New article from Ronny Jetmore:
This month, I would like to go over something that many “financial advisors” would rather I not. I am speaking of variable universal life insurance. A true “fee only” financial advisor will agree with my sentiments, but most of the financial advisors that actually sell insurance products, will not. Though I cannot impugn the motive of any group, or person, I do think the reason those selling life products do recommend a variable universal life policy over a term life policy is because the agent or “financial advisor” is paid a lot more money on the v.u.l. I will not go into a lot of actuarial data, as general points will make my case, just fine.
Five years ago, I would have seen little need to go over this with many people, but it seems in recent times, a lot of consumers are buying into the idea of a variable life product. What I notice “product selling” advisors recommend is astonishing in my view. I hear them state that people should no longer contribute to their 401k, but rather, purchase a v.u.l. Remember, at least your 401k contributions are not taxed. WITH A V.U.L. YOU ARE INVESTING YOUR MONEY THAT HAS ALREADY BEEN TAXED. The promise in a v.u.l. is some tax-free return. Part of the v.u.l. is, in essence, a form of mutual funds. These will build some value over time, so that you can use the money later on if you like. It sounds okay, and quite helpful, at first glance. With a v.u.l. you would not sell your investment, but rather, you can borrow the money against the cash value of the policy. This loan on the policy is not taxable, so sounds great, not really. Read on. What the sales person does not tell you is that these policies are replete with fees. You are charged with an annual fee, investment management fees, as well as, marketing and sales fees, greatly. In fact, between the annual fee and the investment fees alone, the buyer will be paying almost 3%. On top of this, when you do borrow against the policy, you are almost doomed to have to keep the policy active because if you allow the policy to lapse, you will have to pay tax on the investment earnings!
Think about this fact; ALMOST EVERY FEE-ONLY ADVISOR WOULD RECOMMEND AGAINST THE PURCHASE OF A VUL FOR MOST EVERYONE, AND YET, ALMOST EVERY LIFE INSURANCE AGENT, THAT IS PAID ENTIRELY ON COMMISION, RECOMMENDS YOU DO BUY A VUL. THIS ALONE, SPEAKS LOUDLY.
If it is simply too difficult to understand, or over your head, I highly recommend you contact a true fee-only financial advisor, that does not sell anything, but advice. If you have a v.u.l. policy now, or a simple universal life policy now (which is about an equally bad deal for almost everyone) get rid of it. If you contact the Consumer Federation of America, they offer a Rate of Return analysis for a fee of about $65 which will show you just how bad of a deal you bought into. The bottom line is, far more money is earned by buying a simple term life policy, and investing the savings in your 401k, IRA, and so on. Remember, no one is going to look after your money as well as you are. Generally, the agent is far more interested in making his or her own money on your money than making money for you. I have not seen a single universal or v.u.l. policy perform as it was understood by the insured, not one. I frequently have to show my potential client this. You really need to do the uncomfortable thing, and ask questions, push, read articles, and understand what you are buying or have already bought. One study alone compares total cost and “average” earnings on a $1,000,000 v.u.l. with the total cost and “average” earnings of a $1,000,000 term where the amount of money saved from buying the term was then invested. The term option earned another $90,000 in return, after all expenses were deducted. This is not a “happy” hypothetical, but realistic outcome.
I am happy to discuss with anyone the thoughts they may have or questions they may have. I no longer discuss the above with other life insurance agents, or “financial advisors” selling products as they tend to not want to discuss, but rather, want to talk over me. When really placed into a corner with a calculator and paper by me, I typically receive the same response, which is something like, “Yeah, but if they buy the term policy you know they probably won’t be disciplined enough to invest the difference, so they should buy the v.u.l.” The ones that do not counter with a similar statement simply do not understand or want to understand the facts.
Of all the things we spend money on, a fee-only advisor is an excellent use of money to help you understand what you should buy even if you do not understand why. No product is being sold, but simply financial wisdom.
Thank you very much.
Ronny Jetmore
Principal
Jetmore Insurance Group, Inc.
P.O. Box 1893
9545 HG Trueman Road
Lusby, MD 20657
410 394 9000 9020fx
www.jetmoreinsurancegroup.com
This month, I would like to go over something that many “financial advisors” would rather I not. I am speaking of variable universal life insurance. A true “fee only” financial advisor will agree with my sentiments, but most of the financial advisors that actually sell insurance products, will not. Though I cannot impugn the motive of any group, or person, I do think the reason those selling life products do recommend a variable universal life policy over a term life policy is because the agent or “financial advisor” is paid a lot more money on the v.u.l. I will not go into a lot of actuarial data, as general points will make my case, just fine.
Five years ago, I would have seen little need to go over this with many people, but it seems in recent times, a lot of consumers are buying into the idea of a variable life product. What I notice “product selling” advisors recommend is astonishing in my view. I hear them state that people should no longer contribute to their 401k, but rather, purchase a v.u.l. Remember, at least your 401k contributions are not taxed. WITH A V.U.L. YOU ARE INVESTING YOUR MONEY THAT HAS ALREADY BEEN TAXED. The promise in a v.u.l. is some tax-free return. Part of the v.u.l. is, in essence, a form of mutual funds. These will build some value over time, so that you can use the money later on if you like. It sounds okay, and quite helpful, at first glance. With a v.u.l. you would not sell your investment, but rather, you can borrow the money against the cash value of the policy. This loan on the policy is not taxable, so sounds great, not really. Read on. What the sales person does not tell you is that these policies are replete with fees. You are charged with an annual fee, investment management fees, as well as, marketing and sales fees, greatly. In fact, between the annual fee and the investment fees alone, the buyer will be paying almost 3%. On top of this, when you do borrow against the policy, you are almost doomed to have to keep the policy active because if you allow the policy to lapse, you will have to pay tax on the investment earnings!
Think about this fact; ALMOST EVERY FEE-ONLY ADVISOR WOULD RECOMMEND AGAINST THE PURCHASE OF A VUL FOR MOST EVERYONE, AND YET, ALMOST EVERY LIFE INSURANCE AGENT, THAT IS PAID ENTIRELY ON COMMISION, RECOMMENDS YOU DO BUY A VUL. THIS ALONE, SPEAKS LOUDLY.
If it is simply too difficult to understand, or over your head, I highly recommend you contact a true fee-only financial advisor, that does not sell anything, but advice. If you have a v.u.l. policy now, or a simple universal life policy now (which is about an equally bad deal for almost everyone) get rid of it. If you contact the Consumer Federation of America, they offer a Rate of Return analysis for a fee of about $65 which will show you just how bad of a deal you bought into. The bottom line is, far more money is earned by buying a simple term life policy, and investing the savings in your 401k, IRA, and so on. Remember, no one is going to look after your money as well as you are. Generally, the agent is far more interested in making his or her own money on your money than making money for you. I have not seen a single universal or v.u.l. policy perform as it was understood by the insured, not one. I frequently have to show my potential client this. You really need to do the uncomfortable thing, and ask questions, push, read articles, and understand what you are buying or have already bought. One study alone compares total cost and “average” earnings on a $1,000,000 v.u.l. with the total cost and “average” earnings of a $1,000,000 term where the amount of money saved from buying the term was then invested. The term option earned another $90,000 in return, after all expenses were deducted. This is not a “happy” hypothetical, but realistic outcome.
I am happy to discuss with anyone the thoughts they may have or questions they may have. I no longer discuss the above with other life insurance agents, or “financial advisors” selling products as they tend to not want to discuss, but rather, want to talk over me. When really placed into a corner with a calculator and paper by me, I typically receive the same response, which is something like, “Yeah, but if they buy the term policy you know they probably won’t be disciplined enough to invest the difference, so they should buy the v.u.l.” The ones that do not counter with a similar statement simply do not understand or want to understand the facts.
Of all the things we spend money on, a fee-only advisor is an excellent use of money to help you understand what you should buy even if you do not understand why. No product is being sold, but simply financial wisdom.
Thank you very much.
Ronny Jetmore
Principal
Jetmore Insurance Group, Inc.
P.O. Box 1893
9545 HG Trueman Road
Lusby, MD 20657
410 394 9000 9020fx
www.jetmoreinsurancegroup.com