During my last year of college, and my first as a licensed insurance sales agent, I purchased a $250,000 VUL life insurance policy. A year later I purchased the same policy for my wife. I had been trained that this was the best policy for the client. When really I think it was the best policy for the advisors pocket.

In the past few months I have seriously reconsidered this policy for my wife and me. I am considering cutting my losses and surrendering the policy and purchasing 30 year term policies. 

Currently my wife and I pay $100 a month for each policy. It costs about $25 a month for the insurance and about $75 is invested. We bought these policies when we were just out of college and before we had kids. They are no longer sufficient.

We will now purchase $1,000,000.00 policies at about $40 each a month. This will save us about $120 a month. We will then take the difference and save it into our retirements. When I bought this policy I was trained that this is can be used to supplement retirement. This is not what these policies were intended for and should not be considered a retirement asset.

Here is how the current policies breakdown:

Category Christy Chris Total
Value $3,468.56 $3,991.27 $7,459.83
Premiums Paid $3,951.00 $5,418.75 $9,369.75
Surrender Value $1,848.47 $2,316.27 $4,164.74
Policy Loss $482.44 $1,427.48 $1,909.92
Surrendered $1,620.09 $1,675.00 $3,295.09
Total Loss $2,102.53 $3,102.48 $5,205.01

So as you can see we have put about $9,400 into these accounts. We will pull out about $4,100 in surrender value. We will have lost a total of about $5,200. While the numbers seem outrageous and you might be asking why I would redeem it, I think it makes sense.

First, if I let the policy stay in affect and run out of money, I will lose all $9,400. The chances we will die in the next 3-5 years this policy will be in effect is low. So why not take the money now and put it into retirement or education funding?

We need to increase our policies and replacing this VUL with a VUL for a million dollars will make our premiums go way up and only make these numbers much worse.

I am still a proponent of VUL’s in the right situation. When our kids are off to college, we are saving adequately for retirement, paid off our debt, and have the discretionary income to replace our terms with a VUL. So that will be at least 20 years into the future.

Here is my plan at this point. Surrender the current policies after the new 30 year million dollar term policies are in effect. I don’t want to get caught with no insurance. Then wait about 20 years or so and start to look for permanent policies again that will carry us through retirement and protect our assets possibly using an ILIT, Irrevocable Life Insurance trust.