From: http://www.netplanning.com/consumer/cda/1,1692,1375-1530,00.html
Are you saying that variable life insurance is "better" for me than
regular whole or universal life insurance?
If you are a sophisticated investor and are comfortable investing in a
dollar-cost-averaged manner and you are below 60 years of age, you may
be better off with a variable life policy because of your ability to
participate in your policy's investments. If you are not an equity
investor and you want a more guaranteed approach to your life
insurance portfolio, then whole life or universal life insurance might
be a better choice for your portfolio.
From: http://www.lifeinsurance.net/about-variable-life-insurance.htm
Variable life insurance provides permanent protection to your
beneficiary upon your death. The term "variable life" derives from the
fact that you can allocate your dollars to various types of investment
accounts (within your insurance company's portfolio), such as an
equity fund, a money market fund, a bond fund, or some combination
thereof. Hence, the value of the death benefit and the cash value may
fluctuate up or down depending on the performance of the investment
portion of the policy. Although most variable life insurance policies
guarantee that the death benefit will not fall below a specified
minimum, a minimum cash value is seldom guaranteed. Variable is a form
of whole life insurance and because of investment risks it is also
considered a securities contract and is regulated as securities under
the Federal Securities Laws and must be sold with a prospectus.
Pros:
Allows you to participate in various types of investment options while
not being taxed on your earnings (until you surrender the policy). You
can apply interest earned on these investments toward the premiums,
potentially lowering the amount you pay.
Cons:
You assume the investment risks. When the investment funds perform
poorly, less money is available to pay the premiums, meaning that you
may have to pay more than you can afford to keep the policy in force.
Poor fund performance also means that the cash and/or death benefit
may decline, though never below a defined level. Also, you cannot
withdraw from the cash value during your lifetime.
From: http://www.nolo.com/lawcenter/ency/article.cfm/objectID/6339C048-63C4-4370-A0BD5A9A130DD1E4
Variable Life Insurance
Variable life insurance refers to policies in which cash reserves are
invested in securities, stocks and bonds. In a sense, these policies
combine an insurance feature with a mutual fund. Since over the past
decade, overall prices on the stock market have risen dramatically,
variable life policies have usually produced the best returns. But, of
course, there's a potential downside to this. These policies are
almost sure to bring unpleasant surprises when financial markets
decline.
Some tax information is at: http://www.nasdr.com/alert_02-01.htm
From: http://www.soundinvesting.org/analyzprods.html
Variable Life Insurance Trap
The media has finally picked up on the excessive compensation for
those brokers who sell class B type mutual funds. After discussing how
such funds for large investors are sold mainly for the sake of
increasing the compensation (and therefore your total costs!) for
those brokers selling them to you, it was good to see recent Wall
Street Journal* and Barron's** articles discuss this fact in great
detail. In fact, Pru Bache has gone so far as to restrict any of its
brokers from selling B shares for any accounts over $100,000.
The next area that we see of growing concern is the deceptive
illustration and aggressive forecast used in selling variable life
policies. Many such policies were sold under the assumptions that the
contract values would rise substantially, thus lowering the cost of
the overall insurance. As it turns out, decreasing values increase the
actual cost of the insurance, thus hindering potential future growth
even more so. Many times due to the cost of these policies it may be
better to buy term and invest the difference in low cost/no load
mutual funds. In other words, try to keep your investment portfolio
seperate from your life insurance holdings.
If you are not getting such objective alternatives from your life
insurance agent or financial planner, it may have something to do with
the outrageous commissions of up to and over 90% of first year
premiums that they have on the line (plus the continuous renewal and
trailing compensation).
*Wall Street Journal article "Prudential Limits Broker Sale of Class B
Shares"
**Barron's article "Second Class", 7/9/01
From: http://www.lowcosttermlifeinsurance.com/lifeinsu.html (and
others):
Variable life is not appropriate for people who are on a tight budget
or are likely to need to tap their savings on short notice. Many
variable buyers would be better off buying term and making a separate
investment in a mutual fund.
An alternative is outlined at:
http://www.sturminsurance.com/faq/lifefaq.html
In recent years variable universal life (VUL) insurance has become a
more popular product than VL. VUL combines features of both UL and VUL
and, in essence, is the flexible premium version of VUL. Since VUL
policies include the ability to invest policy assets in securities,
such policies are regulated by the Securities Exchange Commission, and
can only be sold by agents who are also licensed with the SEC.
Another alternative: http://www.wealthpreservation123.com/eilip.html
Equity Indexed Life Insurance Policy (EILIP)
Search strategies:
"variable life insurance" negatives
"variable life insurance" cons
"variable life insurance" drawbacks
I did "negative" searches in the assumption that places that
sell variable life insurance would certainly say good things
about it. I am not a financial advisor, nor should the above
be considered financial advise. |
