Tri-State Neighbor: South Dakota Farm Newspaper

Dear Michael: We had purchased a Universal Variable Life back in the 1990s to provide funds to our non-farming children. However, over the past four years, we've noticed the value on these contracts keeps dropping off quite a bit and we're a little worried about the future. What should we be doing? - Variably Confused.

Dear Variably: A great many life insurance contracts were sold in the 1990s that looked fantastic considering the stock returns of the decade. It was almost impossible to not make money during this decade. However, since 2001, the market is down about 18 percent using the S&P 500 as a marker.

What a lot of life insurance companies did was to build a variable life insurance policy made up of two parts. The cash value was invested in the stock market and the raw cost of the term insurance was deducted from this cash value. These were expensive policies to set up for insurance companies and even more expensive to administer as time went on. In addition, the raw costs of some of these policies for the term costs of the actual insurance was typically much higher than conventional term insurance policies or even standard universal life policies.

This wasn't a problem in the 1990s with double digit returns. The cost of the insurance paled in comparison with the returns during this decade, so no one really cared what the company charged for the insurance.

However, during the last four years, we've seen a down market and as returns have fallen, these higher than normal costs for the insurance are really starting to rise as the ages of the insured rise. Each year, these companies raise the costs of the insurance within the contract to reflect the new age of the insured.

This wasn't a problem as long as you were getting the returns you were in the 1990s, but in today's market, if you are looking for a life insurance death benefit in 10 years, 15 years or longer, a variable may not be the right solution for you. This should have been sold as an investment with a death benefit if you should happen to die early. It should not have been used where you have a high death-benefit-to-cash-value ratio expecting the returns to carry the policy until you were 65 or older.

In your case, call the company and have the company run a new illustration - called an "in force illustration" showing how long this policy will last using different rates of return on your cash value - including a zero return which is probably what you have experienced for the past four years.

If it looks like the policy will last long enough for you, then stick with it. If not, then maybe it's time to go shopping for a longer term solution.

Dear Michael: We have a son who wants to farm, but he has such a good job where he is working now. We are nearing retirement and he's made comments about coming back to farm, but we just don't have a sizeable enough operation for him to make the money he is making now. Although we'd love to have him come back and take over the family farm, we don't think it's in his best interest to do so. What should we tell him? - Best Interest.

Dear Best: If you are nearing your retirement age, this would probably put your son close to 40 to 45 years old. For some people, if they've worked with their company for a sufficient time, they can take an early retirement, which means their retirement plan wouldn't get any more input from his company, but he'd still have quite a little nest egg when he reaches the retirement age of the company.

You might keep in the back of your mind that if your son is seriously considering coming back to the farm operation, maybe he has studied your operation over the years and sees some opportunities that you do not. Maybe he sees areas where he could make money where you are not because of the risk factors involved.

I'd say if your son wants to take a crack at it, sit down with him, make sure he understands the income and expense of the place so he can make an informed decision and then help him any way you can if he does make that choice after you retire. You might be surprised at how much money he can crank out of the old place once he gets his hands on it.

Worst case scenario, he doesn't do so well - and this is where you need to be careful - and he needs to go back into the employed workforce again.

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