AICPA GVUL possibly better than Term Life

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Snezz1e
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Joined: Wed Mar 14, 2012 11:48 am

AICPA GVUL possibly better than Term Life

Post by Snezz1e » Fri Jan 12, 2018 5:52 pm

I'm 30 and have had a GVUL through the AICPA for about 5 years. I'm currently comparing it to a 25 year term policy and it looks like I would be better off keeping my GVUL and may be better option for others in some situations.

A $1 million term policy would cost me at least $565/year right now according to Term4Sale.

Under GVUL the cost after factoring in refunds (although not guaranteed has been consistent in past 5 years) is:
30-34: $212.6
35-39: $265.4
40-44: $427.4
45-49: $1207.4 or $483.8 (Select)
50-54: $2759 or $1091 (Select) or $727.64 (Preferred)

To get select rates I have to fill out a questionnaire at 45 and if I'm still healthy, I get select rates for 15 years. Preferred rates require a medical exam at 50 and is good for 20 years.

The GVUL comes with a fixed account that is guaranteed to pay a minimum of 4% tax deferred. Unlike many other VUL there is no cost or fees to put money into the fixed account. No admin charges or load like taking 4-5% of contribution off the top. To withdraw the funds you have to pay a minor $10 administrative fee.

To compare it to term I assume I will be making $565 annual payments under both options. Under the GVUL the extra amount over cost would sit in the fixed account earning 4%. Based on my analysis under standard rates I would end up paying about $7500 more in the end (the $565 annual payments plus gains were not enough to pay premiums due in last 4 years). However, if I qualify for select rates I would be saving about $6100 and with preferred rates I'll save $8100.

But what I actually want to do is ladder the policy to drop to $750k after 10 years (about when I pay off my 15 year mortgage) and then down to $500k after 15 years, $250k after 20, and 0 after 25.

To do this with term I need 4 policies which actually end up costing $590 which is more than just one policy or finding a policy that will allow reduction in coverage. For simplicity I will assume the $565 policy can be reduced with a linear reduction in cost which is unlikely to be true.

Under this scenario, I would end up saving $3000 under standard, $7800 under select, and $8300 under preferred.

So 25 year term is only better than the GVUL when I keep full face amount and don't qualify for select/preferred rates due to a health issue I develop before 45. The rates start to spike at 45 if you don't qualify for the lower rates.

I know under GVUL the rates/refunds are not guaranteed. I think the 4% fixed account can make up for that. I currently have $50k in my fixed account that is my short term savings/emergency fund earning $2000/yr in tax deferred interest. A no penalty CD from Ally at 1.6% would only earn $800. That's an extra $1200/yr. Prudential has an A+ rating and Nevada Insurance Guaranty covers up to $100k cash value so I consider the funds to be well protected from loss. It would require something much less liquid or higher risk to match the 4% return.

For a person just starting their policy they can't just put in 50k without triggering MEC. For a 30 year old they can put in $18k first year which will still earn $432 more than the Ally CD.

Also, the premiums you pay counts as part of your cost basis which makes some of the interest you're earning completely tax free. So using the one example where you end up paying more than term your cost basis would of been $21625 (565*25+7500). That would of allowed you to earn that much in tax free interest for storing your Emergency fund/Savings resulting in a tax savings of around $5000. So now you're down to only paying $2500 extra before factoring the higher returns vs. outside savings. Under the other scenarios there’s at least another $1500 tax savings in addition to the contribution savings.

Finally, the plan does require you to be a AICPA member which is $265/year. If you’re only a member for the plan and don’t value any other member benefits then it should be considered an additional cost to you. I also use them for the umbrella and disability plan so I don’t count it as an additional cost. Factoring in this cost would require you to be taking advantage of fixed account to end up ahead vs. term.

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David Jay
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Re: AICPA GVUL possibly better than Term Life

Post by David Jay » Fri Jan 12, 2018 10:06 pm

You won't need a 25 year term policy if you put some of that money into a reasonable portfolio. And carrying the payout risk for a 65 year old is the reason for the high cost of the term.

I dropped my last term policy in my mid-50s because my wife was fully taken care of from our retirement assets.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Snezz1e
Posts: 26
Joined: Wed Mar 14, 2012 11:48 am

Re: AICPA GVUL possibly better than Term Life

Post by Snezz1e » Sat Jan 13, 2018 12:06 pm

David Jay wrote:
Fri Jan 12, 2018 10:06 pm
You won't need a 25 year term policy if you put some of that money into a reasonable portfolio. And carrying the payout risk for a 65 year old is the reason for the high cost of the term.

I dropped my last term policy in my mid-50s because my wife was fully taken care of from our retirement assets.
Are you saying I should be investing the 50k? That money is my emergency fund (30k) and short term savings (15k for Model 3 down payment and 5k for vacation). Isn't the general advice to keep this in something liquid. I also already consider my emergency fund as part of my asset allocation so I'm pretty heavy on stocks in my retirement accounts.

I'm not sure where you're getting the 65 from. I'm 30 and the 25 year policy only goes until 55. In all my scenarios I'm stopping coverage at 55 and my plan is to gradually lower coverage as I get closer to 55. I've also considered stopping at 50. The numbers for 20 year term vs. the GVUL are even more in favor of the GVUL but I thought it be fairer to present the less favorable scenario.

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David Jay
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Location: Michigan

Re: AICPA GVUL possibly better than Term Life

Post by David Jay » Sat Jan 13, 2018 12:21 pm

Snezz1e wrote:
Sat Jan 13, 2018 12:06 pm
David Jay wrote:
Fri Jan 12, 2018 10:06 pm
You won't need a 25 year term policy if you put some of that money into a reasonable portfolio. And carrying the payout risk for a 65 year old is the reason for the high cost of the term.

I dropped my last term policy in my mid-50s because my wife was fully taken care of from our retirement assets.
Are you saying I should be investing the 50k? That money is my emergency fund (30k) and short term savings (15k for Model 3 down payment and 5k for vacation). Isn't the general advice to keep this in something liquid. I also already consider my emergency fund as part of my asset allocation so I'm pretty heavy on stocks in my retirement accounts.

I'm not sure where you're getting the 65 from. I'm 30 and the 25 year policy only goes until 55. In all my scenarios I'm stopping coverage at 55 and my plan is to gradually lower coverage as I get closer to 55. I've also considered stopping at 50. The numbers for 20 year term vs. the GVUL are even more in favor of the GVUL but I thought it be fairer to present the less favorable scenario.
Last night math: 30+25 = 65. :(

That negates a lot of my other comments, so just ignore them.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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