A Gamble On Life

A risk for those who plan to borrow is that you'll take too large a loan. Even a ""reasonable'' loan might loom large, if the policy's stock investments crash. If you can't repay (which might be hard when you're retired), your policy could lapse -- causing all the loans in excess of the premiums you paid to be taxed as personal income. To avoid this disaster, Kite advises that you limit your loans to 70 percent of the cash value.

Around 30 companies now sell VUL, led by Prudential and Equitable Life. The list includes two low-load companies, which charge no upfront sales commissions: Security Benefit Life and American Life of New York. But both levy higher annual fees than many agent-sold policies do. Their rate of return exceeds Equitable's over 10 years, according to one analysis by actuary James Hunt of the National Insurance Consumer Organization. Over 20 years, however, Equitable catches up with American Life. Security Benefit keeps its lead on policies of $250,000 and less but not on $500,000 policies. For long-term investors, the size of the fee clearly matters more than sales charges.

The low-load crowd is waiting for a VUL due in February from Ameritas Life in Lincoln, Neb., which will offer no-load funds managed by the Vanguard Group and Neuberger & Berman. It's believed to have the lowest costs and competitive returns. So the range of products is expanding, for those who don't mind owning life insurance that carries risk.

TEMMA EHRENFELD

© 1994