If i max out my 401k and i need life insurance is a universal life policy a good vehicle to get ins and growth
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Universal life insurance is not a good life insurance product. A portion of your premiums pays for the insurance and a portion pays for the cash value. As years goes on, the internal cost of the life insurance goes up. That means less and less of your premiums is going into the cash value. Eventually, you will start noticing your premiums going up.
At most, the rate of return you will get on the cash value is 4%. If you ever wanted to take money out, you have to borrow the cash value and interest will be charged on the loan. If you surrender the policy someday, you will pay surrender charges.
When you buy a universal life policy, you have two death benefit options. Option “A” is where your death benefit will NOT include the cash value when you die. Option “B” is where your death benefit will include the cash value when you die, but you have to pay more premiums than Option “A”. Most people who have Option B switch to Option A because the cost of the insurance goes up and the premiums will be too expensive.
As you can see, the cash value never belongs to you. You are paying your own money and throwing most of it away. What I would do is get a Roth IRA and max it out. Lets say you put in $4000 every year for the next 10 years. Your total contributions is $40,000. Given the past performance of the stock market, the value of your portfolio may be greater than $40,000. Under the IRS rules, you can withdraw your contributions out any time without paying income taxes or penalties. So a Roth IRA gives you flexibility. After age 59 1/2, you can withdraw the entire balance out without paying any income taxes.
I would also setup an emergency fund. If you don’t have one setup, I would look at money markets. They have an average rate of return of 4-5%. You can put in as much as you want in there.
As for life insurance, I would get a 20,30, or 35 year term. That way you are paying just for the insurance and nothing else.
I had a client who own a variable universal life policy until I revealed the truth behind the product. I showed him all the facts from the policy. After that, he said this life insurance sucks. He was paying about $1856/year for just $100,000 coverage at age 36. At the time I was showing him the facts about his life insurance policy, he was 56 years old. He had about $14,000 in the cash value.
If he bought a 30 year term at age 36, it would of cost him only $330/year. At age 56, he does not qualify for a 30 year term. So I gave him a 20 year term with $100k coverage and his annual premiums are $1270. His monthly savings is $48.83. I open a Roth IRA for him and he invest $50/month. With a 10% rate of return, in 10 years he will have about $10,327.
With the cash value in his VUL, I did a 1035 exchange and move it into a variable annuity. There was $1000 surrender charge, so only about $13,000 was invested. He doesn’t contribute into it since it requires a minimum of $250 to buy more shares.
About a year after doing all this, the client had $13,740 in his variable annuity and $640 in his Roth IRA. Keep in mind, he had no retirement savings before I met him. Now he’s building something to retire on. Even though its not much, its better than what he had in his VUL policy.
Whole Life Insurance is about the worst investment in the world. Buy term life and invest the difference in bonds or something.
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