Should I invest in a variable life insurance policy?

I don't really need the insurance, yet it seems like a good way to invest in funds that grow tax free. What are the pro's and con's? Anyone out there have any experience with these?

HI, your friendly insurance guy here, again. :)

Generally, if you are looking for tax-advantaged growth, a Roth IRA is the place to start. You can contribute several thousand dollars annually to a Roth and when you take distributions from it, they money comes out tax-free.

Variable Universal Life insurance has its place. If you do not have the option to use a Roth, or are already maxxing out your contributions to one, it can be useful to consider VUL.

Here's a general description of how it works:

You pay premiums (usually monthly or annually). Some part of the premium goes to cover your actual insurance cost. The remainder goes into what are called "subaccounts." These subaccounts are similar to, but not identical to, mutual funds. They may even have similar or the same names are major company mutual funds, in fact, and often mimic the mutual fund investment choices.

The growth of the subaccounts is contained within the cash value of the policy. Typically, when and if the cash value exceeds the death benefit, the death benefit rises to match the cash value.

Example: John Q. Public buys a $100,000 face value VUL policy. After 14 years the subaccount values have grown to $125,000. The policy death benefit should also be $125,000 now.

In year 15 the subaccounts take a loss and fall to $110,000 in value. The death benefit will likewise drop to $110,000.

The advantages to using VUL as a vehicle include:
When you die the benefits pass to your heirs tax free and without pasisng through probate in most cases. That's true of most life insurance, not just VUL.

Because, over time, equity related growth tends to outperform other options, VUL may outperform other cash-value policies over time. Then again, it may also tank, so this is a double edged sword.

VUL can be a useful vehicle when someone wants to throw money into equity related growth but have already maxxed out their Roth and/or Traditional IRA, their company retirement plan like 401(k), etc. and are looking for another vehicle.

It allows you to "kill two birds with one stone" by making a payment handle life insurance needs while providing a bit of extra oomph throught he subaccounts.

I personally have NEVER helped a client buy VUL. There are almost always other options that will serve a client's needs better.

You said in your post that you "don't really need insurance." It would be helpful to know what makes you say you do not need it. Maybe you already have a lot of life insurance, or maybe you have nothing to protect. It'd be helpful to know the reasons. And helpful to know more specifically what goals you ahve for the accumulation of value.

Best wishes!

Insurance companies are in the business to make money...not make you money. Insurance is not an investment. Tax free growth...look into a Roth IRA

If you are bad at savings this could help you but regularly saving and buying your own mutual funds will produce better results.

Don't buy a truck from a shoe company. They don't know how to make trucks. Don't buy an "investment" from an insurance company, just buy insurance from them. They do sell "investments" but they are expensive, and when you take money out from their tax deferred (not tax free) investments, you pay regular income rates on it, not the lower capital gain rates. There are very good low cost investment companies that can invest your money in tax efficient mutual funds. Vanguard, T. Rowe Price, Fidelity are just 3 of many examples. If you have earned income (not too much) you may qualify for a ROTH IRA where all the growth and dividends from those mutual funds will be really tax free. Read the book "Investing for Dummies" by Eric Tyson and learn before you give away your money.

if you make too much to qualify for a roth ira then a variable policy may make some sense, i want to get one just because its permanant life insurance with a steady premium, and the chance to give alot of money tax free to my heirs

No. If you're looking to invest money, don't do it with insurance products. The only exception I would recommend is an annuity, preferably indexed, and that's only if you're close to retirement (7-15 years out) and have a lump sum to put into a contract. Otherwise, invest in mutual funds or some other equity investment with lower fees and caveats.

That's great that investments in variable life grow tax-deferred, but did you know that if you were to die, that you lose all your investments? That's because your investments are really called cash value.

You said you don't need life insurance, but you want to invest for the future in tax-deferred accounts. Have you heard about IRAs? There are two kinds of IRAs, one is called Traditional IRA. Traditional IRAs are where your contributions are tax-deductible. When you begin withdrawing from a Traditional IRA, you will owe income tax on them except on the contributions that you didn't make tax-deductible.

The other IRA is called a Roth IRA. Your contributions are not tax-deductible. But when you withdraw them after age 59 1/2, you will not owe any taxes.

In all IRAs, your investments grow tax-deferred. If you are considering life insurance in the future, choose a 20 year or a 30 year term.