I know this is a hotly debated topic among the CFP types on this forum so I thought I would submit a scenario and see what some of you would recommend.

20 years ago a young professional working for a private company with no 401k was advised into Pacific Life UVL policy with a $1,000,000 death benefit ($800k base, $200k renewable) and started to overfund it as a form of investment for retirement. Stay at home wife and 2 small children.

5 years later moves to Fortune 500 company with full matching 401k, pension and small death benefit. Stays at company for 15 years. Maxes 401k all along while pension is getting funded. Never thinks twice about the UVL, had funded enough money to pay the premiums and stayed focused on maximizing current opportunity at job.

One kid graduates from A&M and second is in second year and decides to downsize job and life. Starts working at small company with no 401k but really questioning does he really need that much of a death benefit, should focus be on a taxable account that is more liquid because has a really nice nest egg in a Rollover IRA. No longer income replacement so maybe enough to pay inheritance taxes and have a nice ceremony. Has $15,000 in accumulated value and no surrender charge

What would you recommend your client to do at this stage in life? GO!

***Any resemblance to the character portrayed in this scenario is strictly coincidental.***

The policy is underfunded and will almost certainly implode eventually without serious additions. I would run illustrations to see how much is needed to make it to 100. Also, how long will policy make it on current premium addition plan and with no more premiums? Maybe something else solving for a target age based on the situation.

With that info in had you can somewhat evaluate keeping this as an efficient investment vehicle at various assumed mortalities. If it is an unattractive IRR, would consider winding down the policy naturally, or maybe purposely sooner if there is truly no need for the coverage now.

As a somewhat out of the box idea, with illustrations in hand consider the premiums needed to get policy to 100 as charitable giving and name your favorite charity as beneficiary. A&M, your church or other favorite charity would love it.

I've had adult kids take over premium payment for a policy on a parent where the implied IRR was attractive, but the parent didn't want to keep paying premiums given the wealth of the family and lack of need. Narrow circumstances where that may work, but could be a fit.

Policy cash value is small enough I don't think a 1035 to an annuity or skinnying down coverage to paid up is worth the effort.

You got ****ed. HTH

Casey TableTennis said:

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The policy is underfunded and will almost certainly implode eventually without serious additions. I would run illustrations to see how much is needed to make it to 100. Also, how long will policy make it on current premium addition plan and with no more premiums? Maybe something else solving for a target age based on the situation.

With that info in had you can somewhat evaluate keeping this as an efficient investment vehicle at various assumed mortalities. If it is an unattractive IRR, would consider winding down the policy naturally, or maybe purposely sooner if there is truly no need for the coverage now.

As a somewhat out of the box idea, with illustrations in hand consider the premiums needed to get policy to 100 as charitable giving and name your favorite charity as beneficiary. A&M, your church or other favorite charity would love it.

I've had adult kids take over premium payment for a policy on a parent where the implied IRR was attractive, but the parent didn't want to keep paying premiums given the wealth of the family and lack of need. Narrow circumstances where that may work, but could be a fit.

Policy cash value is small enough I don't think a 1035 to an annuity or skinnying down coverage to paid up is worth the effort.

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Wise words that you should consider. I agree that all of the above should be considered. And I also agree that you were sold a poor insurance product that was sold as an investment vehicle. How much have you paid in total?

Op should buy more Life Insurance, get whole life this time

I think he stopped paying the premiums?

"Never thinks twice about the UVL, had funded enough money to pay the premiums and stayed focused on maximizing current opportunity at job."

Product wasn't the issue in that case.... It is the same for most permanent policies. They aren't bad if everything goes as planned, but they almost never do, and eventually policy owner gets tired of paying, forgets why they own it, and the rest is history.

Terrible when young people are sold these products in my opinion.

cjsag94 said:

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I think he stopped paying the premiums?

"Never thinks twice about the UVL, had funded enough money to pay the premiums and stayed focused on maximizing current opportunity at job."

Product wasn't the issue in that case.... It is the same for most permanent policies. They aren't bad if everything goes as planned, but they almost never do, and eventually policy owner gets tired of paying, forgets why they own it, and the rest is history.

Terrible when young people are sold these products in my opinion.

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Absolutely. I'd put money on the LI Agent belonging to 1 of 3 outfits and those outfits absolutely live by the "if all you have is a hammer, then everything is a nail."

I remember years ago, met with a young couple (late 20s). Fortunately, they got nervous and came to me during free look period. They had met with an advisor, paid $1000 for a nice leather bound "financial plan".

They walked away with nothing but an over funded VUL. in the illustration, they were to pay premiums for 18 years, stop funding and take policy loans tax free for 4 years to pay for newborns college, then resume funding until age 65, at which time they'd take policy loans to live in retirement.

Literally every financial aspect of their life was reliant on successfully executing on that illustrated policy. I wish I could've been in the room with the advisor when he got news they cancelled the policy!

Sounds like person in your example is now "self insured" by his 401k and pension. A modest term life policy sounds reasonable, among other estate planning activities.