VUL Insurance
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[quote=BerkshireBull][/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...
[/quote] I'm editing simply to make my response clear: It's very unique to VUL's. If it happens in their IRA, they run out of money quicker. If it happens in their VUL, they run out of money, they lose their insurance protection, and what was once tax free loans, is now taxable income to the extent that they received more than they paid.
I’m bumping this because every couple of months we get into these VUL conversations. I always issue the challenge for someone to use real numbers so that we aren’t dealing in the abstract. Unfortunately, nobody ever takes me up on the challenge.
Someone, please do so. I don't care if I'm shown to be wrong. Heck, I'd like to see some real numbers that get me to believe that there are circumstances that VUL makes sense. If I can make money while helping a client, I'm all for it.Anon, I think the problem with VUL (and you’ve stated this) is not so much in the accumulation phase, but rather in the income phase. Surely most sellers of VUL are using it to provide a retirement supplement for their clients. However, as we’ve seen over the last couple of years, when you take withdrawals from an account that is getting hammered by a declining market, you’re exponentially running the risk of running out of money. When you combine this with increasing costs of insurance in the policy, that speeds up the process. One may say that the account will need to be allocated to the fixed account to avoid this. However, when you’ve been running illustrations at 8% and you switch to 3%, how is that going to affect withdrawals? Without a proper amount of systemic growth in the portfolio to outpace inflation and COI, how will this affect the policy?
I'm with you, anonymous, if someone can show me how this won't be a problem in the future, I'll reconsider VUL's usefulness. For now, I can't wrap my head around this. So, I'm going to stick with term and WL and KISS.You guys aren’t understanding how the no-lapse riders on these contracts work. You cannot blow these policies up and lapse them unless it’s done on purpose. In a down market you may have to choose between continuing to pull money out of the policy or maintaining the death benefit, but they are not simply going to lapse out of the blue for no reason.
BB, it’s more than just a no-lapse guarantee. You still have to show how this will beat the same dollars going into a term policy and the difference getting invested in the same manner.
As for the no-lapse guarantee, sure, if someone puts in $X a month and doesn't take loans or remove money, they may have a guarantee. Can you tell me about the guarantee that they have in year 40 when they skip their premium payment in year 9 and then in years 20-25, they take out some pretty big loans? They lapse because one can't afford the ever increasing COI.Anon...you reference a lot of hypotheticals in which people are taking out large sums in down years and large sums in general during their later years. This isn't what VUL's were designed for. For retirement income scenarios they are recommended to be best used after maxing out 401(k)'s/TSP's, Roth's (if they qualify) and have a good chunk in non-qualified investments. This means that VUL's shouldn't be used as a primary retirement strategy and there shouldn't be an instance in which over 25% of a persons annual retirement income comes from the VUL. People should take a chunk out if it keeps them from moving up a tax bracket or if income taxe rates are higher than usual given the current president. But if someone needs $100,000 to live off in retirement, they shouldn't take $100,000 from their VUL.
[quote=3rdyrp2]
Anon...you reference a lot of hypotheticals in which people are taking out large sums in down years and large sums in general during their later years. This isn't what VUL's were designed for. For retirement income scenarios they are recommended to be best used after maxing out 401(k)'s/TSP's, Roth's (if they qualify) and have a good chunk in non-qualified investments. This means that VUL's shouldn't be used as a primary retirement strategy and there shouldn't be an instance in which over 25% of a persons annual retirement income comes from the VUL. People should take a chunk out if it keeps them from moving up a tax bracket or if income taxe rates are higher than usual given the current president. But if someone needs $100,000 to live off in retirement, they shouldn't take $100,000 from their VUL.
[/quote] blah, blah, blah. Sorry about that. I'm not trying to be disrespectful. Just post the a link to a dang prospectus. I'm happy to use any scenario. If you want to use a scenario where somebody buys a VUL at age 30 and then dies at age 80 before they had a chance to take a penny out, that's fine with me. Also, include something that has the cost of insurance. This is much easier said than done since the insurance companies don't want people knowing how much they are actually paying when they get older. If I'm wrong about that, why don't they include this information in the prospectus? They don't want their 497 page document to become 498 pages?I’m not here to argue VUL’s are better than Term and invest the difference because I’d recommend Term and invest the difference 99% of the time. Just saying that some of the hypotheticals used as earlier examples are a little crazy.
I have no problem agreeing with you that they are crazy. I'm trying to figure out if there is ever a case in which VUL wins. I'm willing to use ANY realistic parameters. Does VUL ever win? I'm not sure that it ever does. I just want someone to show me with real numbers, a situation where VUL is the best. Does this scenario exist? I don't know. I think that it does if the numbers really get massaged, but otherwise, I'm not so sure.I’m not here to argue VUL’s are better than Term and invest the difference because I’d recommend Term and invest the difference 99% of the time. Just saying that some of the hypotheticals used as earlier examples are a little crazy.
C’mon guys. I’m champing at the bit for someone to post some real VUL information. How about the PAC Life Select Exec IV? It seems to be a popular one.
Look at a 45 year old standard male paying $10,000 for a $300,000 death benefit. Does anybody have a guess how much money is disappearing in the first year for various charges? It's $2500! approximate costs: $595 sales charge $90 admin charges $288 COI (increases annually on a per/thousand basis, but isn't disclosed in the prospectus) $1476 coverage charge (remains for 10 years, and then changes. I have no idea how this changes because they don't disclose this cost in the prospectus.) Total Charges =$7551 Additionally, there is an asset based charge which lowers the return by .45% on the first $20,000 and .05% on all additional money. Those aren't some obscene first year charges that disappear in the future. Can someone please explain how someone can lose 25% off of the top and still come out ahead? If we use fairly tax efficient investments, BTID will crush it both from a tax standpoint and a death benefit standpoint any year that the person wants the cash or dies. Ex. Comparing against 10 year term and assuming that the investment expenses are the same and the investments get 6%. VUL: CSV $103,000 (less income taxes on gain) DB $300,000 (tax free) BTID: Side Fund $126,000 (a little less because of some taxes and then capital gains...total = more than the $103,000 less the taxes on the gain) DB $426,000 (tax free: will be slightly less due to some taxes on dividends, but still a huge difference) At 30 years, with the VUL, the side fund will be $619,000 (assuming the expenses never go up and we know that they do) With BTID, the side fune will be $759,000 and the death benefit will be $1,059,000 and then the next day will be $759,000. These numbers aren't right, but they are dang close. Go with a 20 year term instead, and BTID still always wins, but by a bigger margin if death occurs in years 1-20 or years 30 +. With a 30 year term, BTID gets both the side fund + the death benefit if death occurs within 30 years which gives it a huge advantage. After 30 years, with BTID, there is no insurance costs and the VUL costs are very high, which simply magnifies the advantage. Anyway, somebody, anybody, show me where I'm wrong. I just don't know how a product can lose 25% off the top and still end up being the best option.I think everybody knows I’m not a VUL proponent, but I’ll play Devil’s Advocate.
Anon, what happens in year 31 when the VUL client still has a DB and the BTID client has an outrageous bill if they choose to renew their term insurance? My guess is VUL will actually look better than BTID if the client chooses to keep the life insurance in force.[quote=deekay]I think everybody knows I’m not a VUL proponent, but I’ll play Devil’s Advocate.
Anon, what happens in year 31 when the VUL client still has a DB and the BTID client has an outrageous bill if they choose to renew their term insurance? My guess is VUL will actually look better than BTID if the client chooses to keep the life insurance in force. [/quote] I like the devil's advocate. The VUL won't look better because there is no reason to renew the term insurance. The "side fund" of the $300,000 30 year level term insurance policy is over $700,000.[quote=anonymous]C’mon guys. I’m champing at the bit for someone to post some real VUL information. How about the PAC Life Select Exec IV? It seems to be a popular one.
Look at a 45 year old standard male paying $10,000 for a $300,000 death benefit. Does anybody have a guess how much money is disappearing in the first year for various charges? It's $2500! approximate costs: $595 sales charge $90 admin charges $288 COI (increases annually on a per/thousand basis, but isn't disclosed in the prospectus) $1476 coverage charge (remains for 10 years, and then changes. I have no idea how this changes because they don't disclose this cost in the prospectus.) Total Charges =$7551 Additionally, there is an asset based charge which lowers the return by .45% on the first $20,000 and .05% on all additional money. Those aren't some obscene first year charges that disappear in the future. Can someone please explain how someone can lose 25% off of the top and still come out ahead? If we use fairly tax efficient investments, BTID will crush it both from a tax standpoint and a death benefit standpoint any year that the person wants the cash or dies. Ex. Comparing against 10 year term and assuming that the investment expenses are the same and the investments get 6%. VUL: CSV $103,000 (less income taxes on gain) DB $300,000 (tax free) BTID: Side Fund $126,000 (a little less because of some taxes and then capital gains...total = more than the $103,000 less the taxes on the gain) DB $426,000 (tax free: will be slightly less due to some taxes on dividends, but still a huge difference) At 30 years, with the VUL, the side fund will be $619,000 (assuming the expenses never go up and we know that they do) With BTID, the side fune will be $759,000 and the death benefit will be $1,059,000 and then the next day will be $759,000. These numbers aren't right, but they are dang close. Go with a 20 year term instead, and BTID still always wins, but by a bigger margin if death occurs in years 1-20 or years 30 +. With a 30 year term, BTID gets both the side fund + the death benefit if death occurs within 30 years which gives it a huge advantage. After 30 years, with BTID, there is no insurance costs and the VUL costs are very high, which simply magnifies the advantage. Anyway, somebody, anybody, show me where I'm wrong. I just don't know how a product can lose 25% off the top and still end up being the best option. [/quote] Anon, I said I will post an illustration on one of the products I use but you have to give me some time. I promise that I will have it up by next weekend; is that fair?Whenever you’d like. An illustration is fine, but a prospectus along with the charges is much more valuable.
What VUL products do you use?[quote=anonymous]Whenever you’d like. An illustration is fine, but a prospectus along with the charges is much more valuable.
What VUL products do you use?[/quote] I have no problem with an illustration b/c it can be "any company" but posting a prospectus, I'm not so hot on b/c of the forum rules. We're not supposed to post anything that doesn't "belong to us". Plus the illustration has all of the expenses taken into account, so there is no fibbing on it. And for me to post any company prospectus without the company logo is just too much work. I'm at an indy B/D, so I can sell any.Army,
If you post which VUL you use, we can do some legwork on your behalf. TIA.You don’t have to post a prospectus. Most of them are available on-line. They aren’t proprietary hidden information. Just name the product so that I can look up the prospectus.
I completely know that they are public info but I’m concerned with my identity. I’ve divulged enough information about myself on this forum and I use one company more than any other for VUL sales and I just don’t want to take the risk of being pinned down. Sorry guys but that’s the military paranoia in me.
Again, if I post an illustration that shows the cv with ALL OF THE COSTS taken into account, what difference does it make? We're just trying to see if someone does 10K a year into a VUL policy and 10K a year into BTID, who makes out better in the long run, right? On the illustration I will use, it will show cash value, surrender value and db in force at whatever year we want to make a comparison.Army, nobody wants to mess with your anonymity. If you don’t want to use your favorite one, use your second one. Use any VUL that you might possibly use.
I want real numbers to go with an illustration. I'm not sure that you understand the importance of the wizard behind the curtain in a VUL policy. Illustrations are very limiting in terms of good information. For instance, take two policies. One has a higher front end sales load, but lower on-going asset charges. 30 years into the future, they have performed identically. If the client stops making out of pocket payments, the policy with a higher sales load and lower on-going asset charges will outperform a policy with a lower sales load and higher on-going asset charges. This kind of stuff is easy to see if one understands the numbers behind the illusion (illustration), but very hard to see based upon the illustration. Let me give you a specific reason why an illustration isn't good enough. Let's assume that we are using an S&P 500 index fund as the investment and we are assuming that it will return 6% net. Inside of the VUL it costs .18% + a .25% managerial fee for a total of .43%. Outside of the VUL, the same S&P fund can be purchased for .18%. That means that if the VUL is getting 6% net. The side fund will actually get 6.25%. The prospectus helps us to see what is actually happening.