Variable Universal Life Insurance for 8 yo child

[future]

Please, help me to decide!

I opened a VUL account in 2000 for my child. Now she is 8yo. Her
coverage is 2500000.Premiums Paid to Date: $3,300.00 I wanted to close
this acct but there is no surrender and cash value. What should I do
w/this account? Continue to pay or just "forget" it?
Thank you in advance!
Helpless!

 

[Brent D. Gardner, ChFC]

Please, help me to decide!

I opened a VUL account in 2000 for my child. Now she is 8yo. Her
coverage is 2500000.Premiums Paid to Date: $3,300.00 I wanted to close
this acct but there is no surrender and cash value. What should I do
w/this account? Continue to pay or just "forget" it?
Thank you in advance!
Helpless!

$2.5 million on a child? Even I don't sell them that big very often on
children, unless there's a need for the death benefit, and on kids, that's
often a pre-paid discount pool to short pay just shy of the MEC limits under
IRC Sec. 7702.

Did you actually apply for $2.5 million?

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/
http://www.topgunproducers.com/

Si vis pacem para bellum!

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The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
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signify the highest standards of academic study and professional excellence
in the financial services industry.

 

[Cal Lester]

Although there is NO CASH SURRENDER value, there is in all probability
a PAID UP VALUE.
You may want to contact the Carrier, and ask for either
Reduced Paid Up Insurance, or
Extended Term Insurance.

btw, if you elect R/P/U/, then you may also wish to REDUCE the Face Amount.
Cal Lester CLU

 

[Michael Sullivan]

Please, help me to decide!

I opened a VUL account in 2000 for my child. Now she is 8yo. Her
coverage is 2500000.Premiums Paid to Date: $3,300.00 I wanted to close
this acct but there is no surrender and cash value. What should I do
w/this account? Continue to pay or just "forget" it?
Thank you in advance!
Helpless!

2,500,000 is a really large death benefit relative to that premium.
This doesn't look like an investment or long term life insurance
vehicle, but more like you're buying a lot of immediate insurance within
a VUL wrapper. So no surprise the cash value and surrender value is
zero. Basically, you have bought expensive insurance with little future
value on an 8 year old child. Was this really what you intended? Is
this child a prodigy of some kind, or is there some other reason that
her life needs to be insured for 2.5million dollars? If not, I'd
seriously consider letting the policy go, as long as you haven't
borrowed anything out of it.

Unless you have the means to fund it as full as possible in which case
you might reduce the DB to something that won't cost you any more
coverage than is necessary to keep the policy from MEC-ing (a tax issue)
and start pouring money in, but before doing that you need to compare it
to your other investment options, because it is then primarily an
investment vehicle.

What are your goals here? Who is hurt financially by this child's
death? Anyone? It's unusual for a minor to need insurance for more
than funeral costs and a few incidentals. Was this intended as a
college or similar investment plan? To guarantee insurance for life for
this girl?

Without knowing why you bought this poicy and what it is you want it to
do for you and for this girl, it's impossible to give you any reasonable
advice.

At first glance, it looks like this investment is completely unsuited
for you. For one thing, VULs are very complex and I would not recommend
anyone buy them who didn't either understand them pretty well, or
*completely* trust their advisor (i.e., not need basic advice from
anonymous people on usenet).

If there's not a really interesting story behind this, you probably have
a bone to pick with whomever sold you that policy.


Michael

 

[future]

Dear Michael and all,

Oops, it's $ 250,000 not $2.5 million. My initial purpose was to save
up for her college. At first, it sounded like a tax-free to the
beneficiary,premium flexibility, separate account control,assumed rate
of interest etc. Do you think, I should keep the policy but reduce the
DB? I'm going through some financial hardship and I can't contribute
much to this acct, but I would like to save some $ for her college.
Thank you very much for your advice!

 

[Cal Lester]

Dear Michael and all,

Oops, it's $ 250,000 not $2.5 million.

Makes more sense.


My initial purpose was to save

up for her college. At first, it sounded like a tax-free to the
beneficiary,premium flexibility, separate account control,assumed rate
of interest etc.

Therein lies ONE of the problems. The VUL does not operate with a
FIXED or even ASSUMED interest rate. The illustration that you
were shown did have that assumed rate, but you should have been
advised that it was an ASSUMPTION of what the market MIGHT return
over a period of time. The Cash Value Account reflects the CURRENT
CASH VALUE of the Mutual Funds that you invested it in......................


Do you think, I should keep the policy but reduce the

DB?

If permitted (some companise frown upon that, but the contract should
tell you if you can), then that will DECREASE the Cost of Insurance that
is being deducted from your monthly contributions. This would allow
more of those contributions (what ever YOU decide to pay monthly) to
be applied to that Cash Value Account.

I'm going through some financial hardship and I can't contribute

much to this acct, but I would like to save some $ for her college.

One of the major avantages of ANY Universal Life Contract, is the
flexibility of premium payment. Once you have reduced that
Death Benefit to the MINIMUM permitted by the contract, AND
selected "Option B", (which provides for the Death Benefit to
INCLUDE the Increase in the C/V/A.........................., then you can
contribute as little as you like.

Cal Lester CLU

 

[Michael Sullivan]

Dear Michael and all,

Oops, it's $ 250,000 not $2.5 million. My initial purpose was to save
up for her college. At first, it sounded like a tax-free to the
beneficiary,premium flexibility, separate account control,assumed rate
of interest etc. Do you think, I should keep the policy but reduce the
DB? I'm going through some financial hardship and I can't contribute
much to this acct, but I would like to save some $ for her college.
Thank you very much for your advice!

There is way too little information to answer that on a public forum.
If you are intending this as college savings, then reducing the DB as
much as possible is the right move, assuming you keep the policy (other
options may be better -- there is a cost to insurance and you are paying
it as long as you keep this policy in force). How much you can reduce
without danger of MECing is a tricky calculation, only to be done by
someone with access to the full contract.

Assuming you can reduce the DB to the point where you can afford to
fully fund the policy -- as long as it is a good contract and you place
some value on the lifetime insurance plan, it's probably worth keeping
as you've already paid most of the commissions.

With college savings as the goal, you want to be structuring the policy
so that most of your contributions are going toward cash-value rather
than paying for insurance.

OTOH, If you currently have zero cash value, and cannot afford to fund
the policy for some time, cancelling it may be the best option.

Remember that you can't take everything out of this policy. Once you
start borrowing, the policy must stay in force for her whole life (or be
swapped into some kind of annuity per the options available in the
contract) or she will face a huge tax liability.

VUL, like whole life, is a lifetime investment commitment. Consider
that when you compare it with other options (such as saving in taxable
accounts, using a 529, etc.)


Michael

 

[Cal Lester]

There is way too little information to answer that on a public forum.
If you are intending this as college savings, then reducing the DB as
much as possible is the right move, assuming you keep the policy
(other options may be better -- there is a cost to insurance and you
are paying it as long as you keep this policy in force). How much
you can reduce without danger of MECing is a tricky calculation, only
to be done by someone with access to the full contract.

That is not as difficult as it may seem. One phone call to the Carrier, should
provide that information rather quickly. The MINIMUM Face Value will
be dependent on company policy.
The KEY here is to change (or confirm that it is already in effect) to OPTION "B".
Option "B" provides for the Death Benefit to consist of the Current Face Value,
PLUS the Increase in the Cash Value Account. Once that election has been
made, there is never any danger of the contract becoming an MEC, as the amount
"at risk" will stay CONSTANT, while the C/V/A is increaseing................................

Cal Lester CLU