Before surrendering get level term life insurance.Hello,
First time poster here. I really appreciate the Bogleheads philosophy on investing and would like to hear the experts thoughts on a variable universal life (VUL) insurance policy I have. I have been contributing to the life insurance policy for 7 years now, and am questioning future contributions. I am currently 33 years old, married, in good health, with 1 young child and likely more on the way. I have been reading many reviews on this site and researching my variable universal life insurance policy in more depth and have found the policy details are complicated to understand (probably by design). I also see overwhelming advice online about keeping insurance and investments separate, which makes total sense to me. Anyway, I'm weighing options and wanted to get some feedback.
I feel my situation is a bit unique in that the source of this money was an inheritance and a family friend/financial advisor recommended life insurance as an investment vehicle, as they had used it to pay for their kid's college expenses. At the time I was fairly naive about investing and knowing what I know now I probably would have gone a different direction, but it is what it is.
Some background:
Contributions: $19,000 per year for 7 years has been contributed. This amount keeps it from becoming a modified endowment policy. So total cash paid into the policy for the last 7 years is $133,000. I could contribute another 19,000/year for the next 3 years ($57,000) until the inheritance money is used up, but I am 99% sure I won't be doing that.
Fees: Monthly fees for the insurance are $160/month and there is also a 4% "premium fee" which amounts to $760/yearly premium payment
Policy Amounts: $218,000 cash value, $212,000 surrender value, 1M and some change death benefit. I believe the cash value and surrender value will equal each other after 10 years of having an active policy.
I can take out a loan against the cash value for 1% interest years 0-10 of the policy and year 11 onwards it is 0.1% interest.
Future Options:
From what I've seen my policy seems to be pretty decent when it comes to fees and the gain on the initial investment has been pretty good. I certainly see the advantages of a variable universal life policy if it performs well, i.e. tax deferred growth, non taxed loans, and the ability to take loans at any age. That being said, I also understand the main drawback of these are the fees and the fact that the fees can increase over time which I have no control over. At this point I don't think I'm going to contribute any more money and it seems like just letting the existing money sit in the VUL (since I don't want to be hit with the income tax on the gains) might be the best option. That being said I would be curious on people's thoughts on the above, and if I should potentially pursue a 1035 exchange to get the money out of the VUL.
Thank you and please let me know if there is additional information that might be helpful.
It looks like you have about $80,000 of gain. That will all be taxed at ordinary income tax rates.
You could roll it into a Fidelity personal annuity. That will maintain the tax-deferred status, but it will make the money unavailable until you are 59.5.
The cost of insurance will continue to increase since it is basically a one-year term policy that you renew each year.
Statistics: Posted by exodusNH — Sun Sep 08, 2024 1:54 am — Replies 3 — Views 103