meth

here is the story...

a friend of mine got a job for this company : World Financial Group, A Member of the AEGON Group
that's what the card says.

he and his boss were trying to get me to apply for a V.U.L. (Variable Universal Life Insurance) from WRL (Western Reserve Life)

basically they want me to sign up for the 250,000 plan which will cost me $138/month for the rest of my life. a certain chunk of this money will go to the life insurance policy and the rest goes to a savings account that i can withdraw from tax free anytime after 10 years, and a minimum tax before 10 years.

they say the average growth of the account is approximately 12%. the 12% comes from them taking my money and investing it in mutual funds.

do any of you have such a policy? any of you heard of this type of policy?

is this a scam, i started to wonder. i haven't signed up for it yet, i told them i wanted to do some homework first. it sounds really good, how can it be a scam right? i get to withdraw my money whenever i want without being taxed unlike a 401k or sep ira. it sounds like i may sign up. should i or was that just a good salesman that i encountered?

can anyone give me more insight on this.

c2etalon

VUL is a life insurance product that offers a death benefit and also cash value. Your prem that you pay every month goes to the cost of life insurance and part into an accoutn that purchases "mini mutal funds" called subaccounts. These sub accouts range from large cap to real estate sercuities. Pros of this product, is the growth potential. Cons is the the chance of loss....and fees. Your cash value in this can go down...way down if your sub accts go down. Also, there are ALOT of fees that come out of this due to paying the some guy to manage your sub accounts. I have one of these, its good, but expensive.

I recently purchased another life policy on myself but its a equity indexed life policy. Much better in my in my eyes...all my clients love that kind. I mostly sell these kinds...Let me know if you have anymore questions

Remember...this is a SECURITY means it can go down, and them saying 12% to you..i fell is bullshit and not right..cause past perf. doesnt mean shit.

QUIKAG

12% is damn high for a VUL. If they can GUARANTEE that return, jump all over it, however there isn't a chance in hell that will happen. VUL's are VERY expensive. The reason your "friend" (and I say that lightly) and his boss are trying to sell you this is because it's quite profitable for THEM.

I recommend separating your insurance and investments. Do a regular term life policy which is cheap and then take the rest of the money and invest it in diversified mutual funds in a brokerage account at a discount broker like Fidelity, Vanguard, T. Rowe Price, etc.

meth

quick question, i realize they make money off me, but how?

well, i believe he got the 12% from the average annual growth of the stock market since like 1925. so from what i understand it can fluctuate, but in the long run of 30+ years it will have appreciated.

he didn't mention any fees to me though. made it sound like it was free, thats why i was wondering why this wasn't a more popular option. i'll have to double check that. also, i have to ask what happens to my money if i miss a payment or cancel the plan.

thanks for your input guys.

QUIKAG

The fees are built into the monthly VUL insurance payment. Price out a term insurance policy for the same amount and then price the VUL insurance payment. It's significantly higher. If you took that difference and invested it in a good diversified mutual fund portfolio, you'd be up over time.

I'm not saying it's the worst thing in the world, but I firmly believe in separating my investments from my insurance.

I'm an accountant with a few degrees, certifications, etc. and I have a hard time understanding VUL. It's complicated for a reason.

c2etalon

I kinda disagree, I have a 3 life policys on myself and all of them "grow" some way or another. Universal life policys grow with "interest" they pay you on your cash value, VUL's grow on how the stock market and your sub accts perform. Also another real popular one is equity indexed life insurance that grows and your credited interest depending on how the indexs grow (SP500) but if it goes down, you cant lose any...so I like that one.

Your friend makes money a few ways, most agents will receive your first YEARS prem right to his pocket, and then get renewl commission after the first year. So as you pay your payment, its like sending him the check for the first year. Then after just a fraction of what you pay.

Life insurance has evolved very much so, I like it for coverage and growth for a few reasons....first the money grows in it tax deferred and is not taxed untill you take it out....also life insurance cash value is one of the only assets you dont have to put on a FASFA form...so if your ever planning on having kids they might be able to get loans and grants cause you can hide money in there...... and lastly life insurance cash value has all kinds of options like partial surrenders, you can borrow your own money out of it as a "loan" and things like that. So you have alot more options with this unlike a Roth IRA or purchased MF's or stocks where if you needed the money you'd have to sell them off and repurchase and what not. Just my .02....also I'm a certified financial planner (l love options for my clients, so life insurance is nice)

PearlwhiteS2k

I wouldn't buy into it. I know a salesman that works for WFG world financial group and he has been trying to get me into buying it. He tells me how good it is that you don't have to pay tax on the interest you make and it's also life insurance for you. One day I talked to a buddy of mine that was going to become a WFG mutal fund representive and he told me they make about $500-800 per customer that signs into a 20 yrs or longer term.

QUIKAG

c2etalon,

Obviously, a lot of people think it works for them. I am not one of those people, but I do see some of the benefits. However, I think I can do better long-term with my strategy. Your mileage may vary.

aralls

Ibbotson's data from 1925-2005:

Large company stocks - 10.4% compound annual return
Small company stocks - 12.6%
Long-term government bonds - 5.5%
Treasury bills - 3.7%
Inflation - 3.0%

Remember, those numbers are without fees and trading costs, so his 12%/year estimate is quite high. 8%/year may be more reasonable after fees.

c2etalon

Yeah Im not a VUL fan, I do have one that I bought many years ago and its done well. But I LOVE options, and life insurance in general gives you that. I agree with you most people that have a sense of investing can get better performance. I will tell you though, MOST of all my clients have NO clue about investing, insurance, estate planning and what not. This is a great post though. Good job guys!