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March 02, 2003 at 07:00 PM
Consumer Groups Report On VUL: Not Well Enough Understood
By
Washington
Most consumers dont understand variable universal life insurance well enough to compare policies and make good purchasing decisions, the Consumer Federation of America says.
“Even most financial planners dont understand it well enough,” says Stephen Brobeck, president of the Washington-based group, who released the report during a press briefing.
VUL can provide good value if intelligently purchased, held and managed, Brobeck says.
However, adds James H. Hunt, CFAs life insurance actuary, those seeking tax-sheltered investments should look first to 401(k) plans, individual retirement accounts or Roth IRAs before examining VUL.
Hunt says many people dont understand the array of charges associated with VUL policies, particularly the surrender charge.
These charges include taxes, mortality and expense and investment management as well as surrender charges, Hunt says.
These charges, he says, often exceed the tax benefits of VUL.
Indeed, he says, consumers who purchase VUL policies should be prepared to hold them at least through the surrender period.
In addition, Hunt says, consumers should never surrender a VUL policy with a loss, which is the excess of premiums over the surrender value, without looking into a transfer of the loss to a variable annuity.
Hunt notes that since VUL is a security, full disclosure of of the charges is contained in the prospectus. Nonetheless, he says, these are difficult to understand.
Most consumers, he says, dont understand that they must keep the policy in force until death to retain most of the tax benefits.
Hunt adds that this could be explained better by agents selling VUL.
While there are suitability requirements for VUL sales, he says, they are not really enforced.
Hunt cites one example of a consumer who asked him to review a variable policy for which she was paying $23 per month, of which $2 “came off the top” before other premium deductions.
