So I’ve Got A VUL, What Now?
One of the most read posts of this blog is the one about my personal opinion why people should not get a VUL.
Which feels really great. I wrote that specifically to make a dent against the constant barrage of VUL salestalk. There’s practically an army out there pushing VULs. Which is not bad, people need insurance and investments. It’s just that most of the time, in my opinion, it’s recommended and sold not because of the client’s best interest but because it gives higher commissions than the other insurance products.
The relatively minor downside, is that I might be alarming or maybe even panicking some people who already bought a VUL. I’ve already gotten several comments, emails, and facebook messages regarding it.
I am personally biased against VULs. But if you already have one, the best option is to stick with it.
Once you get one, VUL, typically charge very high fees or penalties before you can “get out”.
One commenter in this blog specifically mentioned that of the 100k paid, only 10k could be redeemed if the policy was terminated (it was, I think, still in the first year of the policy). Another reader informed me by email that of the 120k paid, ~90k went to agent commissions and admin fees, while only ~30k went to investments (again, this was on the first year). Maybe it had a really high face amount (insurance).
So really once you get one, it’s almost never a good idea to get out. It’s sometimes termed as forced savings, and indeed in a way it is. Though when the money goes to something else other than insurance or your bank account, it’s understandable if you feel it’s a bit of a money trap.
Still you’re not entirely helpless, and you’ve got a few choices.
You can increase what you pay, because in most VULs the “extra” goes to the investment. Hopefully the fund will grow quickly and
will be able to pay off the insurance earlier. The idea here is that you’ll “end” the commitment sooner and be able to focus tour money on other things. But then again, “sooner” is a relative term and unless the additional money is very significant, the time saved may not make much difference.
Another option, though most likely not as probable, is to limit what you pay to the bare minimum. In most cases though, the bare minimum is essentially the agreed upon premium. If it’s possible to pay less, however (without costly penalties), you could then divert the money “saved” into other investments.
The choices are a little limited, but at least you’re already insured and have an investment. Personally, I’d rather take a different route. But in the end, what matters most is to be insured and invest for your future.