Should I invest in a Roth IRa or Variable Universal Life Insurance Policy?

Question

I have a 401k/ Not married, no children, but my advisor says it is wise to invest in a variable universal life policy while I am young (the premiums are lower) so it builds cash value to aid in retirement plus I will have the death benefit for later on when I am married and have kids. Susie Orman thinks this is a bad idea and that 401ks and Roth IRAs are the way to go. Other people think differently. I am confused on what to do and wonder if people who have actually signed up for a Variable Universal Life policy have actually seen the cash value results when they have retired. My illustration shows about $600,000 cash value when I am 70- that is with a 12% return. I am wondering if I should go with this policy or use the $200/month it would cost to fund this and invest it in a Roth IRA instead or put more towards my 401k. Any serious advice would help!

Answer 1

First of all, your age ? If under 35-39 UL is a good deal, mortality charges are minimal, and you should be able to stop payments in 20 years easily, and still have the full benefit death insurance.

12% return is ridiculous long term, look at some 7% to 9% numbers. This is more likely. Also what is the guaranteed interest rate of the particular policy you expect to buy ? What company, etc. ?

The Roth is good also. If you have a few extra bucks, do both !
But the insurance should not be $200 a month, too much ! Who are you doing business with ? For $200 a month, you should be able to do both if you are in the age bracket I am guessing.

Sounds like your financial advisor is an insurance salesman!
Met Life, NY Life, or Prudential maybe ? Get away from him !

Answer 2

Cash value life insurance is a poor investment.
That 12% return they quoted you is just a projection, and not guaranteed. Most cash value policies only get 2 to 3% on an annualized basis. You generally don't start building value until the 5th year, which means year 1 thru 5 have a ZERO percent return.

Get the Roth IRA instead. Even if you put the money in a CD, you will probably do better than the insurance.

Answer 3

There is no compelling reason for you to have a life insurance policy, other than making the salesperson rich. Variable life policies have one of the highest commission rates of all financial products. Also, the fees and expenses associated with the product make it almost always a bad deal. A 12% return seems ridiculously high, too.

My advice? At the very least, max out your 401(k) contributions to the point that your employer matches. For instance, if your employer matches every dollar up to $10,000, then invest in that until you reach the $10,000. Then, contribute the maximum amount allowed to a Roth IRA ($4,000 if you're under 50, $5,000 if you're over 50). The 401(k) will reduce your current tax liability, and the Roth will help your future tax situation.

Hope that helps!

Answer 4

"Don't bank thru an insurance agent, and don't insure thru your bank" is my motto.

I'd go with the Roth (I have one). Life insurance should NOT be used as a savings account! In reality, most people only need LESS than $10k in life insurance....just enough for a funeral and to get you into the ground.

Keep more money in your savings than checking account. You'll earn more interest on your money there. Use this money for short term needs...i.e. monthly bills, food, mortgage, etc. You can always transfer money, even online, from savings to checking if necessary.

If your employer offers a 401k, use it, especially if they match any of it...it's like FREE MONEY!

A Roth IRA is also a wonderful vehicle, too. You pay taxes on the money you already earned (money you're putting in), therefore the government is getting paid now (maybe 15%--depending on your tax bracket), so any money you make is TAX FREE!

If you invest into a non-Roth and you take a tax-deferal, the government must wait years to get paid, therefore they hit you when you retire. Let's say come retirement age, you have $500,000 in a Roth, it's ALL YOURS because you already paid taxes on that contributing money you earned.
Now let's say you have $500,000 in a tax-defered vehicle, you can pay as much as 38% ($175,000), leaving you with $325,000 in your pocket.

Answer 5

Invest in your IRA, Roth IRA and/or 401K. Pay attention to the costs of whatever you choose to invest in. In the beginning go with funds that have low costs ... Vanguard is a good place to look ...

Whenever you need insurance, buy term. You don't want to be paying for insurance that you don't need ... you have no wife or kids to be concerned with at the present. You only need insurance to replace your income so your family is taken care of if you die. Insurance is not the best investment method for a young person.

Answer 6

Your advisor will make much more $$ from the annuity so of course he is pushing it. That is why you should not have an advisor. All the basic investing info anyone needs readily available unless trading seriously. Too much help as bad as too little. No annuities - period + not going to get a 12% return after fees.

Answer 7

You should fire your financial afvisor immedietely, he live on your commission. He is not act on your interested
I tell reason why it is bad for you.
Roth IRA is the tax shelter, you could withdraw to buy first home,
.The best thing you could do right now is buying term policy, the rest put in the Roth
For example, if you have 500k or 1 millions right now in the Roth, you buy the insurance policy?
that why you are build your nest egg right now with the Roth while you purchase simple term life policy(cheap) compare to UVVL( expensive) while you are build on nest egg

so let take your number to arguments, assuming you are 30, the return is 12%
200/month *12=2400*40(years)==96000(total contribution)

in 40 years spaning, by rule 0f 72, your money double in 6 years with 12% return
40/6~~6.67. your porfolio would be
96000*2=192k*2=384K*2=768k*2=1.536 million*2=3.072 million

Your are in the hole if you are listening to your advisor

In the meantime, learn how to invest in yourself

I did it on my own, at the age of 33, my 401k+roth combine is 75000.00 and 30000.00 in taxaxble account without any financial help. You could do it. the tricky is find the right stuff

Yes you could learn invest by yourself. it is your money, you should know how to do with it. for starter check this site out.

http://www.pathtoinvesting.org/index_fla...
http://www.stockcharts.com
http://www.streettalklive.com section university. a lot amount of information. It will serve you well
I accumulate in good amount in 401k at the young age.I could share with you. when consider invest in stock market. you should consider basic 3 things:

fundamental analysis==(economic data,finincial health, management, business model, competetion)>>what to buy

technical analysis==(chart+indicator)>> when to buy

Sentiment/schycho analysis==>>mood of investor, Contrarian point of view.
Market cycle===>> check out book Trader Almanac by jeff hirsch will give you inside stuff
When you combine 3 thing, It is one of the powerful knowledge goinh with you for the rest of your live

At the age of 33. my 401k is amassed 75,000.00 and 30000.00 in taxble account. by follow simple rule

Answer 8

I would go with the Life Insurance, because you can borrow against it later, while you are alive, and you are paying a lot less for a bigger return, but you won't get to enjoy it (the "final" return), but your family will be well taken care of. I'm sure there are a lot more pro's and con's.