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Inappropriate Whole Life Policy of the Week

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  • The White Coat Investor
    replied
    Yet another:

    I am an internist graduated from residency in 2015....I got recently introduced to the "White Coat Investor" book...Also I visited your website briefly and I just subscribed to the newsletter. Apparently there are plenty of info there so I am planning to take it slowly.

    I want to ask you how do you feel about cash value life insurance. I recently signed up with life insurance company. They sold that to me saying I can consider this as my personal bank , "infinite banking"?

    Do you suppose this doc who graduated 18 months ago still has student loans? I'd bet on it.

    Leave a comment:


  • The White Coat Investor
    replied
    Here's another one:
    I am the oldest of 8 children. My great grandma opened a whole life insurance policy ($50,000) for me when I was born, but she passed away before being able to do the same thing for my 7 siblings. The net cash value of the policy is currently $16661.85. I would like to eventually split the sum between all of my siblings.

    Sounds like Great Grandma forced someone else to take over a policy she started and decades later it is still causing issues.

    Would have been nice if Great Grandma had started an ILIT and bought the insurance on HER instead of passing along premiums instead of assets to her heirs.

    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

     

    Leave a comment:


  • Ricky
    replied
    It's crazy how many you of these you get by e-mail WCI.  But, it's how I found your site years ago.  I was being pitched a 2M whole life policy along with a whole bunch of other stuff so I started to look it up.  From there, found your site and the rest is history.  Up until then I wanted to invest, but didn't like/trust anyone I had met to interview so I just put all the extra money into paying down the mortgage.  Now I have a great laddered term policy, paid off mortgage and a real financial plan.  All this as long way to say that WL policies might be responsible for more people finding your site than anything else...for better or worse.

    Leave a comment:


  • RadDoc6876
    replied


    They just keep coming.
    Click to expand...


     


    It might say “gross rate of return of 6%” but it’s pretty easy to see that if you’ve paid $28,000 over 20 years and only have $21,500 to show for it, you don’t have a “gross rate of return of 6%
    Click to expand...


    Really seems to me there needs to be legislation akin to the Truth In Lending Act to make these schemes more understandable and transparent to consumers.  (Actually, I'm thinking of the Nutrition Facts label on the side of my cereal box...gives me full disclosure of what's in my Cheerios.)  I mean, doctors are educated people by definition, and they're falling for it.  However it does seem the current climate in D.C. is heading in the other direction (less regulation).  I guess WCI's efforts and similar blogs and outreach to med students and residents can at least help spread the word.

     

    Leave a comment:


  • The White Coat Investor
    replied
    They just keep coming. This one a 20 year old VUL, still with a loss.

    This is the AXA Equitable Variable life Insurance.

    The face amount: 100,000

    Net cash surrender value: 21,500

    Policy account value: 21,500

    With a gross rate return of 6.00% (4.34% net)

    Total premium payment: 28,000 (we have been paying for almost 20 years)

    The policy will be terminated on the 43th year. So there will be no more insurance coverage on the 44th year and beyond.

    You can't make this stuff up. It might say "gross rate of return of 6%" but it's pretty easy to see that if you've paid $28,000 over 20 years and only have $21,500 to show for it, you don't have a "gross rate of return of 6%."

    Leave a comment:


  • The White Coat Investor
    replied
    I got two today. Here's the second:
    I need advice on my 65-LIFE Northwestern Mutual policy. I have had it for 2 years. About $53,000 total value, with about $1,160 available for a ‘loan’ at an 8% interest rate. I have a term policy as well and a life insurance policy through my work. I think I should get rid of this, though my NW mutual advisor is (not the first one that sold it to me, but a new one, so I do not think she is getting commission?) telling me to hold it because it should be used as a mid-late investment, where I withdraw money later on in life (I am 27).

    I do not know enough to even begin thinking about converting it to something else. I thought I would withdraw the $1160 and then close it, but now it is telling me that is is a loan that I have to pay back so I am not sure what to do.

    Leave a comment:


  • The White Coat Investor
    replied
    And here is this week's installment:
    my husband and I read your book a few years ago and have been following your blog ever since. Thank you for all the great advice! It is so terrible how many doctors are clueless about finances…my husband and I went to expensive med school (total debt for the two of us is $415K after interest accumulating…6 years out of med school) and in residency were living frugally, wanted to save for retirement, had a baby and wanted to start a 529 at some point but also needed a debt management plan. We didn’t want to “screw up” so we went to a “financial adviser specializing in physicians!” AKA NWM slimeball. He of course convinced us that our plans to start a Roth were a terrible idea, we should buy whole life insurance for everything, stop contributing to our student loans and put all that money towards whole life (fortunately we didn’t go that far). Kept the policies about 2 years and even let him sell us MORE whole life insurance before we got smart about it. Your book and blog were very influential in getting us out of the trap. We lost $7-8K, which as second year residents felt DEVASTATING. It was everything we had saved. But we dusted ourselves off, read like CRAZY, became WAYYYY more savvy about finances and way more skeptical of anyone in the financial industry. Fast forward a few years, and what felt like an expensive lesson at the time was probably the best thing that ever happened to us. It forced us to wake up, take control of our own finances, and not get pushed around.

    At least this one had a happy ending.

    Leave a comment:


  • StuRedman
    replied
    My NWM sales man was not happy I knew about WCI.  He had some not nice things to say lol.  I got a own occ disability from him and have since ignored all the can you meet to talk about investment opportunities.  I think my own occ is crappy but that is another thread.

    Leave a comment:


  • Craigy
    replied
    If someone's already bought it, they probably did so because they thought it was a good move.  Don't kill them about it.  That's like someone buying a new sportscar they're so proud of and you tell them how ugly it is.  That's not very nice.  Sure they can sell the car but they'll take a hit and feel bad about the whole situation.  Nobody likes being told they made a bad choice or made to feel stupid.

    Now once someone starts trying to expound upon the wonders of whole life, and how you should buy it too, they then open the door to say "no, it's not for me" and then if further pushed, go into detail about why whole life is a big scam.

    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.

    Finally, for what it's worth, for someone who is really a spendthrift, a whole life policy might actually be a decent way to force that person to "save" money.  Sure you or I could drop that policy payment in a savings account each month, but if most people see money in an account, they spend it (or their wife or husband or kids or mother or brother in law spend it for them).

    Leave a comment:


  • nachos31
    replied
    Jhwkr, I'm in the same boat. Since I know they're terrible I don't bother learning the minutiae other than "don't mix insurance and investing." I find, people tend to get very defensive about the idea of having been screwed over (very reasonably so) or not making a smart choice and often become very difficult to talk to. I usually try to explore a little bit to see what they know but often end up having to extract myself with something along the lines of, "you do you."

    Leave a comment:


  • jhwkr542
    replied
    Unfortunately, I was trying to convince one of my partners the other day that whole life was a bad product. The sad thing was I had never bothered to learn all the details past the big picture "WL=bad". Now I'm having to learn about it to convince people why it's so bad

    Leave a comment:


  • The White Coat Investor
    replied
    I'm not sure there's anything fraudulent here. If people would have read the paperwork they would have known what to expect.

    But as far as advice goes, it would be the equivalent of malpractice in medicine, law, accounting etc.

    Leave a comment:


  • RadDoc6876
    replied


    I can still yell at them.
    Click to expand...


    There's 1) "buyer beware" and suckers born every minute etc., and then there's 2) outright fraud, which is a crime and should be prosecuted.  Though not technically illegal, these stories seem more the latter than the former.  To me it's not enough to shrug it off as a "buyer beware" thing--that story is about a deception and an intentional one.  Anyone remember the Truth in Lending Act that had to be made law way back in 1968 to get lenders to stop abusive practices?  Jim would you consider getting into public advocacy on this - some type of open electronic letter to Congress that WCI readers could sign recommending greater oversight of these products?  I'll sign it.  There's more and more national attention being paid to retirement planning and Americans not being prepared, so I think they'd listen. Maybe try these people:

    https://www.govtrack.us/congress/committees/SSCM/20

     

    Leave a comment:


  • The White Coat Investor
    replied
    Maybe this should be a daily column instead of a weekly one. Check this one out from the comments section of a post I wrote years ago.

     
    I was suckered into buying “the greatest investment tool in existence” (actual quote from my agent) almost 3 years ago. For background, I am 26 years old, married, no kids, and my annual income is $75K. I have no loans except for a mortgage and my wife is heavily burdened with student loans (she is currently financially dependent on me and would not be able to afford the mortgage + utilities). My NWM agent was referred to me by a “friend” – and might I add that every time we met, he would go through my list of Linkedin connections (mostly personal friends of mine) and ask me if any of them might be interested in “financial advice” and if I could give him their phone number to contact them. Every time I felt violated and thought to myself “what a quick way to ruin a friendship”. That alone should have turned me off from what he was selling, but he proceeded to pitch whole life as an offer I seemingly couldn’t resist, and I fell for it.

    Hey NM Agents! Stop doing this! Even though your company says you should and compensates you for it. People with student loans don't need whole life insurance.

    Leave a comment:

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