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Inappropriate Whole Life Policy of the Week

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  • I thought I should add to this really long post as I myself am a victim of whole life insurance and would love to see how far this thread goes. Hasn't been a post for many weeks now as well.  Would also be interested to hear stories of getting out of whole life policies- I might just start that thread!

    Anyway, I fell victim to the Northwestern Mutual war machine of selling whole life despite having student loans after I became attending physician. Unfortunately my wife who is also a physician let me handle the finances and I dragged her down with me. The salesman was a friend of mine from high school. I know he is a good guy and deep down he believes he is doing the right thing by selling this crap. However when I had my first attending job the wife and I were $360K in student loan debt. We were trying to save and my buddy thought this would be a great savings vehicle and because we are great savers he thought we would be able to complete the whole life insurance policy until 65 years old. We each took out a 1 million-dollar policy paid up at 65. Premiums were about 14,000 each per year. At first such a large "investment" was not a big deal given our high income.

    However the lifestyle creep came in big time in the form of the big doctor house and having 2 kids. We bought a 1.2 million-dollar house but luckily we had saved to put 20% down and got a great interest rate of 3.5% fixed. However the escrow payments were $6600 per month given I live in NJ. This became a financial burden when we had our first child. We were able to limit our spending to keep up with the life insurance payments.  However, then came the 2nd kid, and with my wife out for 3 month maternity I had to borrow against the whole life insurance policy. I realized paying 8% on this type of loan was stupid and so I took out a 0% APR credit card which I was able to pay back. It was at this time that I seriously considered dropping both policies. However, my financial "adviser" had convinced me since I took a small whole life policy on my first kid I should take one out on the second kid (I know I'm stupid).


    I then thank God read Jim's book and realized I had lost a tremendous opportunity to pay down loans and had lost crazy money on the whole life. I've now 1035 exchanged my wife's policy into a variable annuity at Fidelity and its cost basis is $92,000 and the actual cash value transferred is 67,000. I'm about to do the same for my whole life insurance policy as my premiums are paid up until this month. Cost basis of $72K and current cash value $50K.  I will let the annuities grow to its cost basis and then cash in on the annuities.  Meanwhile our student loans currently sit at $170,000. I am ashamed that I my loans would have been totally gone if I had not purchased these whole life insurance policies.


    • The latest:
      On excellent advice of a NWM FA, I made the following moves once in my first attending job. I set up and maxed out contribution to a 401k. Was so poor in residency and fellowship that at age 34 this was my first and only retirement account.
      Bought disability and life insurance. Set up an advisory investment account. This was just over 2 years ago. I came across WCI very recently, and I had some startling realizations. My disability insurance is too expensive as well as inadequate for my needs. The life insurance I was sold as an “investment vehicle” is in fact fairly worthless. The “actively managed” advisory account is an unnecessary gift to them of my very hard earned cash.

      Here is where I would love some advice from the group.

      1. I have contributed $20,000 to the whole life account. On my current snapshot of the account the cash value of the policy is $5800, however on the lifetable simulation it appears that the value of the policy if surrendered after 1 year (which is where I am at now, 18 months) would be $0...


      The only account I have maxed out is 403b. I do not have an IRA, and I also forgot to mention in my original post that I have ~200,000K in student loans, refinanced at a 2% and set up to be paid off over the next 10 years. The “advisor” told me I was not eligible for Roth due to too high income.

      I’m glad i am figuring this out now and not, say, in another decade of sinking money into these people’s coffers. I am glad that this is causing me enough inner strife to finally take control of my financial life and health, something I’ve been nervous about doing all my life. However this is also a kick in the proverbial nuts (I’m a girl) and I’m very upset, so trying not to make any rash decisions.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011


      • Today's edition:

        I’m late to this 5 year party, but at least I made it. Coincidentally, I purchased 2, that’s right TWO, TransAmerica Index Universal Life(IUL) policies exactly 5 years ago this month: One for myself, another for my 4 yo daughter to w/d the cash to help pay for her college tuition
        1) -Age at purchase 41 yo. Face Amt: $100,000. Premium Paid(Cost basis): $19,200. Cash Value: $17,327. Surrender Value: $14,836
        2)-Age at purchase 4 yo. Face Amt: $500,000. Premium Paid(Cost basis): $24,278. Cash Value: $21,044. Surrender Value: $13,454
        Helping those who wear the white coat get a fair shake on Wall Street since 2011



          This retiree featured on this interview bought a variable annuity at age of 59 (2007) for $1.52 M. "Guarantee" double his money to $3.04 M at age 69 (2017) and he will get $152K per year for the rest of his life starting at age 69.


          • at least not as bad as whole life insurance, but man, that guy with the annuity thought it had helped him- and he was a financial planner!  Very tricky how annuities make you think you made out ahead if you don't crunch then numbers properly.


            • The usual story:

              I have a WL policy w/ Mass Mutual I’ve been paying $630/month for about a 500k death benefit. My cash value is about $17k. The most recent dividend was about $880. I realize that I do not need the policy anymore as i do not have dependents and my folks are retired. So I’ve had the policy since 2012 and at that point my premium was $350/month. I bought additional about year and half ago after switching to Mass Mutual to bring it up to $630/month. (This was a BIG MISTAKE I feel)

              I’ve paid total premiums of $36k and my cash value is $17k since 2011. So its a -50% loss straight up (not taking the opportunity cost into account)…Unbelievable. I made a stupid decision.
              Helping those who wear the white coat get a fair shake on Wall Street since 2011


              • So...$6K a year or so for 9 years ($54K or so) and they've got $45K to show for it. Nice investment eh?

                My wife and I (physician and airline pilot respectively) made the mistake of purchasing whole life insurance at MassMutual back in 2010.  In hindsight, we now realize this was a mistake.  Nevertheless, we are now exactly 9 years into this mistake and are now wondering if we are past the “point of no return” and whether we should just keep the policy (and paying the premiums) or cash out.  A little background…

                We have 4 children ranging in age from 2 to 11.

                Both of us also have term life insurance policies (3.75M each)

                The whole life policies we purchased were $250,000 each with monthly premiums of ~$275 for me and ~$197 for my wife.  The website says the current “cash value” for my policy = $26,126 and my wife’s “cash value” = $18,895.  The current “Paid Up Additions Available to Withdraw” = $2,673.81 for my policy and $3641 for my wife’s.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011


                • I'm here to join the chorus of regret. Sadly, I've got a lot to sing about.

                  Am waking up to the fact that I've made a series of awful decisions since the early 2000s, thanks to my friends at NWM, and so now have a collection of whole life policies the initial face value of which was $1.1 million, and for which the annual premiums amount to $27,000.

                  Aggregate premiums paid are now almost $260,000; aggregate cash value about $245,000. Somehow, I didn't realize till the past few days that most of the policies are still underwater; the break-even looks to be almost 15 years. Stupidly, having sunk more than a quarter of a million dollars down this rat hole, I almost feel lucky that I have awoken to this lousy self-made mess late enough that I have almost crawled back to even on an aggregate basis. But the reality is that I've been plowing my (increasingly challenged) cashflow into these negative or very paltry-earning policies while I've been carrying housing and consumer debt at rates above 6%. Where is the nuclear do-over button??

                  Am still evaluating my options going forward, but in the absence of any real need for permanent life insurance, I anticipate getting more familiar very soon with 1035 exchanges and Vanguard/Fidelity variable annuities....



                  • dude I am so sorry man, but glad that you are now learning. I was so pissed at myself about losing 50K, but I only kept my policies for 7 years and now am using my money I was using for premiums elsewhere. I can't imagine how you feel, but don't try to beat yourself over the opportunity cost of that money being tied up. At least for you it seems that you only lost 15K not factoring in opportunity cost.

                    The bright side is you should easily make up the 15K of cost basis with a 1035 exchange given that huge cash value. I would definitely look into Jefferson National variable annuity as earlier this year when I did my 1035 exchange they had a $240 per year flat fee, which is like 0.1% or 10 basis points cost given your cash value! I am not sure how much the funds within Jefferson National cost, so you have to add that as well. I think Jefferson National is now part of Nationwide. I did the Fidelity variable annuity as it was the lowest cost for me as my cash value was not as high as your and does have total stock market fund, an international index fund, and bond fund that have ER's between 12-18, and that plus the 25 basis points cost per year to have this annuity so your looking at total cost of less than 50 basis points. Vanguard's variable annuity had costs starting at 50 basis points.

                    Within the forum are some good posts on how to do the 1035 exchange step by step. Also make sure to read Jim's post about evaluating your policy if you should keep it. However given your comment on housing and consumer debt above 6% likely the best is to do the 1035 exchange, cash in when the VA hits cost basis, and push the nuclear button on the debt with that $260K!
                    Last edited by racelari; 11-21-2019, 12:05 AM.


                    • btw, what is it with NWM? They are playing us like harps from ************************! Jim, do you keep a running count of the companies that screw us the most? I bet NWM is at the top!


                      • Thanks racelari. It's really the lost opportunity cost that I rue the most, both in lost time and better investments foregone and its correlative effect on how I've had to manage other assets to maintain liquidity and meet short-term needs. But to try to avoid compounding my errors, I'm going to get an expert opinion on these before taking any action.

                        As for NWM, it's amazing how sanguine I was about these policies even after I started to become aware of the general pitfalls of whole life insurance a year or two ago. I reassured myself that, thankfully, my whole life policies were with NWM and a trusted advisor -- so I was not one of the unlucky fools with sub-par WL policies from a less reputable company than NWM. I thus self-treated that cognitive dissonance and prolonged my status as an unlucky fool.

                        Really, I keep thinking it's been like a long-term tick bite, where the tick's numbing saliva has for years rendered me unaware of the bite. Anyway, thanks.


                        • New to the group but lost 100k, thats right 100k in minnesota life index universal life policies in 18 months. This was after taking them through court and FINRA. I wouldnt say we won but did recoup some. The financial advisor had one thing in mind, to line his own pockets as much as possible. I am starting a civil suit against minnesota life insurance if anyone has these policies (or knows anyone that does) so maybe us trusting doctors who don't know anything about finance can redeem ourselves a small amount and stop getting scammed. It may make them think twice. In essence upon discovery the insurance was sending everyone false documentation and there is more than enough proof. If anyone has these policies or know anyone that does let me know. There is a way out.


                          • This one from Bogleheads:

                            I have whole life insurance policy and paying premium for last 20 months. Cash value is less then half what I have paid premium since may 2018.
                            Why is the buyer upset? This should be an expected outcome.

                            Buyers: Stop buying stuff that you don't understand how it works.
                            Sellers: Stop selling stuff people don't actually want once they understand how it works.
                            Helping those who wear the white coat get a fair shake on Wall Street since 2011


                            • Big premiums on this one:

                              My husband and I purchased a whole life policy for my husband before finding WCI of course. Shortly after purchasing it we had a lot of buyers remorse and I was determined to learn more about how we could use it to benefit us. Like you said, in the podcast, "it might be a bad decision to buy a whole life policy but now that you have it, it might be a bad decision to get rid of it." We were sold on front end loading the policy with 250k/ year for the first 5 years. The company our commissioned "advisor" sold to us is through Lafayette. Fast forward 2 years now... We have been speaking with a new wealth manager (for our over all wealth management). He works for Northwestern Mutual and claims his product is far superior than Lafayette. If we surrender the policy we will surely be out of 150k which I am not sure I can stomach. I remember also in the podcast the option you gave to transfer it into a variable annuity and then cash it out once it reaches the cost basis. This new wealth manager is suggesting that we transfer our Lafayette policy into Northwestern mutual claiming that we will have far better returns compared to Lafayette. He came to this concluson by doing an "apples to apples" comparison, however the advisor didn't put the whole 250k into a whole life policy rather 150k was in a universal life and 100k in a whole life.
                              Helping those who wear the white coat get a fair shake on Wall Street since 2011


                              • Originally posted by The White Coat Investor View Post
                                Big premiums on this one:
                                out of the frying pan and into the flame