Variable life policy not for this mother of three

Dollars & Sense

November 04, 2001|By Liz Pulliam Weston | Liz Pulliam Weston,SPECIAL TO THE SUN

In 1998, I began investing in a variable life insurance policy with a death benefit of $250,000. I began this plan in hopes of increasing my monthly investment as time went on. Well, my financial situation has worsened. I am 39, a single mother of three minor children and I make $30,000 a year. I receive little or no child support. I'm paying $1,100 a year for this policy and am concerned that I'm throwing my money away. My financial adviser - who recommended this plan - tells me he wouldn't be able to find a life insurance policy at the rate I currently pay and tells me to stick with it.

Variable life policies combine life insurance with an investment feature. These policies are most appropriate for high-income people with plenty of disposable income who already have exhausted other means of saving for retirement by contributing the maximum allowed to 401(k)s, IRAs and other plans.

Does that sound like you?

Variable life policies also come with hefty commissions for the insurance agents who sell them. But surely that's not why your agent is curiously blind to the fact that you can get a lot more coverage, for a lot less money, by buying term insurance. A $250,000 policy for a woman your age in good health could cost as little as $150 a year.

But cashing in your policy will be painful. You're facing a significant surrender charge, and you haven't had enough time to build up more than a token cash value.

You might justify continuing to invest in your policy if you expected your financial situation to improve substantially - and soon. But continuing to spend so much on coverage that's no longer appropriate, if it ever was, doesn't appear to make much sense. If you decide to cash out, be sure you have a term policy in place first. You can shop for rates at one of the Internet shopping services such as or

You recently answered a question about early retirement distributions by saying that "anyone who taps a retirement fund before age 59 1/2 can be subject to penalties," although you added that there are exceptions to this rule. I hope and assume that the penalties you were talking about apply only to people who withdraw from 401(k) plans, IRAs and the like, and not to someone who retires in his or her 50s and draws a pension from a company's defined-benefit plan. Or would dollars received from such a plan be subject to an IRS penalty?

One of the ways to avoid early-withdrawal penalties from a retirement plan is to take "substantially equal periodic payments" from the plan, basing the withdrawals on your life expectancy. And that's pretty much what a pension does - you get regular payments spread out over your lifetime. So relax and enjoy your retirement.

Liz Pulliam Weston is a columnist for The Los Angeles Times, a Tribune Publishing newspaper.

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