Why I'm Not Getting a Variable Universal life Insurance

Why I'm Not Investing in VULs or Other Life Insurances!

Fun little fact: I tried my hand at insurance sales shortly after college. Although nothing materialized out of it, I learned that the industry wasn't for me. The main reason why was because I was selling products that I didn't really believe in. Fast forward a few years and I caught myself debating whether to start the process of paying for life insurance while I was still healthy and relatively young. After almost pulling the trigger, and getting some quotes from different life insurance companies, I had a realization: VULs or even FULs weren't for me; Here's why:

First Things First...What are VUL's or FUL's? 

VUL's or Variable Universal Life Insurance and FUL's or Fixed Universal Life Insurance are both life insurance plans that also contain cash values with sub-accounts for different securities or financial instruments such as mutual funds, and the rest going towards the death benefit.

Takes 2 to 3 Years To Build Up Cash Value and Become Liquid

First of all, it takes about 2 to 3 years for the Insurance portfolio to grow in cash value. This is also important because let's say that you have a death in the first year of having this insurance policy in place, you might have some pushback from the company based on their terms of service. One example of this is that for the first 2 or 3 years of a policy, on average, death by suicide is not covered by the insurance. However, after that initial 2 or 3 years (or however long the term is) has lapsed, the insurance company will pay out. However, this may come with additional scrutiny. You are under the mercy of their company to payout as they agreed to, which may come with a discovery phase. This is why the insurance policy is both not as liquid as holding actual stocks, bonds, or ETFs in an individual account.

Fees, Fees and More Fees

Like hedge funds, life insurance plans carry fines or fees that will add up over the years. With Universal Life Insurances, they will have management costs associated with maintaining the sub-accounts. In order to cash-out the cash value from the plan, it will usually entail a high cash-out fee. So was this all for naught? You tell me; You might as well have just invested in the markets on your own. 

Cash-Flow is King

Whenever you pay that $150 or however much is it as determined by their Underwriting Department,, you are trading off that cash-flow for places that might provide you steadier streams of income, more security, and more liquidity. The only positive for Universal Life Insurance is that it builds cash value, so you can take those liquidable assets out from the insurance plan for a home loan, for example. However, this usually comes with a hefty cash-out fee. This is just one more reason not to get any Insurance plan whatsoever. 

Whole Life Insurance Might Still Be a Scam

This is because whole life insurance will always require premiums to be paid on time in order for the policy to remain in effect. Conversely with Universal Life Insurance, premiums can be adjusted based on the user's decision. However, with that, comes the added risk of a policy lapsing and you having paid all of that money, over the years, for naught. 

Death Benefit

With Universal Life Insurance plans, only the death benefit is paid out to your family, and the cash value of the funds (if untouched) will go right back to the insurance companies. With Whole Life Insurance Plans, they tend to have the full amount of the death benefit given to their family members. But remember, with whole life, they will have fixed or graduated payments over the life of the plan; and may be illiquid (unless a lender may qualify that as collateral for a loan). 

You Have to Take a Physical and Medical Exam (Upon Request)

Most insurance companies, unless otherwise stated, will have you undergo a physical-medical exam to ensure that you don't have pre-existing conditions and etc. If you do, they will not pay out any money for insurance if you have had a death due to that pre-existing condition. 

This is exactly why I feel that insurance policies are less liquid than holding stocks or bonds in an individual account. Although you will have tax advantages associated with life insurance, I believe that it is just not worth the hassle of having your money be under the control of other people. And it potentially taking a few years for it to be released. 

Who Should Get Life Insurance?

People with "F*ck You" money...Or people who don't want to worry about managing their own investment portfolios by having someone else manage their death benefits and investment choices (if using a universal life insurance as opposed to whole-life). 

Disclaimer: I'm not a Life Insurance Agent anymore. Do your own research. I'm just a monopoly man trying to get Park Ave. Read more about this on Dave Ramsay's website.

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