May 31, 2007
My financial advisor suggested funding an early retirement using a VUL policy. Will this work to my advantage or will I be buying insurance I don't even need? I'm single and have no children. I would opt for term and invest in mutual funds but he says I can avoid taxes by using the money I accumulate using a VUL.
Julia, Delaware
Dear Julia,
It is impossible to give you an accurate answer to your question without knowing your entire financial history, including your current assets, liabilities, and other insurance, as well as plans you have for the future.
However, in general, it is never a good idea to purchase a life insurance product exclusively for its cash value. That's because, as you pointed out, you will be paying for insurance you may not need, as well as hefty fees, in addition to your advisor's commission (see Cash value in life insurance).
Life insurance products are designed to protect one's beneficiaries from shouldering burdens such as a mortgage, a child's college education, or other debts. Investments such as no-load mutual funds, stocks, and bonds, can provide a return on your investment without the fees of a life insurance policy. If avoiding taxes and building retirement income are your goals, your 401(k) or an annuity are other investment options you may want to consider.
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Disclaimer: We are journalists, not financial planners or insurance brokers. Nothing we say should be interpreted as a recommendation to buy or sell any insurance product, or to provide other financial or legal advice.
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