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Variable Universal Life Insurance: A 21st Century Way to Build Your Retirement

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"Buy Term and invest the difference." You can actually accomplish something very similar to this old saw with Variable Universal Life Insurance.

The phrase is one that some "Term Only" companies used in the mid-20th century to get people to pay for large life insurance policies. The idea was, you could get a huge face value for the price of a moderate whole life, and use the difference between the whole life and the Term to invest in the stock market or in bonds, mutual funds, or even CDs. The goal was not to lower your out of pocket costs, but to spend the same amount that you would have if you had purchased whole life; the amount put into investments could be used by you, the client, in your retirement years, and anything you had not used would go to your beneficiaries (after taxes and probate, etc) and could be used to pay final expenses. The reasoning was that after 20 yearswhen the term expiredyou would have enough in investments that you could pre-pay a funeral and still have a large sum of money to ensure a comfortable senior life style.

There was one problem with the "invest the difference" philosophy. Very few people who purchased term actually invested the "difference." Consequently, many of today's baby boomers and seniors have suddenly realized that the old term insurance is utterly worthless. Seniors are living much longer than they expected to live when they took out the policies. And the pot of money available to them for retirement doesn't look nearly as full as they had thought it would. After all, minimum wage in the late 1960s was about 1.65 an hour. You could purchase 3 loaves of bread for a dollar, hamburger for 68 cents a pound, gasoline for about 30 to 40 cents a gallon depending on where you lived.

While minimum wage has increased, it has not kept pace with the cost of consumer goods; consequently, money that looked like a future fortune 30 years ago is barely enough to support even a modest life style today. Those who did invest often feel that they did not invest enough. Those who did notand there are way too many in this categorysuddenly have no life insurance and can not afford to purchase anything more than a small policy that they hope will at least put them in the ground without expense to their families.

Investing remains a good idea; in fact, investing and planning are absolutely essential for anyone who does not want to live on the edge of poverty in his or her senior years. But the best way to do it is NOT with a term policy that leaves it up to you to remember to invest an amount that would equal a whole life policy. It's too easy to put off the investing, and every year that you wait reduces your savingsnot by just the amount you would have put into the savings, but by that amount compounded over all of the years that it would have been accumulating interest.

Today's alternative? For the young investor, Variable Universal Life insurance accomplishes the old Term motto but provides a life insurance that does not expire and an investment option with a greater potential for growth than a whole life or a traditional Universal Life. Like Universal, the policy is flexible, allowing you to change the premium, face value, payment mode and to take money out of it. Unlike Universal, however, you control the investments and have the freedom to invest in stocks, bonds, mutual funds, or anything to which the company has access. VUL is best for the younger investor as you will most likely realize some years in which the investments will pull back; thus you want time to recover from economic downswings. You also want an agent who understands VUL and will be responsible for making recommendations in a timely fashion, thus helping you minimize losses.

VUL is not for everyone. However, for a person who wants to invest but also recognizes the need for a good life insurance policy, it is a very attractive option.