Help with Wife's VUL

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Sathelan
Posts: 1
Joined: Tue Apr 28, 2015 4:12 pm

Help with Wife's VUL

Post by Sathelan »

In 2006, my wife (who is not very financially conscious) opened a VUL with face value of 350,000 (she had no dependants at the time and lived at home :oops:) We want to reduce the amount of outgoing money per month and she is currently paying 150.00 a month on this while already having a 403(b). Would it be wise to cash this account out and open a separate retirement savings account with the money or keep it as is at this point? This is what she currently has:

Surrender Penalty:
$953.81
Net Cash Amount Available:
$17,107.72
Accumulated Value:
$18,061.53
Net Surrender Amount Available:
$17,107.72
Total Monthly Cost of Insurance: $46.82
Total Premiums Paid: $15,750.00

Thanks in advance!
Two Headed Mule
Posts: 334
Joined: Sat Mar 28, 2009 8:38 am
Location: Brooklyn, New York

Re: Help with Wife's VUL

Post by Two Headed Mule »

Those insurance charges appear high for a risk corridor of around $330,000 -- how old is your wife and/or what is her health status?

Assuming she has no need for a permanent death benefit, and has adequate life insurance in place aside from this policy (or can get it readily), you'll probably want to surrender, particularly if the cash surrender value can support additional contributions to her 403(b) (or your retirement plan, or an IRA). You will have a small gain and a small 10% penalty. You are not a good candidate for the oft-proposed suggestion of doing a 1035 exchange to a low cost variable annuity.

If you are close to the end of the surrender penalty period, it could make sense to wait that out. Suppose, for example, that the surrender period ends in a year. You'll save $953 by waiting, but during that time you'll pay an additional $561 in insurance charges, for a net saving of $400. That is a guaranteed 2.3% return on waiting ($400/17,107), which is better than a kick in the teeth, but pretty marginal overall. If you value the temporary insurance protection, the return is actually higher, since some portion of the (inflated) $561 cost is actually providing a benefit to you.

You can also request an in-force illustration with various assumptions about return and escalating insurance costs to see how this could play out over time.

Mule
dhodson
Posts: 4117
Joined: Mon May 24, 2010 3:03 pm

Re: Help with Wife's VUL

Post by dhodson »

The cost of insurance within a VUL rises over time so considering the performance so far and the apparent lack of need or desire for a permanent death benefit then after being sure I had all the term in place I wanted/needed, id surrender this thing. As mentioned above, if the surrender charges will disappear relatively soon then maybe wait until then.
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powermega
Posts: 1199
Joined: Fri May 16, 2014 12:07 am
Location: Colorado

Re: Help with Wife's VUL

Post by powermega »

The surrender charge rate normally changes on the policy anniversary. If you're 1-6 months away from a policy anniversary, it might make sense to wait until after the anniversary so you can surrender with a smaller surrender charge. If you have a life insurance need, you're much more likely to have that need met with a term insurance policy. If you do have an insurance need and you want to get a new policy, make sure you get the new policy issued before you surrender the old VUL.
Even a stopped clock is right twice a day.
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