VUL: A Good Fit For Boomers Late Retirement Income Needs

Primmer urges advisors to position the product as a focus on benefits for life, rather than death.

"Death is the bad end of the equation, which many clients find unpleasant to think about," he says. "What we ought to do is look at VUL as a benefit for the living because of its tax advantages. It's a product to maximize retirement income and accumulation, so a policy in, say, the first seven years is kept at a certain face amount, then starts slowly reducing through loans to the minimum required to keep it a life insurance policy."

[A VUL would no longer qualify as a life insurance policy under IRS rules if its cash value fell below its face amount--as might happen, for instance, if the underlying investments collapsed and accumulated loans exhausted the remaining value. That would cause any loans against the policy to suddenly become taxable income. Phoenix and other companies offer a rider for an additional charge that allows the individual to withdraw most of the face value and then guarantees the policy will not lapse, which prevents such a taxable event occurring.]

Heirs of wealthy investors can pay estate taxes as high as 70% on a 401(k) plan if the owner dies, Primmer points out. With a VUL, that won't happen.

He urges advisors to sell the VUL as a long-term investment, which in most cases would nullify the effects of bull markets on the face value.

"You can purchase a VUL when you're in your 50s with the idea that this is the last retirement money you would take," says Primmer. "If you then have a time horizon following retirement of 15 years before you need to take the money out, its accumulated value looks very good."

And if an investor can sit on the VUL even longer, so much the better, he points out.

"If you expect to retire at 60 and live to 80, you can take your pension and 401(k) for your income, and keep the VUL as an emergency fund as a way to max one's income," he points out. "You can take your assets and put them in a VUL that will take care of you if you live past your life expectancy. You don't have to decide who it's going to. If you need it to spend it down, it's available in the form of loans."

Although VUL sales are currently slow because of the bear market, Primmer thinks advisors would probably sell more of them if they weren't so wary of the lengthy sales process.

He notes there are policies available that can be approved within a matter of hours, with no health exam beyond a simple medical questionnaire.

Primmer feels that VUL sales have begun to build momentum, albeit slowly. "Until people feel the market is stabilized, they aren't going to jump back in," he observes.

His recommendation to advisors wishing to give their VUL sales a kick is to stress the long-term time horizon to clients.

"Give them the 10-year view," he counsels.