variable life what to do with massive policy

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Oulli
Posts: 1
Joined: Wed Jul 10, 2019 12:32 pm

variable life what to do with massive policy

Post by Oulli » Wed Jul 10, 2019 12:36 pm

I was sold a VUL unfortunately for a large policy in 2012.I fired the agent and but feel unsure what to do. Total premiums paid 123,000. current cash surrender 55,000. The quarterly premium is 3,000 which I've just let them take from the policy. I'm 40 with no dependents now with an almost 4 million dollar policy. What should I do? Thank you kindly for reading.

ExitStageLeft
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Joined: Sat Jan 20, 2018 4:02 pm

Re: variable life what to do with massive policy

Post by ExitStageLeft » Wed Jul 10, 2019 8:19 pm

Oulli wrote:
Wed Jul 10, 2019 12:36 pm
I was sold a VUL unfortunately for a large policy in 2012.I fired the agent and but feel unsure what to do. Total premiums paid 123,000. current cash surrender 55,000. The quarterly premium is 3,000 which I've just let them take from the policy. I'm 40 with no dependents now with an almost 4 million dollar policy. What should I do? Thank you kindly for reading.
Welcome to the forum!

I'm sorry I don't have any useful advice, but maybe bumping this back to the top will catch the attention of someone who can help.

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Nate79
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Location: Delaware

Re: variable life what to do with massive policy

Post by Nate79 » Wed Jul 10, 2019 8:27 pm

Yeah, I'm sorry you were scammed into buying such a horrible product. You have no need for life insurance (and this the worst type). I would cancel and take it as an expensive lesson.

AvidGardener
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Re: variable life what to do with massive policy

Post by AvidGardener » Wed Jul 10, 2019 9:10 pm

Yes, I cashed out 6 terrible investments (my dad's) for a loss around 18k of the principle plus the decade the 190k was not invested properly.
There's one more policy remaining, dad paid $137k; POD $143k; surrender value $111k that I am hesitate to cash out because I am unsure if able to recoup losses via new investments. Dad doesn't need the money right now and each year the cash out value increases.

123
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Re: variable life what to do with massive policy

Post by 123 » Wed Jul 10, 2019 9:11 pm

There is a mechanism available to somewhat "salvage" the premiums that you paid that exceed the current cash value. You can do a tax-free exchange of the policy for a variable annuity with a low cost provider like Vanguard. Annuities have higher expenses than other investments but it could be useful in this instance.

By directly exchanging the life insurance policy for an annuity you transfer the "basis" of the policy (the sum of all premiums paid) into the annuity. You likely would get a reasonable return on the cash value over time by electing an investment for the annuity like a Total Stock Market Fund. When the annuity value equals the "basis" you cash it in and get the equivalent of your premium money back.

Your options would seem to be to get the policy current cash value immediately or use the exchange mechanism to get a greater amount in the future. The amount you recover is not subject to tax to the extent it does not exceed your basis in the policy.
The closest helping hand is at the end of your own arm.

deikel
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Re: variable life what to do with massive policy

Post by deikel » Thu Jul 11, 2019 2:53 pm

I do not have much experience with VUL, but the fact that you do not need a life insurance at all right now and the fact that you have to pay 12k a year as premium would be enough for me to cancel this yesterday.

You said that you let them take the premium out of the policy - but that seems even worse, because the little cash value you have right now gets eaten away by their likely inflated premium, so this policy will terminate itself in 4.5 years and you got nothing useful for your 55k value right now....maybe I misunderstand something, but that sounds even more awful (and might also be the reason for the small surrender value?)

Forget about what money was maybe lost in the past (shoulda coulda is all in the back view mirror) - see that you can maximize your value from it now and stop any cash flow bleeding.

55k invested now should bring you a decent amount of money 20 years down the road ...or a nice car...or a nice vacation or two....anything better then what it does right now for you.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

JoeRetire
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Re: variable life what to do with massive policy

Post by JoeRetire » Thu Jul 11, 2019 3:11 pm

Oulli wrote:
Wed Jul 10, 2019 12:36 pm
What should I do?
Cash it in now.
Don't buy insurance you don't need.
When you do need insurance, buy term life.

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Stinky
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Re: variable life what to do with massive policy

Post by Stinky » Thu Jul 11, 2019 3:41 pm

Welcome to the Forum!

Oh my gosh, you were totally scammed into buying this policy. As you've figured out, it's insurance you don't need at a very high cost. My first choice would be to surrender the policy now, take your cash, and invest it within your overall plan. And, if at some point in the future you need life insurance, buy level premium term life insurance.

Right now you're in the hole by $68k ($123k total premiums minus $55k surrender value). The idea mentioned below could help mitigate your loss a little bit, by allowing you to avoid taxes on the $68k of investment gains. As noted below, you could do a 1035 exchange of the $55k cash value into a variable annuity policy. When the VA rises in value to $123k, surrender the policy, and you will owe no income tax.

You'll save some taxes doing this, and how much depends on your tax rate. If the average tax rate you would have paid on the interest, dividends, and capital gains on the taxable account were 20%, then you would save $68k X 20%, or $13.6k in taxes.

In order for this to work for you, you must have a long investing horizon (it will take a while for $55k to grow to $123k), a VERY low cost VA (fees will eat you up), and you must be willing to accept the additional complexity of having a VA.

Best of luck to you.

123 wrote:
Wed Jul 10, 2019 9:11 pm
There is a mechanism available to somewhat "salvage" the premiums that you paid that exceed the current cash value. You can do a tax-free exchange of the policy for a variable annuity with a low cost provider like Vanguard. Annuities have higher expenses than other investments but it could be useful in this instance.

By directly exchanging the life insurance policy for an annuity you transfer the "basis" of the policy (the sum of all premiums paid) into the annuity. You likely would get a reasonable return on the cash value over time by electing an investment for the annuity like a Total Stock Market Fund. When the annuity value equals the "basis" you cash it in and get the equivalent of your premium money back.

Your options would seem to be to get the policy current cash value immediately or use the exchange mechanism to get a greater amount in the future. The amount you recover is not subject to tax to the extent it does not exceed your basis in the policy.
It's a GREAT day to be alive - Travis Tritt

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