I Am Looking For A Life Insurance. Which Is Better Term Or Vul? I Want To Invest Money Also.?
Posted January 12, 2010 – 4:18 am in: term life insuranceI understand the VUL can earn money while covering your life. Is this the best or is Term better? I want tax deferring interest
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Life insurance should only be bought to protect your family’s income in the event of your death. In other words, life insurance protects your income. They are never investments.
If you want life insurance, you should buy a 20-30 year term policy with the right amount of coverage. It won’t cost you much to protect your family. If you bought VUL instead, it will cost you lots of money.
If you want to build tax-deferred savings, then you should look at an IRA (Individual Retirement Accounts) and Variable Annuities. I wouldn’t consider a variable annuity unless you are pretty old and have very little money saved. If you are young, you should check out a Roth IRA.
In VUL policies, if you died someday, you lose all the cash value and your beneficiary will only get the death benefit. By buying term and investing the difference, you are renting wealth to build wealth. As your investments grow, the need for life insurance declines. If you die during the term, your beneficiary gets the death benefit and all your investments. If you outlive the term, then you need to take a look at your financial situation, but you don’t have to worry about that for 20-30 years.
Term life insurance is not intended for investment at all. It never gains any cash value. It is like renting a life insurance policy, when the term is up you are no longer insured and you have nothing to show for it. Term life is useful for some situations. It is popular for mortgage protection.
VUL is an investment, like any investment there are probably risks involved. You should deal with a licensed insurance professional to help you decide what is best for you. Ask them for some references and check out their companies financial reports.
Term life, and investing the difference (between a whole life or VUL policy and a term life policy) is a far, far, better deal.
VUL is a combination of term insurance and mutual funds, all wrapped around one contract. They have a lot of bells and whistles, including numerous alleged tax benefits, however, if you look at the illustration you will notice the surrender charges typically run for 10-15 years. If you look closely at the surrender value, it is not uncommong for you to have realized gains for this period. In short, it is not a great investment savings plan in most cases.
Life insurance is usually purchased to provide for dependents in the event of premature death. In most cases, it is a temporary need. That is why term (ie. temporary insurance) fits for most people. A 20 year term policy usually covers the greatest needs while raising children and assuming the greatest debt.
As we get older, our savings and net worth increases and the loss of our income due to death bears less of a burden for our families, especially after the kids grow up.
VUL supposedly covers you to age 99, or essentially for life. Why pay the premiums for so long when you probably won’t need the insurance for life? If you have adequate savings, and good investment portfolio and have already maxed out your retirement plans, perhaps this is a luxury that makes sense for you. Otherwise, use your dollars wisely and invest directly in mutual funds, buy inexpensive term insurance and let your insurance agent find someone else to pay his big commissions!
Do NOT look at life insurance as an investment! You will almost always do better buying a term policy and investing the difference in premium into a mutual fund or other similar types of investments.
However, depending upon your situation a VUL might be a good fit for you. If you are in your 20’s you cannot get a term policy that will last your entire expected life. With most companies you can only get a 30 year term. Although some companies have term policies that are guaranteed renewable most people can’t afford the premium when they renew and they don’t renew unless they know they’re going to die soon. In this situation you may want to consider both a VUL and a term policy. People need more life insurance when they are younger because they have kids to support but as they get older their need for life insurance will diminish.
If you are in your 40’s a term policy to cover your insurance needs and another investment vehicle to cover your investing needs will probably be better.
Nobody here can tell you which is better because they don’t know your situation and everyone’s situation is different. You will want to visit a local independent agent who knows what is available in your area and can find the best policy or policies for you.