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Inappropriate Whole Life Policy of the Week

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  • The White Coat Investor
    replied
    Yet another. You can't make this stuff up.

    WCI- First of all Thank you for creating this forum and to people who have posted their stories. Extremely helpful. I am also a victim of this. In 2014 i was sold a Guardian Whole life policy as a medium to stack extra money and create wealth long term.
    So far my for my policy No.1- started 2014
    Cost basis 91K
    Cash Surrender is 71K – Loan of 5K. So available cash is 64K if i surrender.
    Policy No.2 – started 2017
    Cash basis 20K
    Cash Surrender – 13.5K

    My total Cash surrender will be (77.5K) from my Cash Basis (111K) which gets me to a net loss of ~33.5K. I have stopped the payment to prevent further loss. Its is better to take a hit now than to keep bleeding more. I am single and no dependents. Just a home mortgage

    Now i can rollover with 1035 exchange to a point where i can bring my cash surrender to cash basis (approx 5-6 years) and remove tax free at break even point. I already have a VA created with Lincoln which guarantees me 5% annual Income benefit and if the market goes more than 5%, i’ll get the higher %. The cost is however 3% of the income, which was created by the same Advisor who suggested me Whole life insurance. (trying to suppress the anger )

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  • childay
    replied
    Originally posted by The White Coat Investor View Post
    This one sounds like a whole life insurance tupperware party:
    Wow.

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  • The White Coat Investor
    replied
    This one sounds like a whole life insurance tupperware party:

    Thank you, WCI. My friends told me just a few days ago that they had stopped contributing to their RESP's and had put everything into a whole life policy last year. They own a small business and were convinced by a "good friend of the family" who is a "very smart and likeable guy" that WLI was a better vehicle for not only them and their business, but for their little ones' education funding! (When I heard that I was almost sick.) In Canada the federal government pays an instant 20% on every dollar contributed to the Registered Education Savings Plan, to a maximum of $500 per year. So you put in $2500 and they'll kick in $500. 20% immediate return for zero risk, that you can then also invest in ETF's/stocks/MF's. Most folks don't even fund to the $2500 max per kid. But throwing that bonus away, to then get 3-4% return long term, and then having to BORROW and pay interest for your kid to go to school with money you could have properly invested... gross. She also said that they borrowed from the policy to buy a vehicle but were "paying themselves back at 8% interest rate so that they were paying it off quickly and were "paying themselves."" Thus implying that the interest was actually adding cash value to the policy (which I now know is NOT the case!). They now want to host a get together at their house so that others in our friend group can "get in on the benefits of BYOB". When I heard that, I knew I would need some firepower to go up against a slick salesman. It's been approximately 5 hours reading through every myth and every comment/ rebuttal. It was well worth it. Now to talk to my friends and try to get them to dump the policy, and not have that get-together. I'd love to go to it armed with the facts and show him up, but these are friends, and I probably wouldn't be invited back if I embarrassed a friend of their family in their home. So I will try and do it quietly.

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  • BE87
    replied
    Originally posted by The White Coat Investor View Post
    Big premiums on this one:
    Sounds like the original poster has started learning some basics regarding finance i.e. whole life is a bad product, but they haven’t quite figured out that northwestern mutual is one of the worst offenders when it comes to preying on physicians. Fire your NWM agent ASAP and get advise from an advisor with less conflicts of interest

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

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  • The White Coat Investor
    replied
    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.

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  • The White Coat Investor
    replied
    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.

    Leave a comment:


  • rich10900
    replied
    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.

    Leave a comment:


  • Not Murphy
    replied
    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.

    Leave a comment:


  • racelari
    replied
    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!

    Leave a comment:


  • racelari
    replied
    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; 11-20-2019, 11:05 PM.

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  • Not Murphy
    replied
    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....

    Sigh...

    Leave a comment:


  • The White Coat Investor
    replied
    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.

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  • The White Coat Investor
    replied
    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.

    Leave a comment:


  • racelari
    replied
    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.

    Leave a comment:

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