VUL Basics

For Anna Li’s Baseshop training only

What Is VUL• Variable Universal Life

--After 1984: section 7702 of DEFRA defines "life insurance" and investment" for tax purpose"

It is based on

• Law of building equity, and

• Law of decreasing responsibility.

Two Components of VULsTwo Components of VULs

Life Insurance

VUL

Mutual Funds

Investment Options

What is VUL good for?

– Insurance Protection– Retirement– College fund– Mortgage protection– Tax planning– Estate planning– Privacy & Protection from creditor– Flexibility

Features of VULFeatures of VUL• Insurance – permanent• Separate Account:

– Professional Money Management– Diversify @ Asset Allocation– Dollar Cost Averaging– Tax-free transfer– Conveniently accessible TAX-FREE loan (IRC

7702) after the first policy year – not required to return

– Income tax-free upon death

VUL FeaturesDeath Benefit Options:

• It is important to know if the client’s need for insurance will increase, decrease, or remain the same over the insured’s lifetime.

1. Option A = level death benefit

2. Option B = increasing death benefit

3. Option C = combination of A & B

VUL Charges & ExpensesOther Potential Costs:

Transfer Charge:Transfer Charge:

Charge for excessive movement among sub-accounts Charge for excessive movement among sub-accounts

Preferred Product Provider Example:Preferred Product Provider Example:

Allows 12 free transfers in a year before $25 charge. If Allows 12 free transfers in a year before $25 charge. If transfer through internet, free for charge even over 12 times.transfer through internet, free for charge even over 12 times.

Surrender Charge:

If Policy is surrendered during the first 10 years the client is charged a penalty fee from the cash value and the rest is sent to the client (NSV). Can be offsetted by the long term investment strategy.(After 10 years, no Surrender Charge)

Loan interest charged:1~10: 2.75% 10+: 2.00%Max<3.00% (guaranteed)

Loan reserve interest rate credited:2% (guaranteed)

Effect of policy loans1~10: 0.75% 10+: 0% Max: 1% (guaranteed)

VUL Sub-AccountsVUL Sub-Accounts Loans from Policy:Loans from Policy:

Loan Credit

1~10

2.75% 2.00%

0.75%

2.0%

10+

0.0%

INS

INV

loan

reserve

WRL FEB

Accumulation VUL (John Hancock)

For internal training only

• Flagship VUL product specifically designed for long term asset accumulation with life insurance

• Technical Spec.– Premium charge: 8% 1st y, 4% >1st y– Loan: 4.25%-3%=1.25% first 10 y. 3%-3%=0% >10 y– Asset Credit: 0.05%>10 y– Admin Fee: $10/month– Per BFA charge: level for 10 years

• Riders Highlights– Cash Value Enhancement– Long Term Care

• Illustration• Comparison

Protection VUL (John Hancock)

For internal training only

• Flagship VUL product specifically designed for life insurance with asset accumulation

• Technical Spec.– Premium charge: 8% 1-5y, 2% 6+y– Loan: 4.25%-3%=1.25% 1-10 y. 3%-3%=0% >10 y– Admin Fee: $15/month– Per BFA charge: level for 4 y

• Riders Highlights– Extended Non-lapsed Guaranteed– Long Term Care

• Illustration• Comparison

• There has to be a need for insurance protection

• Clients have to be able to afford

• Clients have to be able to accept some degree of market risk

• Clients have investment need

VUL SuitabilityVUL SuitabilityDetermining Suitability:Determining Suitability:

The Shortage About VUL:

You can’t use money in the first year. If cancel within 10 years, it has surrender

penalty.

Who sell VUL?

• More than 100 companies market VUL

• The agent who sells VUL must have life insurance license and security license

Frequently Asked Questions about VUL

Frequently Asked Questions about VUL

How many years I have to pay the premium? How much money I have to put in? My account was locked, isn’t? Term is cheaper Is it true that there are a lot of hidden cost? Too good to be true What about tax law changes? What if insurance company get bankrupt?

Some of the good things about VUL

Some of the good things about VUL

Discipline/commitment/good habit

(We should commit: 401K, Mortgage, Child, marriage, why not VUL?)

Peace of mind for a responsible man/woman Show personal value (how much you worth) Flexibility and the Living benefit, like after first

policy year, can loan out from surrender value 90% without pay any tax for any use.

How To Think About The COI

• Term is cheaper, but it has 1% claim rate, the premium from your own packet.

• After tax money

• Every family should has a permanent life, Permanent life vs Term life

House vs Rent

Can I Afford The COI Of The VUL When I Am Getting Old?

• When you old, the insurance you need to buy is proportional to the cash value, which is very small when you are old (example: when a male 76 years old, if cash value is $1M, only needs buy $50,000 Insurance, the cost is $650/yr)

• The outstanding loan won’t affect the cash value• The more of the COI means you have more

cash value

When is good time to buy VUL

• Now ( the sooner the better)

• Every body needs protection, investment, flexibility for use, Tax advantage, Law suit protection.

It’s time for all to invest to the good plan!