Investment Alternatives to Permanent Life Insurance

Q: I just happened upon your article concerning the fallacies of Permanent Life Insurance. My insurance agent is a "trusted" colleague, yet I am dismayed by your opinions.

My agent is convincing my husband and I to buy $200,000 dollars worth of Universal Variable Life Insurance EACH. We are 28 and 30 years old. I am a public school teacher. My husband... is a free-lance translator. We have no real-estate. We have $25,000 earning 6% interest in a credit union. We also have 10,000 earning 4% interest in a money-market. We also have $20,000 invested through Fidelity in Verizon stock and various mutual funds. We have no credit card debt and only minimal car and student loan debt.

I was swayed by the fact that our retirement withdrawals would be tax-free. If I die, I realize that the death benefits will be reduced, but I am thinking of this account as a retirement savings account more than a life insurance policy.

If I invest in a 403(b) through my school, I will pay taxes on my withdrawals, and I think my tax bracket will be greater at retirement age. Maybe the best option for us is an IRA in which I pay the taxes on the deposits??

A: A Roth IRA would result in tax free withdrawals. A 401(k) does have the benefit of tax deferral, the ability to roll it to an IRA and then for your children to stretch the taxes over their lifetime.

The bottom line, in my opinion, is that insurance is not an efficient investment vehicle.

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