Monday, November 14, 2005

Variable Universal Life Insurance

Finally, I received some word back from One National Life Insurance that was bought through a representative from the MONY group. I went through the medical exam a few weeks ago, that consisted of loads of medical history inquisition (:D), a blood test (twice because I'm supposedly hard to draw blood from), and a urine test. I guess they didn't find anything exciting about me because I got the standard rate for the variable life insurance.

The monthly payment is quoted at $ 96.00. This rate will not change with age or medical problems in the future ( which I know there will be loads of, with the way things are turning up). The money will be tax-deductible and will be invested in a few mutual funds or annuities. I don't have the list of investment options yet. If the investments do well, you can opt to pay for the insurance premiums with the profits you make from the investments. The principal amount of the balance would be available for withdrawal at any time. The growth of the money in the account will grow tax free until, of course, you take it out.

I wonder if it would be a wise option to use or view this life insurance account as a forced savings account that has a growth feature with compound interest with the benefit of having your life insured for $250,000. But then, I've heard that this is not a very wise thing to do as well.

I haven't been able to update frequently during the last week due to this week being the exam week. Have exam on this tuesday and wednesday..I really hope I pass!

Also, I found out today that my work only pays for $1,500 per fiscal year for tuition reimbursement!!! That's pretty low. But then, it's better than nothing!


  1. I've heard a lot of bad stuff about VULs, do you know what kind of fees and front load charges they are getting from you?

    What's the annual expense ratio expected to be?

  2. If I might ask- why would a relatively young woman with no dependents feel she needs insurance?

    In general the 'common wisdom' is that term insurance is the best option if you actually need insurance, and insurance policies make for poor savings accounts. You could, for example, put a $100 a month into I-Bonds, perhaps through an automatic withholding if you want some additional long term savings.... Just a thought.

  3. Jon,

    There havn't been any fees or front load charges for this so far. I believe the insurance company paid comission to the financial advisor from whom I bought this from.

    The annual expense ratios will depend on what type of investment I choose. I will be getting the full packet in the mail soon and will be able to update more on this.


    "Why would a relatively young woman with no dependents feel she needs insurance?" : A kind of long-winded and complicated answer for this. But it all comes down to the "what if". I admit it was a rushed decision making process. I knew that after the whole medical diagnosis thing gets figured out and put on my medical records, my premiums would be very high. Especially, if there's a record of cancer or tumors or something of that kind. Although I don't have any dependents now, I might have in the future...hopefully. If I only start the payments then, the premiums would be very high due to the medical conditions that would have been recorded by then. At least that was the reasoning behind getting life insurance now, :)!

    I didn't get term life insurance based on the same reason as well. Your suggestion about the I bonds is very worth looking into and one I should do more reading up on. Thanks!!

    Wow, long comment post. I hope it made a smidget of sense.

  4. Hi Poe,

    It does make sense, and I would guess that it's a done deal at this point. You didn't mention how much insurance your $1,200/year is buying you, but as a story, my wife did something similar about 25 years ago and we still have the policy... a whopping $20,000! With 2005 expenses, not a whole lot to write home about. And not much to show for something that she's been paying on for years. And hardly a drop in the bucket in terms of our (ok.. my) real needs should she die as she's the primary income earner at this point. The point being that what seems like an adaquate amount now will most likely be inadaquate against a real need down the road.

    Did you figure the opportunity costs for your $1,200? Out of curiousity.

  5. Hi Bel,

    The insurance is for $250,000. If I were a clean and healthy 27 year old, I probably would not have done this insurance thing. The case with your poor wife having had to pay since 25 years ago for a $20,000!!!! If you think about it, really, if i'm the soul provider for dependents in the future, $250,000 is probably not going to cut it either!

    How do I figure out the opportunity costs for the $1200 per year? Hmm Need to find out and I feel a post coming!!

  6. Hi,

    I might add that when you examine the opportunity cost you need to fold in a risk analysis. It's pretty much established that when evaluated solely as investments, insurance comes off poorly. The advantage is that you also get the insurance, but it does you no good at all as you have to die in order for that aspect to be worth anything. So the 'risk' here is that, 30 years from now, you look back and realize that you didn't really need it, thus the $36,000 might have been more profitably invested. This is a somewhat different way of looking at risk over the more usual 'lose my money' perspective.

  7. VUL carries a great deal of lapse risk given the potential volatility of market returns.

    If you have an insurance need, it would be more safely and more cheaply fulfilled through pure insurance,i.e. term insurance.

    The following articles by fee-only financial planner Peter Katt will give you an objective, unbiased assessment of the risks and uses of VUL.

    The Do's and Don'ts of Buying Variable Life Insurance Policies (1999)

    Using Variable Life Insurance As an Investment Alternative (2000)

    Variable Life Insurance Policies and Stock Market Volatility (2001)

    Variable Life Insurance: Be Wary of Policy 'Delusions' (2003)

    Using Monte Carlo to Assess Variable Life (2005)

    Hope this helps,

  8. Hi, good to see your article here, people usually don’t catch good things with insurance agents but I always try to sit with them and explain everything whichever is necessary. I read insurance blogs on daily basis because it keeps me alive and help me think that I am not alone insurance field. I am working in orange country insurance company.

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