Some thoughts about VUL

Well, just try to make most sense of what I know/hear. If you find out any mistakes in my post, please let me know.

The selling point of VUL is always "tax free growth". If you invest in VUL, your gain in the investment is not taxed. But on the other hand, you have to pay more insurance premium and other expenses in VUL.

So let's see how much more you have to pay for buying a VUL. Let's assume that:
1. The investment performance is the same as outside investments. Here we will use SP500.
2. Forget about take money out. Let's just say we only consider asset amount.

We will come back to examine these two assumptions later. But for now, let's stick to it.

If you are a 30 year old non-smoking male, your term life insurance premium is $25/month. This number is from a quote that I got on web.

The premium for the same coverage for VUL is about $50/month. It is my estimate of the cost. Please let me know if this is not accurate. At the same time, you need to pay $60 admin fee per year.

So now you have to pay an extra of $(50-25)*12 + 60 = $360 per year for VUL.

At the same time, you will need to pay MnE Expense for your asset. That's the amount that the insurance company charge from your asset. Currently, it is 0.75%. Let's say you have X dollars in your policy. Every year, you will pay 0.75% of X to the insurance company. So your total cost is 0.75%*X+360.

Now how much you can save from the "tax free growth"? The average return of SP500 is 10.8%. Remember it is not fully taxable. Some of the gains are not taxed. Let's assume half of it is taxable. And let's assume your marginal tax rate is 25%. You will pay 10.8% * 50% * 25% = 1.35% out of your asset. Let's say you have X dollar in your VUL. You will save 1.35% * X per year from the tax advantage.

So if you can make 1.35% * X > 0.75% * X + 360, you will save. In this case, X will be $60000.

Now here is the other problem. How much can you contribute to VUL? My understanding is there is such a limit for how much you can put, which is called "7 pay". For a $500,000 policy, "7 pay" is about $50000 total for the first 10 years. That means, if you can not maxmize your contribution to meet 7-pay, you will not gain as much as the outside investments.

I am not sure whether my calculation is correct or not. If anybody has any better data, please post it.

Not sure about this. :) But it looks like the WFG agents do have one copy for each state. The guy that I met actually have 3 different versions with him (I lived in a so called tri-state area). I assume the insurance company has to register in each state. So there are different copies. But the content is probably identical.

That's what the insurance agent wants you to believe. The "fixed and on a monthly basis" part is the $60/yr administration fee. The 0.75% charge is called M&E. It is listed in the fee section of prospectus. You can find it there. But usually insurance agent does not want to tell you about it.

To be fair with WFG, their VUL is not bad comparing to other companies such as MetLife or New York Life. The question is just that whether VUL is suitable for regular Chinese or not. I think the reason that some people does not like VUL is not because it is a bad product, it is simply because they don't like network marketing.