Is Variable Life Insurance a good investment vechicle?
Question:
Answer:
VUL is not worth it. Life insurance is not meant to be an investment tool. Though, often cash value is the enticing aspect in the eyes of the consumer, insurance should be bought for protection. VUL is often outperformed by Universal Life and basic Whole Life because of the higher administration costs, lack of investment options, and bad market performance.
The admin costs for VUL are more costly because every time someone touches a piece of paper in the insurance business there's a charge associated with it (ie, paying quarterly is more costly than paying annually because of the admin costs of receiving 3 more payments). With VUL there is much more paper being processed, and more parties involved.
You have more options for investment within IRA's, or general investment accounts, so why not purchase insurance for insurance and investments for investments. Too often, VUL policies lapse due to underfunding caused by bad performance or an agent's inflated illustration (ie, 10-14% returns), thus leaving the individual without coverage and needing to repurchase insurance at a higher rate due to their increased age.
Isn't the purpose of buying insurance to eliminate risk? VUL just adds a new form of risk into the equation. If the lower price is the incentive, go with UL. If you can afford it, go with Whole life. It is the grandfather of the life insurance business and more money comes out of pocket, but the stability, guaranteed return and peace of mind is worth it.
These products are sometimes aggressively pushed by brokers. I'd check with the SEC readme on this topic.
More Questions & Answers...