Variable Universal Life Insurance

[footwear]

Hello folks -- long time reader first time poster.

We are in a relatively healthy position for our age, mid/early 30s with two kids. Around $350k in assets between IRAs and 401ks, home will be paid off in 13 years.

I'm working on starting a good gap fund for early retirement and my financial advisor recommended VUL as a good vehicle. It almost seems too good to be trust with the tax benefits and the life insurance death benefit. Anyone else use this type of investment for their gap fund? I'm also considering opening one for my children to cover life insurance and also an inheritance/wedding gift/retirement gift.

For a while I thought we'd just stick to each having our Roth 401k and Roth IRA but our AGI is somewhat approaching the point where we may no longer be able to invest in IRAs and the VUL does seem like a good option to me. Any have experiences either pro or con regarding VUL?

[ender]

I see zero reason to do this over taxable investments + term.

Of course your financial advisor would recommend it though, commissions are great on those types of products.

If your income is high enough you can't do a regular Roth IRA, check out backdoor Roth IRAs. And if you have traditional IRA balances making this complicated you may be able to roll them into your 401k.

[maizefolk]

Yes to echo what ender has already said, these products then to charge high fees and so can offer large commissions. They tend to be complex enough products that is can even be hard to even figure out just how much you'll be paying in fees in practice.

I think they can sometimes make sense for tax/inheritance reasons for people with seven figure annual incomes or eight plus figure net worths, but I don't know for sure even that is true, I haven't investigated that use case in a lot of detail since I don't have or make that much money.

[footwear]

I was kind of on the fence for the reasons above, the fees do seem very high.

We have two 401ks + two Roth IRAs + a basic non qualified mutual fund. The mutual fund only has around $60k in it right now but it seems the right move would be to max each account per year and then just fund the mutual fund and use that as the gap fund?

Thank you for the replies!

[ender]

I was kind of on the fence for the reasons above, the fees do seem very high.

We have two 401ks + two Roth IRAs + a basic non qualified mutual fund. The mutual fund only has around $60k in it right now but it seems the right move would be to max each account per year and then just fund the mutual fund and use that as the gap fund?

Thank you for the replies!

It's hard to know more details honestly without a better picture of your financial status.

Do you have access to megabackdoor in either 401k? That's a great gap fund imo as you get tons of Roth principal.


Also it's often not too bad to just pay the 10% early withdrawal penalty too for 401ks/IRAs. That can end up being less expensive than it seems compared to inferior products.

[footwear]

That is an excellent question....why didn't I think of that.

[Another Reader]

These products are awful. PLEASE read up on them at Bogleheads or another similar site.

No doubt he is charging you a percentage of the total account every year plus loads for selling you mediocre funds with high expense ratios.  Fire this "advisor" immediately!  You are being robbed!

[reeshau]

It almost seems too good to be trust with the tax benefits and the life insurance death benefit.

Agree with everyone else.  The harder it is sold, the more cautious you should be.  Ask your financial advisor how much commission they get on the product.  Better yet, find a CFP who has a fiduciary responsibility, and ask them.

One point, regarding the statement above.  Your account typically has a cash value *or* a death benefit.  If and when the  death benefit pays off, the insurance activates and that is all that your beneficiary would get.

As @ender said, get your insurance from plain (term) insurance.  Use your investments for investing.

[terran]

Sounds like this financial advisor has done you the favor of telling you they'll put their interests ahead of your own and that you should stop using them.

[UnleashHell]

Sounds like this financial advisor has done you the favor of telling you they'll put their interests ahead of your own and that you should stop using them.

This.
and I worked in life insurance for the last 10 years.

I still own shares in that company.

For the benefit of your FA and my shares then buy VULI.

for your benefit then buy a 20 year term policy (separately, not joint) and invest the rest in vanguard. fire the FA.
Don't forget if one of you dies then you get SS for you and the kids - that and a term policy will pick up the slack.
and in 20 years you won't need life insurance because you have been investing all along.

[rmorris50]

Heads up, if you come to a personal finance Internet forum and ask about permanent life insurance, it’s gonna get instantly bashed, and you’re not gonna get a more thought out balanced answer.

VUL can make sense in certain situations, but they are much more the exception than the rule. These policies really only do well as supplemental income sources if VERY HEAVILY funded and held for a minimum of 20 years.

So if you expect to have very high income over the next two decades and have ALL of your other financial goals covered first, and you have lots of extra cash to max fund a VUL and not touch the money for twenty years, then I would say you’re actually a candidate to consider VUL

But this isn’t most people, so most people shouldn’t buy VUL.


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