Planetrain

Source: Section 25.G.10.

I am not well-informed at all about Group Variable Universal Life Insurance.

All the Dave Ramsey/Clark Howard/Motley Fool advice I’ve ever heard is Whole Life Insurance is usually high commissions to the salesman and the return after fees on this product make it not worth it. The advice is buy term life insurance to insure your risk, and invest the difference in premiums in a taxable account and you’ll come out ahead over whole life.

And then this nugget in the TA comes out and I start doing some research. I read some opinions on Motley Fool and White Coat Investor and some other must-be-true Internet sources that are sour on VUL, but leave caveats that it might be good for a very small sliver of the population with high income, high tax rates, maxed out 401ks, paid off debt, etc.

Seeing how the company-paid life insurance policy has a steep imputed income slope approaching retirement; so much so that pilots are voluntarily foregoing the policy to not get hammered on imputed income, and this theoretical GVUL plan would be an alternative, would anyone be able to explain or offer an opinion of would this be something worth our while? And if so and age/income thresholds?

Whats the main benefit? Why would someone choose this option over others? Anyone got a friend or family member with experience on this?

We don’t have any details on our plan particulars, but thought I’d put this out to the ether to discuss.

tennisguru

I think at some point the question becomes why do you need any life insurance at all? That's basically Dave Ramsey's take - that you get term long enough to cover your early to middle years with kids/house/college/etc, then over time as you build wealth a surviving spouse will have enough money in savings and investments to live comfortably even with the loss of the income of the deceased spouse. The purpose of life insurance is to replace lost income, that's why most financial planners say to have 10-12 times your income in life insurance, so that when you die that lump sum invested will generate close to the lost income so the surviving family isn't left destitute. I would hope that most pilots approaching their mid 50's, and certainly 60 and up, are multi-millionaires to the point where even if they die their spouse will have plenty of money to live for decades. Of course anyone is free to purchase (or use the company provided insurance) in order to boost that amount, but that's more just a financial luxury as opposed to a necessity.

I still think that in the long term, just investing more money will yield better returns than trying to play some VUL shell game with the high fees and commissions. Obviously someone at that point is maxing out every tax-advantaged retirement vehicle, but even basic taxable brokerage accounts would still be a better deal in my mind.

Myfingershurt

The best part of whole life is being able to add to it above and beyond the base premiums to increase cash value. Those funds are added after tax, grow tax free and can be withdrawn tax free. Lots of people is the cash value of their whole life policy to act as a buffer for years when the market is down and their other IRAs, 401(k)s etc are under performing. You can take the minimum from those accounts and supplement with the cash value acct to stretch your IRAs further. Another option is to convert you cash value at retirement into an annuity. The plan that this contract is supposed to deliver will be client directed, so you can invest the money anywhere you want and can use what ever risk index you’re comfortable with. There’s really a lot of options with a whole/universal life policy. Dave Ramsey is for people that live under mountains of debt and don’t know how to use debt for their own benefit. You’ll never hear him giving financial advice to people with six figure incomes and seven figure (or higher) retirement accounts.

RonRicco

Exactly wrt Ramsey. I was having a conversation with one of his followers who couldn’t believe a retiring captain had financed his home. This is when you could get mortgage a little over 2%. He was of the mindset that all debt was bad and that if you were doing anything different, you were leveraging. My point was it was almost free use of the money at 2% and even taking the most conservative path, you can probably make more in a CD. Well, I was wrong. You can have that money in a savings account at the moment and make better than a point differential. Rates go back down? You can always pay off the mortgage.

Don’t get me wrong, Dave has a lot to offer, but his simple advice starts losing traction as it goes up the income hill.

notEnuf

The question is purpose. Are you buying life insurance as an income replacement or as an investment to pass on as inheritance. My perspective has always been income replacement. Investing is best done through other vehicles but the easy road for a legacy is whole life insurance.

Ragtop Day

The other big caveat is most insurance advice is for when you are the one paying the premiums. In this case if the company is fronting the money the equation of what product is best changes. I think we will have to see what MetLife/ALPA/DAL come up with and re-evaluate then.

runinonfumes

this. And the fact that right row the only benefit the term plan provides is nothing upon retirement or a spouse that gets a pile of cash upon exercising the pushing up daisies option. So if at the time I choose to stop working and get money to do something with, it is still better to have a choice the company funded, even if it’s not “the best financial product” offered.

PilotJ3

I have a whole life.

Not planing to use it for my death, if not for my living expenses past 65yr. You can either use the cash value, dividends or both for extra money/supplement your 401k.

As of now, I’m planing just to use the dividends for extra income.

buckleyboy

I am not very smart about this stuff (and don’t want to be), but I converted a small amount of a term policy to a VUL at the suggestion of my financial advisor. I am sure he is getting commissions, but it was explained to me that I need more tax free income in retirement. So basically what Myfingershurt said.
At any rate, I did that. As I understand it, one takes out a loan against the cash value and basically never pays it back, or pays it back slowly near the end of one’s life. I could be way off base here. I trust my advisor and prefer to think about my family and goofing off more than I do high level financial planning. This GVUL is something I will mention to him at our upcoming review, though.

By the way, I agree about Dave Ramsey. But at least he means well. Robert Kiyosaki has hoodwinked several people I know and has been less-than-positive influence. I do understand that much about finances!

Gunfighter

This topic is dancing around the edges of Nelson Nash’s Infinite Banking concept. I’ll be curious if the GVUL policy is a close enough substitute for a participating whole life policy as called for in the concept. Delta paid premiums could offset some of the fees that generally get in the way.