Should we switch our variable universal life insurance policy to a guaranteed universal life policy?

My husband and I each have variable univeral policies...our agent is suggesting we change over to guaranteed universal policies - we will save a few hundred dollars a year and add 100k onto the benefit. My husbands policy was bought in 1999, mine in 2001. We were not using the existing policies as an investment. Does it make sense to change now? (we are in our early 40's) The agent suggested that in the future insurance costs may rise, and we may not be able to afford the current policy- but the new policy rates are guaranteed to never increase. Any thoughts or advise?

Public Comments

1. In general it's not a good idea to exchange one life insurance policy that has cash in it for another. It usually benefits the agent more than the insured. That said, there is a definite plus to having a policy guaranteed to pay a dealth benefit as long as you pay the premiums. One of the problems with the original UL's is that they COULD run out of money if the cost of insurance in later years started eating away at the cash value you build up in the beginning years. After all, UL is term insurance with a cash value. As with ALL term insurance the cost of insurance gets higher as you age. I always warned my clients to keep an eye on that, and to try to increase the premium each year to help offset that possibility. This Guaranteed policy is a way to address that, and it seems a valuable option. I don't know enough about these new policies to give you a pat answer. I will tell you, though, that I'd do my research on this. Have your agent run illustrations (examples) with both policy types, and look at the best-case, worst-case and intermediate scenarios for each. Also, see what would happen of you took that extra few hundred you're saving a year and put it into the Guaranteed UL. Good luck! Edited to add: The next poster hasa verypopular point of view, and I can't say he's wrong about most of what he says. There is one point, though, where he is not 100% correct. In some Universal Life policies the cash value IS added to the death benefit - which is really not a bad deal at all. Also, I agree that term has it's uses. It does have some downsides, though, that you need to consider. First, as you age term gets much more expensive. At the end of the 20 years the next poster recommends it will be MUCH, MUCH more expensive, and you may or may not still be healthy enough to qualify for it. If you still need life insurance at that point you will pay big. There is no right answer here. THere's only a right answer for YOU.
2. What is your main reason for having life insurance? If I were you, my main reason is to protect my family's income in case I die. If you are looking to build savings for retirement, then life insurance is not the way to go. If you want to do both, buy term and invest in a savings vehicle that meets your investment objective. A variable universal life policy is where part of premium payments is invested in the stock market and is put into an account called the cash value. So there is nothing guaranteed that your cash value will grow. It may even lose money. In a guaranteed universal life policy, none of premiums is invested. Instead the insurance company will give you a guaranteed interest rate on the cash value. That is the only difference between them two. To me, both of these policies are not good because of the cash value feature. You lose all the cash value when you die, so basically you were paying too much premiums to start with. If you ever wanted to use the cash value, you can only borrow the surrender value, which will decrease the death benefit. I suggest you buy a 20 year term insurance. It will save you lots of money and you can get lot more coverage if you want. At the same time, you and your husband should open a Roth IRA. You can't have joint accounts in a Roth IRA, they are for one person only. If you invest $100/month for next 20 years at a 10% rate of return, you can have $76,570. If your husband does the same, he too can have $76,570. When you are in your 60s, do you really still need life insurance? If you still do, then you should ask yourself, "do I still need as much coverage?" With your current universal life policy, I suggest you surrender it. I don't know how much you and your husband have in the cash value. You can only contribute up to $4000 for tax year 2006 and 2007 into your Roth IRA. If the cash surrender value is more than that, then put in $4000 now for tax year 2006 before April 17. And put the rest (up to $4000) in for tax year 2007. For 2008 and beyond, you want to invest using the dollar cost averaging concept. This is where you invest the same amount every month, no matter how the stock market performs. By doing this, you will lower the cost per share.
3. Ya know, life insurance is NOT an investment. Either way, you're throwing good money after bad. You need to figure out what you want your life insurance to do for you, and sit down with an INDEPENDENT agent that you trust, to figure out the best way to get there.
4. The difference between an independent agent and a captive agent is that the independent can't sell policies for the TOP insurance companies (ie State Farm, Farmers, Allstate, etc). Indys sell based on price, it just doesn't matter as much whether this or that company has a great track record of customer service, or whether this or that company is gonna try and weasel out of paying a claim(or whether the company will be around for the next renewal). Don't use life insurance as an investment tool. If you need a large death benefit due to family obligations, the only cost effective way to do this is with a term policy. That being said, as long as you have wisely invested the "cash value" in your VUL policy, it doesn't make any sense to switch it to a guaranteed UL policy that is basically gonna pay the inflation rate.
5. Well, you've been pretty well beaten over the head with some of the answers here so let's look at a bit more of what you're asking. There are some other considerations here. In your variable product depending on your asset allocation of your sub accounts, you're likely making anywhere from 8-12% over time. That should more than make up for any increase in cost of insurance over time, plus provide you surplus. In a guaranteed UL (I'm presuming since you didn't say so that it's not an equity indexed product), you're liable to be guaranteed only about 4-6% or so. (Inflation is running at about 3.5% nationwide right now.) There is a good chance too that the accounts that generate this are part of the general accounts of the insurance company and are not outside subaccounts. If they are part of the general accounts than that leaves them liable to being taken by a creditor if, for whatever reason, the insurance company goes belly up (unlikely, but it has been known to happen). Sub-accounts in the VUL are not liable to that potential problem. You say you aren't using the VUL as an investment. Why not? Your money can grow tax deferred within it and you can access it tax free and needn't wait till your 59 1/2 as you would if it were in some other tax free access products. Has your agent shown you the possibility of an Equity Indexed UL? You seem to be somewhat fiscally conservative (at least from the tone of your note here) and an equity indexed product might be something to look at. Most such products have guarantees of about a floor of 1-2% with a cap of about 12% or so and likely average about 8% over time which is above your standard UL but most likely less than the potential returns of a VUL. I would suggest you might also like to simply call your own insurance company and speak to them. First, see if they can explain all the ins-outs and potential tax benefits that your VUL can perform for you. You might find out if they have an equity indexed product that they might be willing to do a 1035 exchange into that would perform the best for you. They might even be willing to do so without any surrender charges being imposed, if you ask, though they likely would start a new contestability period. Lastly, I wouldn't take anyone's ideas on a board like this (including my own) without first determining just what it is that YOU and your HUSBAND need. What is your strategy? Where do you want to be 10, 15, 25 years from now? Do you already have your retirement funding going? If so, is it all in a tax box that might leave you vulnerable to taxation on withdraw? Have you considered simply reallocating your funds within the VUL to see if you can bring its performance more in line with what you'd prefer to see? If the need for $100,000 extra coverage exists, is it a permanent one or could it be handled by adding a small term policy outside the VUL? Or even adding on one within it? These are just SOME of the questions you might wish to consider. Good luck