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Inappropriate Whole Life Policy of the Week

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  • Hospitalist
    replied
    https://esimoney.com/retirement-interview-18/

    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.

    Leave a comment:


  • The White Coat Investor
    replied
    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

    Leave a comment:


  • The White Coat Investor
    replied
    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.

    Leave a comment:


  • racelari
    replied
    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.

    Leave a comment:


  • The White Coat Investor
    replied
    Not a WL policy (this one is an IUL) but it's the same story different verse. $97K paid in over 8 years. $21K value. Pretty crummy return and that's during a bull market.
    I am pathologist, 43 years old.

    In 2011, a slick salesman got me to swallow the bait of an IUL from AXA, ATHENA INDEXED UL, SERIES 151 .

    Here are the details…
    Premium: $1,000.00 per month
    Total Payments so far: $97,000.00
    Policy Account Value: $49,659.67
    Surrender Charge: $28,020.24
    Loan Balance: $0.00
    Accrued Loan Interest: $0.00
    Net Cash Surrender Value: $21,639.43
    Death Benefit: $2,000,000.00
    Loan Interest Rate: 3.0%
    Available Loan: $21,639.43
    Maximum Loan: $21,639.43
    Disability Premium Waiver
    Living Benefit Rider

    To be honest, I don’t really know what exactly all these numbers and verbiage mean, but I have a feeling that I have been totally screwed over. I understand that I have to take the blame, I did not do my homework. It just sounded like a good product.

    Leave a comment:


  • uteomfs
    replied
    Perhaps there is noting I am more ashamed of myself for doing than buying 1M WLI Policies on both my wife and I. Thankfully found this site early and "only" paid 1 year premiums. DONT DO IT!

    Leave a comment:


  • The White Coat Investor
    replied
    From a FB Group, the usual story of being sold a whole life policy while carrying 5.5% student loans:
    Whole term life insurance questions (and please, don't crucify me, I am learning...):

    I am paying over $7000 a year into a whole life policy, currently has about $25,000 cash value, with a payout of around $500,000.
    I am thinking about cashing this out and using this to pay off some of my remaining school loans ($65,000 at 5.5%)
    I also have term life insurance in place that will pay about $750,000.

    Leave a comment:


  • ITEngineer
    replied


    They are still paying into it instead of me right now
    Click to expand...


    Isn't this one easy? Just tell them you will never take over the payments (unless I miss-understand what is going on here) and they can decide whether to continue to pay or cut their losses.

    I remember having a similar conversation with my parents when I was 22'ish and out of college. I told them I was not going to take over payments of the Whole Life policy that their FA had sold them when I was a small child. They stopped paying as well and cashed it out. If only they had never purchased it.....

    Leave a comment:


  • The White Coat Investor
    replied
    This one by email- selling WL to a dental student (via his parents):
    I am halfway through dental school. My parents opened up
    a whole life insurance policy for me a couple of years ago. They are
    still paying into it instead of me right now, since I am in school
    full time and unemployed.
    The Net Death Benefit is only $51,477, the Net Cash Value is only
    $1,312.71, and the annualized premium is $600.12. I was wondering what
    you would recommend I do with this since I have only had it for a
    short time, and since my wife and I are both in school full time right
    now, we are in the lowest tax bracket.

    Leave a comment:


  • Faithful Steward
    replied


    I have 3 brothers and both my parents. My mom bought all four of us a 100k whole life insurance policy (including hersefl too) that SHE has been paying for about 7 years (she makes about 45k/year and 60% of her monthly income goes towards life insurance). All of my brothers work full time and still live with my parents so thats how we can pay the bills. My dad has a 45k whole life (he only paid for a few years, then became disabled so he makes no payments through the waiver). My dad has $0 savings, no retirement accounts, and nothing to pass onto us when he passes (he is just on disability and SSI benefits). So thats why my mom bought these policies–to have something passed down to us. My mom had 130k in 401k, but after the financial crisis she lost ~90k so she has a hard time trusting it (she really doesn’t understand it all well, infact i manged her vanguard account as a high school student).
    Click to expand...


    I think I just threw up in my mouth, a little! This kind of BS is why my industry has such a horrible reputation. I hope there's a special level in ************************ for advisors and insurance agents who do this type of stuff.

    Leave a comment:


  • jfoxcpacfp
    replied




    This one from the FB Group. It almost makes me cry:
    Had a question regarding whole life insurance. I know WCI generally recommends No, but i wanted some constructive advice on my situation.

    Backgound: Come from a low-income family (parents were refugees and came to the US in their early 30s with literally nothing) so they financial planning skills were quite poor.


    I have 3 brothers and both my parents. My mom bought all four of us a 100k whole life insurance policy (including hersefl too) that SHE has been paying for about 7 years (she makes about 45k/year and 60% of her monthly income goes towards life insurance). All of my brothers work full time and still live with my parents so thats how we can pay the bills. My dad has a 45k whole life (he only paid for a few years, then became disabled so he makes no payments through the waiver). My dad has $0 savings, no retirement accounts, and nothing to pass onto us when he passes (he is just on disability and SSI benefits). So thats why my mom bought these policies–to have something passed down to us. My mom had 130k in 401k, but after the financial crisis she lost ~90k so she has a hard time trusting it (she really doesn’t understand it all well, infact i manged her vanguard account as a high school student). I plan on buying a 500k term life insurance.


    Click to expand...


    Me, too.

    Leave a comment:


  • The White Coat Investor
    replied
    This one from the FB Group. It almost makes me cry:
    Had a question regarding whole life insurance. I know WCI generally recommends No, but i wanted some constructive advice on my situation.

    Backgound: Come from a low-income family (parents were refugees and came to the US in their early 30s with literally nothing) so they financial planning skills were quite poor.


    I have 3 brothers and both my parents. My mom bought all four of us a 100k whole life insurance policy (including hersefl too) that SHE has been paying for about 7 years (she makes about 45k/year and 60% of her monthly income goes towards life insurance). All of my brothers work full time and still live with my parents so thats how we can pay the bills. My dad has a 45k whole life (he only paid for a few years, then became disabled so he makes no payments through the waiver). My dad has $0 savings, no retirement accounts, and nothing to pass onto us when he passes (he is just on disability and SSI benefits). So thats why my mom bought these policies--to have something passed down to us. My mom had 130k in 401k, but after the financial crisis she lost ~90k so she has a hard time trusting it (she really doesn't understand it all well, infact i manged her vanguard account as a high school student). I plan on buying a 500k term life insurance.

     

    Leave a comment:


  • The White Coat Investor
    replied
    A double dose this weekend, from a doc three years into a policy who started feeling funny when the agent tried to sell him policies on all his other family members too:

    At the end of residency we were hooked up with a financial planning
    firm that only works with physicians. I knew NOTHING about finances
    and figured it was worth whatever I was paying to not worry about it
    (and I had NO IDEA what I was paying). I signed up for a 20-year Whole
    Life CV Insurance plan in 2016 with 12k annual premium. Of course I
    thought this looked awesome when they showed me all the fancy
    projections. Honestly, I would still be working with them now until
    they really pressed their luck and tried to get me to sign up for
    similar policies for my wife and all 3 children last year. It was at
    this time that something didn't feel right and I finally started to
    educate myself. After just a couple hours of reading I realized how
    stupid I must look. We quickly ended our relationship and I
    transferred everything to Fidelity with plans to take total control.
    I'm still learning (with your help) and I am still in the process of
    figuring out what to do with some of these funds as my education
    really expands into the investing world.

    My question essentially is what to do with this CVLI policy. I have
    paid 38k to date and if I were to surrender today I would receive 17k
    which after tax would probably be closer to 12-13k. I still have 17
    more years to pay on this. Do I just cut my loses and take a 25k loss?

    Leave a comment:


  • Craigy
    replied




    I cannot get over the weird relationship physicians seem to have with their financial advisors insurance salespeople, as if the ins guy has some stranglehold over their thought processes. It sounds almost like they are trying to break out of a cult and don’t have the power to keep from getting sucked back in.
    Click to expand...


    If they follow the northwestern playbook, they quickly try to establish themselves as your best friend to whom you reveal your entire financial picture, intimate personal and family details, life and career goals.  They were likely introduced through a friend or colleague.  You quickly become very vulnerable and connected.  You've already decided to open up, possibly over the course of a couple meetings, and their pitch is all about you, helping you protect your family, your income, etc. etc.  If it's skillful it feels much less like a sales pitch and actually like someone truly helping you out, particularly if you are starting with a near-zero baseline of financial sophistication.

    It's all classic salesmanship.

    Leave a comment:


  • jfoxcpacfp
    replied




    If your brother in law or that nice guy from church keeps golfing and fishing with you after you drop the whole life policy, then he was your friend.  If he drops you after you drop the policy, then you were dealing with a salesweasel.
    Click to expand...


    Great litmus test!

    Leave a comment:

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