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VUL chump
Old 11-28-2020, 08:34 PM   #1
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VUL chump

I admit it to all. I am a VUL chump. I took out individual policies on DW & Myself 23 years ago.

I also took out a J&S policy on DW & myself when our investable income outreached my SEP, Roths and HSA.

The J&S VUL has actually performed well. We took it out in 2002 and funded it with $120,000 in premiums over 10 years. It now has a cash value of $352,500. The sub accounts have done all right.

We are now in our upper 50's and no longer desire the death benefit or want to pay for it. I'd like out but don't know how. If we cash it in we're looking at ordinary income tax at $252,500. I wouldn't mind leaving it in place and leaving it as "legacy money" in our estate, but I don't want to pay the huge mortality costs that would eat up the cash value if either of us live to be 90. We don't need the money to fund our living expense, I just don't want to see the mortality expense eat up everything if we live a long time.

What would you do if you were us ? Thanks everyone.
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Old 11-28-2020, 09:02 PM   #2
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Just spitballing here with little knowledge. Do you want LTCI? Can you 1031 exchange for that?
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Old 11-28-2020, 10:19 PM   #3
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So you have 3 VUL policies? One for you, one for DW and one joint?

It seems to be the same problem as a non-deductible IRA... if you withdraw a good portion will be taxable gain. So what you want to do is to try to spread that gain out to avoid pushing you into a higher tax bracket that you would otherwise be. Are you currently retired or working?

You might look into doing a 1035 exchange into a period certain or life annuity that would 1) avoid escalating COI charges inherent in the VUL as you age and 2) spread the tax gain over many years.

Another angle is whether you can do a partial withdrawal from the VUL for your $120k of premiums tax free and then do the 1035 of the remaining value which is all gain into an annuity.

Have you talked to your life insurance agent or the company that issued the policy about the options available to you? You'll probably also want to talk to an experienced CPA/tax practitioner.
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