I have a variable life insurace policy,?

Question

which has a cash value build up. since last 10 months my policy cash value is declining, what should i do? did i do wise thing by taking var.life ins. pol.? need some advice.feedback. thanks.

Answer 1

If you truly understood how your life insurance works, you wouldn't of gotten it in the first place. This is how your variable life insurance works:

1) It is level term insurance to age 95 to 100 that has a savings (which is called cash value) attached to it. (All life insurance are term since they all expire at a certain age. But not all of them are level term).

2) The cash value portion of your life insurance is invested in the stock market. So there is no guarantee that your investment will build value.

3) You have a guaranteed minimum death benefit. If there's growth in your cash value, your death benefit will increase.

4) If you wish to use the cash value, you can borrow 70% to 90% of it. The company will charge you a loan interest on it and when you pay it back, this interest is kept by the insurance company. The interest does not go into your cash value.

5) If you were to die someday, the insurance company will pay your beneficiary the death benefit, but they keep the cash value.

If you are looking to invest, there are far better options to do that. You can invest in mutual funds and/or if you are currently working, you can open an IRA and your investment will grow tax-deferred. When you put investments in life insurance, there is lots of fees that are involve. Every mutual fund has their own annual operating fees between 0.50% to 2%. Life insurance also has their own operating fees. So you combine these 2 together, you are now paying bunch of fees that eats away the return on your investment. By keeping your investment separate from life insurance, you pay less fees.

If you are looking to get life insurance, term insurance is the way to go. It is inexpensive and you can buy lots of coverage for a low price. It doesn't build any cash value, so that's why premiums are cheaper than life policies that builds cash value.

I have always sold term insurance and help my clients invest in mutual funds. In 20-30 years, there's a high probability that they don't need life insurance because there shouldn't be anyone who is dependent on their income (such as their children who will be adults by that time). My hope is that the investment I setup for them would be enough for them to live on during retirement.

I believe there is no need for permanent life insurance. When you are 80 and your kid is 50, why would your 50 year old child need you to have have life insurance? Your child is the one who probably needs life insurance the most because he/she has a family to take care of.

Answer 2

First off, never look at a life policy as an investment. You have to look at why you have a life policy of any kind and how long will you actually need it. A variable life policy can be a good thing if you need permanent policy (I've got one myself) but any investment income received should just be considered as a plus of the policy. In most cases a term policy is sufficient. You can then take the difference in premium and invest it elsewhere (if you have the discipline). However, if you decide to go this route be aware that if you cancel the policy you may be subject to surrender charges.

Any investment vehicle that uses the stock market and/or bonds will fluctuate and you should look at the big picture. The cash value of the policy will increase and decrease but over time it should increase. Right now the stock market is in a general decline but it will get better and 20 years from now you will have forgotten about this decline.

Answer 3

Ok...ignore the response about just getting a term policy.  How was it determined from the limited amount of information provided that you only need coverage for the amount of time provided by a term policy?  Also, how could we figure out what your income, tax bracket, and overall financial situation is?

I may agree in the end, but a term policy is not the best solution for everything.  Albeit a whole life policy won't generate that great of a return, so only have one if your income, tax bracket, and length of time needing insurance make it make sense to do.

Also if you want a good return on your money and don't need a lot of coverage for a long period of time consider a return of premium term policy.  Getting a 5-7% tax free return on your money is something worth considering.

Also, hopefully when you set out to buy the policy you weren't looking to own it for just 10 months.

Jeff

Answer 4

Well, the whole selling point of variable life, is that it "makes money" for you.  Life insurance flat out isn't the best investment tool.  Flat out.  YOu'll ALWAYS do better in the market.

So, redefine your financial goals.  For the savings/investing part, put it in mutual funds and stocks.  For the life insurance part, buy pure life insurance (term), if you can.  Don't cancel the current life insurance policy, until/unless you can replace it.

Answer 5

The cash investment in your policy is linked to the market and they keep going down.  Historically the market will come back and everything should be fine.  If you pull your money out now you will lose.  I would suggest that you wait it out for the next year and be aware of all options.  My 401 k is down 9 percent this year but I will keep puting money in.  Its actually good to be investing now as when the market does recover I will quite a bit ahead.  Just a thought for you.  Good Luck

Answer 6

This is a terrible idea, I've had this type of insurance, and until I got insurance savvy, and started reading the fine print, I was being SCREWED!!!! You should only have insurance for insurance, not an investment. You should buy term and invest the difference, term insurance is pure insurance, so it's the cheapest. Depending on your age, it's really affordable. If you need more info, just email me @[e-mail], I have all the info you need, and I have the state licensing to back it up.