Variable life recommendations

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Jan 3, 2008 3:23 pm
I have 2 questions: 
 
1.  What companies are all of you using and/or do you recommend?
 
2.  What factors should I be looking at? 
 
Background:  This isn't a product I generally use, so I'm not very familiar with it.  I also don't plan on it becoming a large part of my practice, so I don't really want to talk to 10 different companies and compare all of their products.  I'm looking for some guidance from the board to narrow it down and to help me ask intelligent questions of the wholesaler to make sure the product I select will fit the situation.
 
I don't want this thread to turn into a pro/anti variable life discussion.  My situation is a doctor that is trying to have some tax advantaged investing, but more importantly wants/needs the malpractice shelter he can get through life insurance vs. a traditional brokerage account.  The plan is to fund the policy up to but not over the MEC amount, and to take a draw later in life when he is retired but not necessarily 59 1/2.  Also, he is currently maxing out his 401k, and is far over the Roth limits.
 
If there are some particular pitfalls I should avoid, I would appreciate that information as well.
 
Thanks.
Jan 3, 2008 3:34 pm

It's tough for me to not just completely beat up this idea.    Let me at least strongly suggest that if he is buying a variable policy, he is much better buying "variable life" instead of "variable universal life".   If it is a VUL policy, there should be an expectation that the policy is going to lapse in the future, so all money taken from the policy will ultimately be taxed as income.

Jan 3, 2008 3:42 pm

I understand what you are saying about the risks of using VUL as a true insurance policy, and making minimum contributions.  I have seen several of those policies either blow up or be in danger of doing so.  But in this case, we are going to be stuffing in as much cash as the IRS will allow.  If we are maxing this out for the next 10 years, how is it going to lapse?

Jan 3, 2008 3:54 pm

I'm going to respond on regreps dot com instead of here.

Jan 3, 2008 4:16 pm

Wow, and I was really looking forward to that answer.  It's a shame that you aren't using a good thread like this one to actually add some value to this site. 

Jan 3, 2008 4:59 pm

Spaceman, I'm not doing that to be a jerk.  Rather, he posted in both places so I'm going to keep my responses in one place.

Jan 3, 2008 5:12 pm

I've seen VUL policies do just fine when they're properly funded.  The ones that implode are those that were sold with minimum funding by an insurance agent only looking for a commission, imo.  Or if the agent doesn't understand how to set up a decent asset allocation.

 
As you pointed out, it can make sense as a shelter for malpractice awards, and you can find policies that don't have astronomical fees, yet offer a broad choice of subaccounts if you look. 
 
Don't you have an insurance brokerage you can use?  If you do, you can ask for quotes from several carriers with all things equal (all "preferred"/standard/etc., all for $1MM DB, all projected at 8%, etc.) this way you can effectively compare apples to apples.  Whichever carrier's policy is predicted to have the most money at say, age 65 will likely have the lowest operating costs.  If said policy also offers an attractive array of investment subaccounts for you to put together a good asset allocation, then that's probably what you're looking for.
 
Jan 3, 2008 5:35 pm

I do have an insurance brokerage I can use, but my understanding is that they only deal with fixed products and all variable goes through my broker dealer.  That means if I want a quote from ING, I need to call ING.  I also need to call Pac Life, Met Life, and everyone else under the sun.  I was hoping for some direction, such as "Met Life has low insurance cost and good subaccounts, you should check them out". 

 




Even if I can use the insurance broker, I believe the guy we are using is taking a very healthy cut off of the top, so I would just as soon go direct to the insurance companies.  I know that some of our fixed annuities pay about 1/2 of what some of the rest of you get, and I have no control over which guy I use, I'm stuck with him (nice guy, but alot more expensive than some of his competiton).  I assume if he was able to give me variable life (and I don't know if he even can), he would be taking a couple of percent of the commission.
 
My main problem is that I don't know where to start, other than randomly pick 10 insurance companies and ask them for a quote.
Jan 3, 2008 7:02 pm
anonymous:

Spaceman, I'm not doing that to be a jerk.  Rather, he posted in both places so I'm going to keep my responses in one place.



Why would you pick Bobby's clubhouse to post valuable insights like that?  Are you still a loyal member of his cult?

Jan 3, 2008 8:20 pm
EDJ4now:

I do have an insurance brokerage I can use, but my understanding is that they only deal with fixed products and all variable goes through my broker dealer.  That means if I want a quote from ING, I need to call ING.  I also need to call Pac Life, Met Life, and everyone else under the sun.  I was hoping for some direction, such as "Met Life has low insurance cost and good subaccounts, you should check them out". 

 




Even if I can use the insurance broker, I believe the guy we are using is taking a very healthy cut off of the top, so I would just as soon go direct to the insurance companies.  I know that some of our fixed annuities pay about 1/2 of what some of the rest of you get, and I have no control over which guy I use, I'm stuck with him (nice guy, but alot more expensive than some of his competiton).  I assume if he was able to give me variable life (and I don't know if he even can), he would be taking a couple of percent of the commission.
 
My main problem is that I don't know where to start, other than randomly pick 10 insurance companies and ask them for a quote.
 
So, in other words, you'd like to implement a strategy you have no clue about, will probably blow up in your face, and cut a broker out (that probably gives you your best shot of closing the case) because he'll get a cut of the commission.  Maybe he's more expensive than his competition 'cause, well, he's that much better? 
 
I don't know which irritates more:  the sheer arrogance or the sheer ignorance.
Jan 3, 2008 8:24 pm
joedabrkr:
anonymous:

Spaceman, I'm not doing that to be a jerk.  Rather, he posted in both places so I'm going to keep my responses in one place.



Why would you Pick Bobby's clubhouse to post valuable insights like that?  Are you still a loyal member of his cult?

 
Why don't you follow along on the other site?
 
Oh, wait......
Jan 4, 2008 12:05 am
deekay:
joedabrkr:
anonymous:

Spaceman, I'm not doing that to be a jerk.  Rather, he posted in both places so I'm going to keep my responses in one place.



Why would you pick Bobby's clubhouse to post valuable insights like that?  Are you still a loyal member of his cult?

 
Why don't you follow along on the other site?
 
Oh, wait......



Because I was banned for failing to bow to the Tyrant of the Realm, Hater of all CFP's.

Jan 4, 2008 10:52 am

Why don't you just use a variable annuity? Sure the money comes out taxed at ordinary income rates, but you eliminate alot of uncertainty that VUL poses.Also as far as VA fees go, do the math as far as the money being in a taxable account, getting 1099'd on every asset allocation rebalance, some of it short term gains taxed at ordinary income, vs tax deferred. (Earn interest on taxes instead of paying taxes on interest.) Does this person even need life insurance? Annuities are also sheltered from lawsuits in most states. The only VUL's I've seen are ones that have blown up. Cash value life insurance for asset accumulation is almost always a bad idea, unless it is going to fund a buy sell agreement, key man, etc.

Jan 4, 2008 6:15 pm

The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not "blow up". This will grow tax deferred and the money inside of it can be withdrawn for retirement tax free. For example after 20 years...the client takes a loan each year for 20K, the loan interest rate may be 6%, but the client is credited back 6% so he really never has to repay the loan. Warning...if you do not leave enough value in the policy to keep the insurance in force, the client WILL have an huge tax bill.

Jan 4, 2008 6:22 pm

I work for Met so I only use Mets VUL...the funds available are pretty good and it will rebalance.

Jan 4, 2008 6:58 pm
Start:

The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not "blow up". 



That's an awfully big 'if' don't you think?   Especially down the road, say when they are 70, simply covering the escalating premium cost of ART insurance will be incredible, never mind over funding.  

Jan 4, 2008 7:00 pm
Lakers:

Why don't you just use a variable annuity? Sure the money comes out taxed at ordinary income rates, but you eliminate alot of uncertainty that VUL poses.Also as far as VA fees go, do the math as far as the money being in a taxable account, getting 1099'd on every asset allocation rebalance, some of it short term gains taxed at ordinary income, vs tax deferred. (Earn interest on taxes instead of paying taxes on interest.) Does this person even need life insurance? Annuities are also sheltered from lawsuits in most states. The only VUL's I've seen are ones that have blown up. Cash value life insurance for asset accumulation is almost always a bad idea, unless it is going to fund a buy sell agreement, key man, etc.

 
OP was not sure that annuities were creditor protected in his state.  So a VA may or may not be appropriate.
 
Since when is investing in tax-deferred accounts like a VA always good?  Do you know what income tax rates will be when the client gets ready to withdraw money?  Do we know the client wants to lock the money up until 59 1/2? 
 
I agree about VUL - expensive ART plus expensive investments = poor BTID (even worse that it's BTID at all).  Works great on paper, but as soon as the investments don't return the bullshit illustrated 8%, well, ooops.........."Gee Mr. Client, we need $20k more or this thing will blow up."  Don't think it won't happen.  It happens ALOT.
 
OP did not mention the client wants high growth potential.  Maybe WL is more appropriate because it takes on less risk.  Hell, the client is taking on enough risk as it is, what with running his own business and all.  WL is, on an after-tax basis, a phenomenal savings tool.  Note, I did not say "investment".  And since when should life insurance be considered an "asset accumulation strategy" if it's a key-person/buy-sell situation?  That makes not a bit of sense.  The death benefit is the most important thing in these senarios. 
 
I don't know the client, but I can guaran-fucking-tee he could use more insurance.  99.9% of the population is lacking the appropriate amount of life insurance.  Seeing as the client is a doctor, my guess is he's in debt up to his eyeballs.  Like many doctors I've encountered.
 
To the OP - drill down - we don't have enough info on this client to make a clear recommendation.
Jan 4, 2008 7:05 pm
Morphius:
Start:

The VUL is basically a 1 year renewable Term with mutual funds attached to it. If you over fund it and properly allocate, it should not "blow up". 



That's an awfully big 'if' don't you think?   Especially down the road, say when they are 70, simply covering the escalating premium cost of ART insurance will be incredible, never mind over funding.  

 
Not to mention the triple whammy of:
 
Yearly Increasing COI + withdrawals during a down market + A DOCTOR (who won't continuously over-fund - they're too spend-happy) = A shitstorm of epic proportions.
 
Did I mention I hate the words "should not blow up" and "life insurance"?  What an oxymoron.........
Jan 4, 2008 8:29 pm

I work for Met so I only use Mets VUL...the funds available are pretty good and it will rebalance


Start, before you sell another VUL, you better to be able to answer the following question.  What is the COI at age 70?  Age 75?  Age 80?  Age 90? etc.  If you don't know the answers, you have no business selling the product.  If you do know the answer, you wouldn't be selling the product.

Jan 4, 2008 8:43 pm
anonymous:

I work for Met so I only use Mets VUL...the funds available are pretty good and it will rebalance


Start, before you sell another VUL, you better to be able to answer the following question.  What is the COI at age 70?  Age 75?  Age 80?  Age 90? etc.  If you don't know the answers, you have no business selling the product.  If you do know the answer, you wouldn't be selling the product.



You can get VUL products now that have a no-lapse rider built in to the product.  Doesn't that protect against some of these issues?