits is the expense ratio. So when I run an illustation with a $10K premium, what it shows in the investment account for the first year is $8855 and that takes into account all of the expenses including an initial death benefit of about $390K. That $8855 is what is illustrated at a 6% gross, 5.83 net based on the S&P index. So that is what I meant by the gross versus net return; sorry if I wasn't clear.
When we do an apples to apples comparison of BTID and VUL, we need to compare cash value and take into account the death benefit as well.
You should be able to start to see the problem just from what you are telling me. If he's in excellent health, he can buy the insurance for about $330 and have that rate guaranteed for 30 years. He would be able to invest $9,670. BTID allows him to invest $815 additional. The cost of the insurance increases every year in the VUL, so the difference gets bigger and bigger.
I'm sure that you are keeping the death benefit level for as long as possible. This means that BTID will certainly yield a higher payout if death occurs within 30 years. In other words, for the privilege of being able to use a VUL, he is paying $1,145 in upfront costs instead of $330. VUL is BTID and invest the difference, but in one vehicle. You are going to have a hard time showing that combining it is worth an extra $815 more in expenses this year and more the following year and more the year after and more the year after that, etc.[quote=anonymous][quote=army13A][quote=anonymous]
2)Index funds are very tax efficient. In a brokerage account, for the most part, they will be growing tax deferred. At death, they will receive a step-up in basis. My point is that the tax drag will be minimal. [/quote] You're absolutely right that index funds are very tax efficient but I think you're wrong when it comes to the brokerage account. When we're talking about socking away high premium dollars a month (over $1,000), it's going into a Single or Joint non-retirement brokerage account. That is not growing tax deferred; they're paying taxes along the way. Yes you are right at death, there will be a step up in basis for the heirs but you can't have both. If an account grows tax deferred, there is no step up in basis at death because it's an IRD (income in respect of a decedant)asset (example IRA, 401k, annuity). If it's a taxable account, you're paying taxes along the way and that's why you're getting a step up in basis. If I'm wrong, please correct me because that is what I was taught. [/quote] You are wrong, sort of. One will be paying taxes along the way. However, index funds are very tax efficient. Therefore, there is very little tax on an index fund until the fund is sold. If it isn't sold and death occurs, it will get the step up in basis, thus resulting in very little tax ever being paid. Think, for instance, of an individual stock. As the value of the stock grows from $10 a share to $11 to $20, etc., no tax is paid. It's only paid upon the sale of the holding. If death occurs, there is no tax because it is getting a step-up in basis.[/quote]Not to get caught up in semantics but what you wrote here is completely different before. Being tax efficient is a completely different thing than being tax deferred. As you scroll up, you wrote being tax deferred. You are absolutely correct that they are tax efficient but index funds do pay out dividends and on occasion pay out capital gains. If it's in a brokerage account, you're getting a 1099DIV at the end of the year. Tax deferred is no taxes at all regardless of amount of capital gains and dividends. If an account is tax deferred, there is no step up in basis at death because the govt will not allow that. If you have a before tax 401K and it's sitting at 1million at death, the beneficiaries are not receiving a cost basis of 1million because grandpa died. Their cost basis is 0 and they're paying ordinary income taxes because there has been no taxes paid on it.
I wasn't talking about unrealized gain from the share price going up. You are right, stock bought at 10, goes to 11 and you die, beneficiaries receive basis of 11 and no tax was paid. But if the individual received a dividend while he was alive, he did pay tax on that dividend. I'm looking at the Vaguard S&P 500 index fund and it pays a quarterly dividend and the most recent one was $0.43500 per share.
I'm enjoying this debate, we're keeping it civil. I will post an illustration and you can post your numbers and we can spot check each other. Mine is going to be straight from the software and will be straight forward.
[quote=anonymous]
You should be able to start to see the problem just from what you are telling me. If he’s in excellent health, he can buy the insurance for about $330 and have that rate guaranteed for 30 years. He would be able to invest $9,670. BTID allows him to invest $815 additional. The cost of the insurance increases every year in the VUL, so the difference gets bigger and bigger.
I'm sure that you are keeping the death benefit level for as long as possible. This means that BTID will certainly yield a higher payout if death occurs within 30 years. In other words, for the privilege of being able to use a VUL, he is paying $1,145 in upfront costs instead of $330. VUL is BTID and invest the difference, but in one vehicle. You are going to have a hard time showing that combining it is worth an extra $815 more in expenses this year and more the following year and more the year after and more the year after that, etc. [/quote]With taxes going up in the future regardless of who is President, I feel very confident. However, I can be convinced as well. I will listen and take in everything.
Army, read what I wrote again and read the whole sentence. I didn’t say that they are tax deferred. I wrote, FOR THE MOST PART, they will be growing tax deferred. The share price is around $95. A $.435 dividend is well less than 2%.
This isn't exactly a fair example, but somebody who bought it in March will have had a $30 gain with less than $1 of this gain being taxable.[quote=army13A] [quote=anonymous]
You should be able to start to see the problem just from what you are telling me. If he's in excellent health, he can buy the insurance for about $330 and have that rate guaranteed for 30 years. He would be able to invest $9,670. BTID allows him to invest $815 additional. The cost of the insurance increases every year in the VUL, so the difference gets bigger and bigger.
I'm sure that you are keeping the death benefit level for as long as possible. This means that BTID will certainly yield a higher payout if death occurs within 30 years. In other words, for the privilege of being able to use a VUL, he is paying $1,145 in upfront costs instead of $330. VUL is BTID and invest the difference, but in one vehicle. You are going to have a hard time showing that combining it is worth an extra $815 more in expenses this year and more the following year and more the year after and more the year after that, etc. [/quote]With taxes going up in the future regardless of who is President, I feel very confident. However, I can be convinced as well. I will listen and take in everything.
[/quote] What taxes are going up? What if taxes go up via life insurance not being income tax free? What if income taxes and capital gains taxes both go up? Since most VULs lapse, won't this impact the vast majority of VUL policies? If the step-up in basis doesn't change, taxes on the index fund won't matter to much because most of it still won't be paid. One of the problems with most VUL vs. BTID comparisons is that they make three assumptions. 1)Taxes on the side fund will be much higher than what happens in reality. 2)The VUL will be held to death and death will occur at an older age, but not too old. 3)The market won't crash when someone is trying to take money out of their VUL policy.
[quote=anonymous][quote=army13A] [quote=anonymous]
You should be able to start to see the problem just from what you are telling me. If he's in excellent health, he can buy the insurance for about $330 and have that rate guaranteed for 30 years. He would be able to invest $9,670. BTID allows him to invest $815 additional. The cost of the insurance increases every year in the VUL, so the difference gets bigger and bigger.
I'm sure that you are keeping the death benefit level for as long as possible. This means that BTID will certainly yield a higher payout if death occurs within 30 years. In other words, for the privilege of being able to use a VUL, he is paying $1,145 in upfront costs instead of $330. VUL is BTID and invest the difference, but in one vehicle. You are going to have a hard time showing that combining it is worth an extra $815 more in expenses this year and more the following year and more the year after and more the year after that, etc. [/quote]With taxes going up in the future regardless of who is President, I feel very confident. However, I can be convinced as well. I will listen and take in everything.
[/quote] What taxes are going up? What if taxes go up via life insurance not being income tax free? What if income taxes and capital gains taxes both go up? Since most VULs lapse, won't this impact the vast majority of VUL policies? If the step-up in basis doesn't change, taxes on the index fund won't matter to much because most of it still won't be paid. One of the problems with most VUL vs. BTID comparisons is that they make three assumptions. 1)Taxes on the side fund will be much higher than what happens in reality. 2)The VUL will be held to death and death will occur at an older age, but not too old. 3)The market won't crash when someone is trying to take money out of their VUL policy.[/quote]
Point taken about the taxes. I was thinking about an article I just read about proposed legislation to increase capital gains to 20% in 2010 from my CPA. We don't know what is going to happen. These are the parameters I think we should base it off:
30 year old male, perfect health, 10K of cash per year (not a penny more or less), not a huge need for life insurance, investing in an S&P 500 index fund with 5.83 net returns (which includes expense ratio). We'll compare my scenario where 10K a year buys a minimum face policy with increasing DB and we'll look at cash value after 30 years.
BTID will be a term policy for 30 years for the same min face and invest the rest at 5.83% rate of return. We'll ignore dividends and cap gains along the way and just tax the gain in the account at current capital gains rate and see what's left. And I'm assuming this is for a do-it-yourself investor so we'll ignore transaction costs and assume it's in a vanguard account.
Anything else relevant I missed?
[/quote]
Cashflow, what happens when he is taking out $75,000 a year and the market has a major downturn at the same time and he's not fortunate enough to die? I'll answer the question for you. The policy is going to lapse and to the extent that he borrowed more money than he paid, he will have to pay a tax on what was previously a loan. VUL illustrations make zero sense when one is removing money because averaging 6% is very different than getting 6% every year.[/quote]What happens when someone takes $75,000 out of their equity funds in an IRA and the market has a major downturn at the same time? They're going to run out of money. This story isn't unique to VULs...