Wondering if It Wise to Buy that "Second-to-Die VUL" Policy Recommended by Your Adviser?
Generally speaking, the purpose of life insurance is to provide a source of funds to a survivor after the death of a loved one. Many times if one spouse is the major wage earner, the wage earner spouse may take out a large life insurance policy to make sure that if something happens, the surviving spouse will be taken care of in the event of the untimely death of the breadwinner. Normally, the non-wage earner spouse will not be insured, or the policy will be nominal. These are the practical considerations.
Lately, however, there has been a big push by insurance companies to sell so-called "Second-to-Die VUL" Policies, on the basis that these policies provide not only life insurance, but also, retirement planning benefits. VUL refers to "Variable Universal Life." Such a policy is a combination of a life insurance policy on the life of the surviving spouse, and a mutual fund. There are many problems with such a policy, not the least of which, regardless of the face value of the life insurance, no benefits are payable upon the death of a wage earner spouse who is the first to die. Therefore, the primary purpose of protecting the non-wage earner spouse from financial ruin is not served. Insurance companies know that in most homes, the wage earner spouse will die before the non-wage earner spouse, i.e., husbands usually die before wives do. Therefore, there is a delay in paying out proceeds that benefits the insurance company to the detriment of the insureds.
Further, it is often the case that the mutual fund tied to the policy involves considerable risks, such that in the event of market fluctuations, that there is no guarantee against large financial losses. Lastly, these policies are very expensive, in terms of fees and costs, so that even absent market losses, unless there are significant market gains, there will be losses for the insureds.
The dirty little secret of the Second-to-Die VUL is that the sales agent, who is often a trusted financial advisor, normally receives a huge amount of compensation for having recommended the policy. This is normally up to 90% of the first year premium, plus several points on all subsequent year premiums. All told, the Second-to-Die VUL Policy is undoubtedly one of the worst investment decisions available today.
Insurance agents who give financial advice are required to act only in the best interests of the insurance and to disclose all material facts. This of course is not what usually happens with Second-to-Die VUL policies. The failure to disclose material facts, or the failure to consider the best interests of the insureds, is legally actionable and both the agent and the insurance company may be legally liable for losses suffered by a defrauded insured.
Call us at (858) 259-7790 or contact us online.
Lately, however, there has been a big push by insurance companies to sell so-called "Second-to-Die VUL" Policies, on the basis that these policies provide not only life insurance, but also, retirement planning benefits. VUL refers to "Variable Universal Life." Such a policy is a combination of a life insurance policy on the life of the surviving spouse, and a mutual fund. There are many problems with such a policy, not the least of which, regardless of the face value of the life insurance, no benefits are payable upon the death of a wage earner spouse who is the first to die. Therefore, the primary purpose of protecting the non-wage earner spouse from financial ruin is not served. Insurance companies know that in most homes, the wage earner spouse will die before the non-wage earner spouse, i.e., husbands usually die before wives do. Therefore, there is a delay in paying out proceeds that benefits the insurance company to the detriment of the insureds.
Further, it is often the case that the mutual fund tied to the policy involves considerable risks, such that in the event of market fluctuations, that there is no guarantee against large financial losses. Lastly, these policies are very expensive, in terms of fees and costs, so that even absent market losses, unless there are significant market gains, there will be losses for the insureds.
The dirty little secret of the Second-to-Die VUL is that the sales agent, who is often a trusted financial advisor, normally receives a huge amount of compensation for having recommended the policy. This is normally up to 90% of the first year premium, plus several points on all subsequent year premiums. All told, the Second-to-Die VUL Policy is undoubtedly one of the worst investment decisions available today.
Insurance agents who give financial advice are required to act only in the best interests of the insurance and to disclose all material facts. This of course is not what usually happens with Second-to-Die VUL policies. The failure to disclose material facts, or the failure to consider the best interests of the insureds, is legally actionable and both the agent and the insurance company may be legally liable for losses suffered by a defrauded insured.
Call us at (858) 259-7790 or contact us online.
