quote:
Does anyone have an opinion on over funding a variable universal life policy vs. a Roth IRA? I believe they both grow interest free but I like the idea of being able to get to my money in case of emergency before retirement. I also believe after 7 years of the insurance policy there is no cap on how much you can invest. The insurance policy is also sheltered against creditors.

It all seems too good to be true. Can someone help me out with this?

If you want to go for life insurance, I would say avoid a variable universal life (high fees) and go for traditional whole life with a company like New York Life, Mass Mutual, MetLife, Northwestern Mutual, State Farm, etc. Whole life is fixed and typically have lower fees. It is not flexible though.

Using average returns, a ROTH IRA will out-gain a Variable UL. There are costs associated with the insurance death benefit, and the variable UL mutual fund shares are typically more expensive than your standard mutual funds that you would use in a Roth IRA. The guarantees that they claim for Variable Universal Life policies typically do not apply when you want to take your money out of the policy. Not only that, you are paying for that guarantee by taking less returns (hidden costs).

However, if you need life insurance and you aren't comfortable with the risk of the market, fixed whole life insurance would be a good deal. You just need to accept the fact that your returns may not keep up with mutual funds within a Roth IRA (not considering time horizon or market timing, etc.).

Bottom line is this... your situation is always unique and you can't use a one-size-fits-all answer from someone who is not licensed or registered through FINRA on a message board. Consult with someone you trust and get multiple opinions from different companies.

If you want to talk more specifics, you can leave your email and I can get in touch with you.

1 ...

Report Post

Posted by Alltheway Tigers!

Baton Rouge

Member since Jan 2004

7182 posts

Posted on 11/7/13 at 8:17 pm to LSUgolf04

You can stuff more funds into a LI policy than a Roth.

Roth is cheaper because you don't have the cost of Insurance as a drag. Both Whole Life and variations of a Universal Life polices have cost of insurance. UL products will break these costs out. WL can be figured out by a good agent/company.

If waiver of premium for disability rider is available for either type of policy, compare cost of waiver and consider. If disabled, then premiums are made for you by the company. This could make the policy self funding at a very good time for this particular situation. There is no IRA I know of that funds itself in case of a disability. Weight the cost of the rider with the cost of a group or individual disability policy.

Variable UL polices can be VERY expensive. Separate account charges, mortality charges and so on. Know your policy. There are several lost cost or no cost Variable UL policies about there. Do your homework.

You can find decent low cost and high early cash value Whole Life polices. With a Whole Life policy, you don't get the market returns of a VUL or Roth IRA in equities. However, consider a "whole" portfolio view, where as a Whole Life cash value being the conservative allocation of your portfolio. This will allow you to be more aggressive with other investments.

Liquidity with cash value life insurance is a very nice feature.

Regardless, a $2000 Roth will put perform a $2000 life insurance premium....hands down.

Short story:

Pure investment and return driven? Roth IRA
Lots of flexibility and benefits? Cash Value LI

0 ...

Report Post

Money Talk - Replies to Post

Return To Board

Page 1

Return To Board