Money Watch: Should I keep life insurance or invest instead?

— -- Money Watch, a personal finance column that runs every Saturday, features a financial planner from the National Association of Personal Financial Advisorsanswering reader questions about saving, protecting and growing your money. To submit a question, e-mail USA TODAY personal finance reporter Christine Dugas at: cdugas@usatoday.com.

Q: I may get rid of my costly variable universal life insurance and invest the money through a broker or financial advisor. But I don't want to get taken to the cleaner again on fees. What issues should I consider?

A: Universal life is just a life insurance policy attached to an investment plan. Many consumers purchase variable universal life insurance from an agent who is paid a commission. Once you deduct the fees for the insurance premium, the commission and possibly other fees, the investment portion ends up to be a fraction of the original payment. Universal life is not an optimal plan to build or protect wealth in most cases.

You may get hit with a penalty if you cancel the policy within the first 7 to 10 years. Make sure to ask the insurance company what you will have to pay in surrender fees if you exit the policy now.

There is only one valid financial reason for keeping a universal life policy: You still need life insurance but your health has deteriorated and you are no longer insurable. Universal life can also be a great tool to help pay estate taxes. It has an option in which the death benefit increases through the life of the policy, unlike term life insurance.

If you are healthy but still need life insurance, you can consider replacing your variable universal life insurance with a simple term life insurance policy, which for the same price will almost double the coverage.

If you decide to hire a broker or financial adviser to invest your money, you should do your due diligence. Here's how:

• When looking to find an adviser — particularly a fee-only investment adviser, one who is compensated on their advice alone and not for the sale of any products — go to the NAPFA (National Association for Personal Financial Advisors) website at www.napfa.org. At NAPFA, you can search for an adviser in your area.

• The same is true for the ChFC® (Chartered Financial Consultant), which is a financial adviser certification that requires extensive training. You can find a ChFC in your area by going to its website, www.designationcheck.com.

• RIAs (Registered Investment Advisers) are different from broker-dealers and they are held to different standards. It is important to know the difference. Check Securities and Exchange Commission website to find information. Go to www.sec.gov, click on the office of Investor Education and Advocacy and there will be a link to "Check Out Brokers and Advisers." Another good source for RIAs is www.WiserAdvisor.com, where you can search for an adviser for your specific goals.

Among the questions to ask a potential broker or advisor:

• How are you compensated? Are you a fee-only management firm, and don't get commission from the sale of any products? This helps you know if they have a conflict of interest.

• Can you provide references?

• What are your qualifications and experience?

• Will my money be kept at a trusted third-party custodian, like Charles Schwab?

Avoid any advisor who says they can predict the financial markets. The stock and bond markets hold many uncertainties. There is simply no way to know what will happen year by year, much less day to day, and if anyone tells you differently, walk if not run in the other direction.

The best way to prepare for long-term investing is to select a diversified mix of stocks, bonds, and cash that fits your goals, time horizon and risk tolerance.

James Shagawat, NAPFA-registered financial adviser

Baron Financial Group, Fair Lawn, N.J.

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