Variable life insurance policy not right for many situations

Moneyline

Seek financial planner, not just family agent

May 21, 2000|By Liz Pulliam Weston | Liz Pulliam Weston,LOS ANGELES TIMES

I am a 32-year-old attorney with a wife, two children and my own law firm. I am in the process of setting up some form of employer-funded retirement plan, and my insurance agent (and family friend) is telling me I should buy variable life insurance. While I have pretty much convinced myself that variable life insurance is not for me, my wife, who trusts the agent, thinks I don't understand the product and says our friend would not steer us in the wrong direction. What do you think?

I think even the best-intentioned insurance agents can get excited about a product and not realize that it isn't the best fit.

Variable life insurance - a life insurance policy that combines a death benefit with an account that can be invested in stocks, bonds and cash - can be a reasonable, if relatively expensive, option for high-income people who need life insurance and who have exhausted other tax-deferred ways of saving for retirement.

The earnings in the investment portion of a variable life insurance policy are tax-deferred until withdrawn. That tax deferral comes with a price in the form of higher fees and costs than you would pay for equivalent mutual funds.

It's not clear whether your agent is urging you to buy this policy in lieu of a retirement plan or in addition to it; if it's in lieu of, thank him and resolve to restrict contacts with him to social events. Seek out a financial planner, preferably of the fee-only variety, who specializes in setting up retirement plans.

If the agent is suggesting this policy in addition to a retirement savings plan, have the planner review it and see if it meets your needs.

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