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What is variable appreciable life insurance

what is variable appreciable life insurance


Best Answer: Variable life contracts are for the birds, as far as I'm concerned.

But I do NOT recommend you cash out the proceeds and buy term, because you'll end up having to pay taxes on any money you take out of the variable contract over the amount you've put into it. If it's not much money, that may not be a big deal, but as a general rule I try to avoid the ol' IRS whenever possible and this is one area where you actually can.

Instead of term, why not consider a universal life policy with a fixed death benefit? You can do a 1035 transfer (that's the IRS code which allows you to TRANSFER money from one life insurance contract to another without having to pay taxes on it; however, only certain types of contracts are eligible to receive the money tax-free and term does NOT qualify.)

A universal policy is sort of like term insurance on steroids. It builds a little cash value over the first few years, but as a general rule, it's basically a face amount of coverage as a death benefit. The great thing about universal vs. term (aside from the fact that you can transfer the money out of your variable into it tax-free, which is no small thing) is that you get a guaranteed death benefit (the face amount) without a fixed ending date (the way a term does.)

Term insurance covers you for the set term and at the end of that term you have absolutely nothing to show for it because it doesn't build any cash value and the coverage simply terminates at the agreed upon date. It's generally so cheap because the odds are pretty good you'll outlive it.

On the other hand, you can't outlive the universal policy. That's a pretty big benefit and the price is not that much greater.

Also, you can set up a universal policy so that you do the 1035 transfer in and buy a set amount of coverage. If you're

relatively young and healthy, that might even buy you a decent face amount as a one-time premium payment. However, if you still need a higher amount of coverage, you can set them up so that you pay the premium ONLY for a set number of years, after which the coverage is STILL yours. (I generally set them up for people to pay only through age 65, or whatever age they are planning to retire, so they no longer have to worry about paying for life insurance after they are past their prime earning years.)

If your agent isn't familiar with any of this, you really should find a different agent. Term is the easiest (and cheapest) product, so it's the old standby for a lot of agents, but it's not always the best option. A good agent will help you analyze what's the best option FOR YOU and make sure you understand why it's the best option for you.

Feel free to email me if you have questions. I've helped several people this year in your exact situation and gotten them out of variable contracts that were going to end up being worthless in the next 10 years, despite their continued payment of premiums. Now they have guaranteed death benefits and they avoided paying the IRS for the proceeds from the old variable policies.

Edited to add:

For the sake of clarity, let me specify that there are two types of universal life contracts. You have a VARIABLE contract (which is really supposed to be an investment vehicle, but rarely lives up to the potential of other investments) and I'm talking about doing a 1035 rollover to a FIXED contract, which would have a guaranteed death benefit. They are very different animals.

Also, you can do the 1035 rollover to ANY eligible contract type (including fixed universal or whole life products) through any company -- it doesn't have to be through the same company where your variable contract is currently written.

Source(s): licensed agent: life & health, property & casualty

Category: Insurance

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