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Variable Life Policy - Get out or Stay put?? I got Scammed :-(

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  • DanA
    It sounds like you want out and don't need the life insurance coverage.  I will assume you are healthy.  If not, ignore everything below.

    Is it variable life or variable universal life (VUL)?  I'm guessing VUL since your advisor talked about "leveling" the premium.  The name of the product would be helpful.  Variable life might require premium payments to continue.  VUL offers flexible premium payments.

    I'll assume VUL.  You need to call the carrier and ask for in-force illustrations.  Ask for 3 illustrations: 1) as-is assuming future premium payments, 2) no future premium payments are made, 3) no future premium payments are made and death benefit lowered to the minimum allowable amount and set at level.  For each of these, ask for the "supplemental expense report" that shows all of the annual expenses (premium loads, riders, cost of insurance, other expenses).  It may or may not include the fund expenses and it might be called something different.  Make it clear you want to know the future policy expenses in what they send to you.

    You are going to have to tell them a rate of return on the investments to use when running the illustrations.  You could ask for all three to be run at 0% and  5% (pick a higher number if you want).  The really bad part of VUL is that your expenses typically go up when the market is down due to the insurance company being on the hook for the amount "at risk" (death benefit less cash value).

    What you've paid in is what it is.  Look at it going forward.  You know that you have $9,000 coming to you over three years less expenses just for waiting out the surrender charges.  That's not a great return if the expenses eat it all up, but illustration 3 above should show you about what you would get with expenses minimized in those market scenarios which might make it worth hanging on to.

    Right now, your policy value is less than the premiums paid in, so you likely do not have a taxable event if you surrender, but ask the company to be sure.


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  • The White Coat Investor
    Via email:


    I tried to post this message to this thread and it said I needed a previously approved post.  Please advise.

    Ugh, first post and I feel like I wrote a book and it didn't post.  Sorry, I guess I'll keep it brief and give it another try.

    Sounds like you want out.  I think your policy is Variable Universal Life not Variable Life based on the "level the death benefit" comment.

    You need to ask for in-force illustrations to properly evaluate the policy.  Call the carrier directly.  The customer service desk runs a lot more of these than the agents.  Ask for 3 illustrations each run at 0% and (5-7%, your market performance guess):  1) as-is with ongoing planned premiums and no changes, 2) with no future premiums and no changes, and 3) with no future premium payments and the death benefit lowered to the minimum allowed and changed to level.  6 total - 3 at 0% and 3 at 7%.

    Ask for them to include the supplemental expense report for all three.  They might call it something else so say you want to see the report showing all of the costs coming out of the policy each year.  This may not include the mutual fund expenses, but should have premium loads, cost of insurance and other expenses.

    #3 will show you the minimum cost of keeping it for the next few years to wait out the surrender and get the $9K less expenses.  It might be worth it.  Please look at it going forward.  It might have stunk for the last 7 years, but it might not be terrible and may actually be ok going forward.

    If you do surrender now, you shouldn't have any tax consequences, but I would ask for the carrier to confirm your basis in the contract to make sure.

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  • The White Coat Investor
    Wow. 7 years into a bull market and barely above water. You could bail now with little tax consequences but it's probably enough money that it might be worth paying someone like James Hunt to help you analyze it.

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  • Variable Life Policy - Get out or Stay put?? I got Scammed :-(

    Hi guys, I got scammed by a insurance salesman dressed up as a financial advisor about 7 years ago. Fresh out of fellowship.

    Put myself AND my wife into a variable life plan. Gave me all the BS they usually do.

    The worse part about it is I forgot I even had it until this year! LOL. Dumb Dumb Dumb me. Oh well.

    If I just put this $ in a S&P fund I'd be up HUUUUUUUUGGGGEEEEE. I feel like an idiot.

    My Plan:
    Face amount: $400K
    Death Benefit: $485K

    Policy Account Value: $85K
    Net Cash Surrender Value: $80K
    Surrender Fee: $5K

    Total Premium Payments: $73K

    Loan interest rate: 3%

    Wife's Plan:

    Face amount: $350K
    Death Benefit: $390K

    Policy Account Value: $40K
    Net Cash Surrender Value: $36K
    Surrender Fee: $4K

    Total Premium Payments: $36K

    Loan interest rate: 3%

    Two weeks ago I told my "advisor" I wanted out and to liquidate both of the accounts and I was OK with losing the termination fee, but he told me if I just kept it for another 3 years the surrender fee would go down to zero. He also mentioned he would Level the death benefit so I wasn't paying as much in Insurance. I said OK, hold off and I'll ask some people. Life got in the way and the market also dropped 10%, LOL. So I lost even more value since they are in some crappy funds with high fees.

    I already have plenty of Term Life insurance.

    What do you guys think? Stick this thing out for another 3-4 years, or just bail and lose the surrender fees (about $9K in total)

    Any help is much appreciated!