Life insurance is never an investment or retirement plan. You should report this financial adviser to your state's insurance commissioner for misrepresentation of a life insurance product to keep this guy from deceiving other people.
This is how a VUL policy works. Your premiums are paid for three things: The universal life insurance, fees and charges (such as policy fees, administrative fee, commissions, sales charge, etc.), and the cash value. The cost of universal life insurance goes up as you get older. That means more of your premiums goes to insurance and less toward the cash value. Eventually in 10 to 20 years, you will have to pay more premiums to keep this policy.
Your cash value is invested in the market and as with any investments, nothing is guaranteed. When you mix investments with life insurance, insurance companies charges lots of fees to manage your cash value. While a particular stock, mutual fund, or bond may do well, the high fees eats away the return of your investment. I have not seen a single VUL policy that has done better than 5% return. If you wanted to take money out, you will be borrowing money from the policy and pay loan interest of 8%. If you die, the insurance company keeps your cash value, but pays the death benefit to your beneficiary.
If you want to start a retirement plan, open a Roth or Traditional IRA. If you are working and your employer has a 401k plan or 403b, then contribute to the retirement plan at work. You should be aware that retirement plans has 10% penalty if you make non-qualifying withdrawals before age 59 1/2. So you should be aware that retirement plans are long term investments and you shouldn't put all your savings into them in case you need to take money out. I suggest setting up an emergency fund by opening a money market fund and put away 6 months of income into it. For example, if you earn $2000/month, then you need to have a total of $12,000 saved for emergencies. That way in case you do need to take money out, you can leave your retirement plan alone.
If you plan to get life insurance, go with a 20 year or 30 year term insurance. Term insurance is inexpensive and doesn't build cash value. Life insurance is to provide income to your family in case something happens to you. In other words, it is to replace your income. Since term is inexpensive to buy, you can buy lots of coverage. For a 19 yr old, I don't see any reason why you need life insurance, unless you have kids or you have large debts to pay.
If you open a Roth IRA, contribute to your employer's retirement plan (if there is one at your job), and invest on a monthly basis, you should have no need for life insurance in 20 to 30 years. I suggest you invest in equity mutual funds for your retirement plan because mutual funds have historically outperform the inflation rate. Equity mutual funds has an average rate of return of 12% in the past 30 years. If you invest $400/month for the next 30 years, you can potentially have $1.4 million. What if your portfolio wasn't doing that great and instead your average rate of return was 6%? Then in 30 years you will have around $403k. In 30 yrs, you will only be 49 yrs old. If you continue to invest $400/month until you are 60, then you will have anywhere between $850k (with 6% return) to $5.3 million (with 12% return).
In conclusion, don't listen to the financial adviser or anyone telling you that life insurance is some sort of investment or savings plan. You can check the definition of what life insurance is and it will say its a contract, not a plan. If you are working, open a Roth IRA (you must be earning income in order to contribute to an IRA) and max out the contribution limit if you can. The maximum contribution limit to IRA is $5000/year. I contribute $400/month to my Roth IRA and it is invested in 4 different mutual funds, so I don't max out my IRA, but its close enough. If your employer offers a retirement plan, contribute to it (I normally contribute 3% of my salary to my 401k and my employer also match what I put in). Setup an emergency fund so that you don't need to take money out from your retirement plans. If you are looking to get life insurance, buy term insurance. I bought a 30 year term policy when I was 30 yrs old and pay $475/year for $500k coverage.
· 9 years ago