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Inappropriate Whole Life Policy of the Week

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  • Zaphod
    replied
    True of course, but just terrible overall.

    Leave a comment:


  • artemis
    replied




    I’ve forgotten to update this for a few days. Here’s this week’s addition:
    Sadly, my husband and I are 2 years into our very large whole life policies with NWM Our premiums over the past two years combined are about $200,000! Does it make sense to cancel the policy now after paying such high premiums.

    Click to expand...


    OUCH!  $100k per year in premiums?!  How can even the scummiest insurance agent justify selling that policy to anyone other than Warren Buffett?

    I just hope the couple in question doesn't let the Sunk Cost Fallacy trick them into keeping those scummy policies.  Better a $200k loss now than guaranteed financial exsanguination over the course of their future careers.

    Leave a comment:


  • Zaphod
    replied




    I’ve forgotten to update this for a few days. Here’s this week’s addition:
    Sadly, my husband and I are 2 years into our very large whole life policies with NWM Our premiums over the past two years combined are about $200,000! Does it make sense to cancel the policy now after paying such high premiums.

    Click to expand...


    OMG!

    NWM is obviously a predatory company, their name comes up again and again. 200k?! Thats outrageous. Is it totally impossible to bring a suit and argue you were definitely not adaquately informed, etc...Just doesnt seem right.

    Leave a comment:


  • The White Coat Investor
    replied
    I've forgotten to update this for a few days. Here's this week's addition:
    Sadly, my husband and I are 2 years into our very large whole life policies with NWM Our premiums over the past two years combined are about $200,000! Does it make sense to cancel the policy now after paying such high premiums.

    Leave a comment:


  • artemis
    replied




    Be sure people have copies of the policies and know where to submit the death certificate.
    Click to expand...


    That's an excellent reminder!

    Leave a comment:


  • redsand
    replied
    There are at least two companies (maybe more) that are contacting trainees through the residency/fellowship programs at this institution, offering free dinners to go listen to their talk about financial planning, one at Ruth's Chris steakhouse and another at a local trendy seafood/steakhouse restaurant.  Also, several months back the NWM agents (who are somehow affiliated with the sponsoring institution as they are the people whom you can buy GSI disability insurance from in the final year of training) contacted me through the program administrator wanting to meet to talk about financial advice (I guess that's what they wanted to talk about...I never took him up on his "offer").   After reading the stories, it makes me wonder how the sales people sell whole life insurance, and I thought, maybe they try to push these policies at expensive restaurants.  I've never been one for industry-sponsored lectures at dinners relating to pharma/products/medical devices, and financial planning dinners feel like they are an extension of the same concept insofar as they are using food to get you to buy-in to using their product(s).

    Leave a comment:


  • artemis
    replied


    Also, generally speaking, the loss is taken when the policy is first sold and in the first couple years of premiums.  After that, generally the cash value keeps up with the payments in.  So you’re not really saving them from harming themselves financially at this point, they already did that when they got the policy.  You might stop the slow drip of blood but the mack truck already hit them.
    Click to expand...


    That's the situation I'm in.  I got suckered into buying one of these things many, many years ago, long before WCI and other bloggers were around to warn residents and new attendings of what a bad deal they are.  By the time I learned about my mistake, the damage was done.  Now I've decided to make lemonade from this lemon by keeping the policy until I die and just incorporating it into my estate planning; once my elderly parents are deceased, I'll change the beneficiary on the policy to one of my favorite charities.  It's not the most efficient way to donate to charity, that's for certain, and knowing what I know now I'd have chosen differently, but at least this way will force Northwestern Mutual to make a REAL payout one day!

    Leave a comment:


  • jhwkr542
    replied
    Inappropriate Whole Life Policy of the Week Day

    Fixed the title of the thread for ya.

    Leave a comment:


  • The White Coat Investor
    replied
    It's been quite a day for whole life policies. Here's another one tonight:
    I bought a $250,000 whole life policy (yes, NWM) in 2001. My annual premium is $4021. A few years ago my solo pediatric practice had a cash flow issue and I borrowed $30,000 from the policy to make ends meet. I've been paying back that loan ("to myself, I was told") slowly, but now still owe $38,000 (I didn't start repaying that loan immediately). The cash value of the policy is now about $37,000. I'm otherwise doing ok financially (finally). I'll have my mortgage paid off in 5 years or less (about $100,000 left), and I have been maxing out my 401K. I am now prepared to more aggressively pay down that loan but after reading your blog I realized maybe I should just apply the cash value to the remaining loan debt, cover the difference and be done with the policy..... Should I cash in the policy to cancel this debt and invest future premium payments elsewhere? Or pay off the debt and convert the whole life policy to some other vehicle, or just keep it?

    Obviously not enough info to answer the question, but a few observations can be made:

    1. A pediatrician (so presumably an income of $120K-180K) was sold a $4K/year policy when he was not doing okay financially and had a practice with unstable cash flow.

    2. After making sixteen $4K payments ($64K), the cash value is something like $37K + the $30K borrowed out, or $67K. Not much return there for 16 years of compounding. At least it's positive I suppose. That probably just happened in the last couple of years.

    3. If you never buy a policy, you're never stuck with these tough decisions about what to do with it.

    Leave a comment:


  • The White Coat Investor
    replied







    Email, comments, forum, in-person conversations etc. When seemingly at least 1/4 of docs have bought one (including me) there are going to be a lot of dissatisfied customers. Yet I still get these yeahoo agents showing up with 1000 word comments in the comments section of years-old blog posts trying to argue with me. Maybe I’ll start sending them here. Here was the guy today:

    https://www.whitecoatinvestor.com/is-a-zero-percent-tax-bracket-in-retirement-a-good-idea/#comment-447694

     
    Click to expand…


    WOW not just a 1,000 word comment but comment on top of comment.  Have to say I scrolled to the end and chuckled at your last reply.   ?

     
    Click to expand...


    You'll love that he sent me two long emails today too. Why? Who is he trying to convince? What he doesn't realize is I've had this argument 50 times already. I know how it ends.

    Leave a comment:


  • JR
    replied
    This thread just reaffirms the importance of all the work done by WCI in educating physicians and spreading the word around so we don't fall in the hands of people like that. Last year when I was exploring the market to buy my own DI, asking my co-fellow for advice and he introduced me to his "Financial Advisor" from NWM. He had help him buy "a great own occupation DI" and he was working with him on a WLP. Again, thanks to WCI's book and this website I escaped from a big big mistake in my life. The guy was selling me the same crap you read about here. Last year I purchased a DI policy with Principal, which I'm very happy with. This year I purchased a 20-year Term Life Ins policy with John Hancock for 3M at a very reasonable price. And now, every opportunity I have, I refer my residents to WCI for education.

    Leave a comment:


  • Zaphod
    replied
    This stuff is crazy.

    This is actually what the fiduciary rule was supposed to target, issues such as these, which is why there was such heavy lobbying against it. Trumps admin is trying to scale it back, hopefully they cannot.

    Its such a lucrative business, on Fintwit there was an ad going selling a practice (due to new rule) around that showed 1 million in income from just 10 million in assets under management. Thats a great gig for the sellers.

    Leave a comment:


  • The White Coat Investor
    replied
    But wait, there's more:
    My parents bought me a whole life policy in 1984 (so that I could be insured if I acquired an illness). It cost them about $83 per year. When I realized i had one in 2015, I cashed it out immediately (which was actually hard to do; it required many steps).

    The cash value in 2015 was around $2400
    Now $83 per year x 31 years in a savings account= $2573
    $83 per year for 31 years in stock market, 6% return = $7543
    $83 per year for 31 years in stock market, 8% return = $11,139

     

    Kind of a bummer to have such a low return on such an old policy bought at a time of such high interest rates.

    Leave a comment:


  • artemis
    replied


    The whole concept of the guarantee is bunk.  Sure you might have some contractual rights, but once it gets to the point of your needing to sue on that contract, the whole company is insolvent and you’re up the proverbial creek.  In some economic meltdown they’re going to get melted down like everyone else.The sad thing is, this is a pretty common theme among insurance salesmen.
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    The sadder thing is that there are grown adults out there (and I don't just mean insurance salesmen) who don't realize this.  History is absolutely littered with huge upheavals like the Black Death, the Mongol invasions, and the Great Leap Forward (to name just three) where merely surviving, never mind keeping any of your wealth, was a major accomplishment.  And there's no reason to think such momentous changes couldn't happen again.  An insurance policy isn't going to provide much of a lifeboat if it turns out we're all on the Titanic.

    Guaranteed protection from financial loss simply doesn't exist, no matter how much we may wish it did.

    Leave a comment:


  • Craigy
    replied




    Email, comments, forum, in-person conversations etc. When seemingly at least 1/4 of docs have bought one (including me) there are going to be a lot of dissatisfied customers. Yet I still get these yeahoo agents showing up with 1000 word comments in the comments section of years-old blog posts trying to argue with me. Maybe I’ll start sending them here. Here was the guy today:

    https://www.whitecoatinvestor.com/is-a-zero-percent-tax-bracket-in-retirement-a-good-idea/#comment-447694

     
    Click to expand...


    WOW not just a 1,000 word comment but comment on top of comment.  Have to say I scrolled to the end and chuckled at your last reply.   :lol:

    Reading his first comment and a little of the next, aside from the stuff you point out, one thing that is really glaring is how he holds out insurance as some sort of infallible product, often comparing it against market risk and even economic collapse.  He must say "guarantee" about 20 times.  But he completely ignores that the only way the insurance company can continue to pay these "guaranteed" dividends is based upon their own market investments and their ability to sell new policies.

    Insurance companies go bust all the time.  That's the whole reason that companies like AMbest exist in the first place, to give you an idea of how likely your insurance company is actually going to pay on your claim.

    The only reason they can "guarantee" you a dividend is because they slam you so hard on the policy premium, commissions, fees, that they can afford to throw a tiny portion of your money back at you at a substantially sub-market rate.

    The whole concept of the guarantee is bunk.  Sure you might have some contractual rights, but once it gets to the point of your needing to sue on that contract, the whole company is insolvent and you're up the proverbial creek.  In some economic meltdown they're going to get melted down like everyone else.

    The sad thing is, this is a pretty common theme among insurance salesmen.

    Leave a comment:

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