Thanks WCI, Saved my Brolo from Whole Life

[Craigy]

So I get a text from my brother-in-law the other night "What do you know about life insurance?"

I reply "Don't buy whole life insurance."

He immediately calls me, full of regret.  Long story short, he went to a networking event, met a few people, and next thing you know, my brother in law is signed up for a whole life policy.  He had already started digging more and began to regret the decision before he called me.  This is a guy with no wife and no kids, but occasionally very prone to suggestion.

Luckily he had just pulled the trigger the same day and hadn't even done the physical.  Of course when he called to cancel the next day they had him come back in to "sign out" of the policy (aka be subjected to another 20m sales pitch), but thankfully he stuck to his guns and is now ultimately out of the policy without taking a hit.

I'm now encouraging him to open a Roth IRA with Vanguard for his extra cash.

Thanks WCI for helping me to not only help myself, but help out others in the great quest against whole life.   

 

[Jason Veirs]

Great advice and glad you were able to help him out. To be honest, there are so many captive agents that only try to push Whole Life, when the vast majority of people do not need it - It makes me sick.

In fact, on a trip to Maui a few years ago with a few of my old high school friends, one of my friends told me that he had recently just purchased a $250k WL policy through New York Life. This guy was a 35yo male fireman, with no kids, engaged, and about a $300k balance on his mortgage. It turns out, this NYL agent (who happened to also be really attractive), came over to the firehouse and sold about 5-7 of them on a WL policy. She was pitching it as a Supplemental Retirement Plan, when they already had a pension, which would pay out 90% of their salary at age 55. I immediately went on the CA Department of Insurance and found that this woman had just gotten her insurance license about 8 months ago, therefore, she was fresh out of training and didn't really know what she was doing. It was also very clear that my friend did not need a WL policy. What's even funnier is that my friend was rated as a Preferred Non-Smoker (higher Cost of Insurance), despite being in perfect health. His NYL agent said that because he recreationally rode a motorcycle on the weekends, it would preclude him from getting the top Preferred Plus Non-Smoker health class - This is something that I've never even heard of a carrier doing, unless you actually race motorcycles?

Luckily, my friend was only about 5-6 months into it, so we were able to stop the bleeding, but he ended up paying about $450/mo for roughly 5-6 months. He did end up surrendering the policy and we wrote him a new $1MM 20yr term through Protective Life for $460/yr, but he was extremely upset that he couldn't get his nearly $2,500 in wasted premiums returned back to him. Obviously, my friend should've consulted me first and not of purchased the WL policy through this agent on whim in the first place, but you live and you learn. The part that gets to me is that a lot of people who previously purchased a WL policy find something out like this many years later. It's not to say that WL is necessarily bad (it has it's VERY rare place), but it's just not for most people, and it typically leaves many families who happen to be on a budget severely underinsured, due to the high cost.

Lastly, I recently checked the CA DOI in order to see if this agent was still in the business, and it turns out that she only lasted about 1.5 years. The good thing is, that many of these captive agents who only push WL are in-and-out of the industry within a very short period of time, which is typically good for the consumer.

[Craigy]

It's so typical!  By the time most figure out that it was a mistake, they've already lost thousands of dollars.

Funny about the recreational motorcycling.  I've been priced for term twice and both times got the best rating despite disclosing that I owned a motorcycle.

[Jason Veirs]

Exactly! To be honest, since he was a high school buddy of mine that should have known better to call me beforehand, I got a bit of pleasure in hearing that he lost a couple of grand and ended up messing with him quite a bit.

Also, I have absolutely no idea about the recreational motorcycling deal with NYL, as any other carrier on the market is only really concerned with whether you race motorcycles or cars, and won't penalize you for it. I've literally never heard of a carrier outside of NYL that will penalize you for riding a motorcycle recreationally on the weekends - Ridiculous!

[The White Coat Investor]

Oh that's just great. You can ride a rocket bike to work and get cheap insurance, but you can't go toproping once a year. I swear the insurance industry is set up to discriminate against rock climbers and SCUBA divers.

Well forget you guys. I'm just going to be financially independent so I don't need your stupid insurance anyway.

[Jason Veirs]

Haha, yes.. Life insurance underwriters can tend to be a bit unforgiving when it comes to rock climbing and SCUBA, but it really depends on the individual case. These are both 2 risks which require completing an Avocation Questionnaire beforehand, and then shopping it out to all of the carriers directly, as each carrier looks at these risks differently.

A good broker should be able to do all of this work for you. Also, it's imperative to write a good Cover Letter with the application, in order to spoon feed the underwriter with all of the specifics, and to help color the picture - See attached Dive Log, which I submitted with a previous client.

As you probably already know, with regard to rock climbing, underwriters are usually most interested in the Yosemite Decimal System (YDS) rating of your climbs, in addition to location/amount of climbs, height of climbs, climbing experience, and whether you're using a rope or free soloing - Let's just say that they're most likely going to pass on someone like Alex Honnold...

SCUBA is a also usually not a problem if you're more of a recreational diver, but it really depends on your experience - Anything under 75ft is not typically a problem with most carriers. If you're a cave/shipwreck diver going past 100ft, that can be an issue, but it really depends on the amount of dives, certifications and experience, etc.

I was able to get a guy approved at Preferred NT rates with no Flat Extra, despite him having a total of 9 out of 49 dives in the previous year over 100ft, which most carriers do not like. The good thing is that he was a recreational diver of over 20+ years, and never did any cave/wreck dives. Although he did have quite a few dives over 100ft, I was able to get him approved at Preferred NT rates by submitting the attached Dive Log and a good Cover Letter to the underwriter/carrier. As my grandfather used to say, everything in life is negotiable  

[adventure]

The White Coat Investor wrote:

Oh that’s just great. You can ride a rocket bike to work and get cheap insurance, but you can’t go toproping once a year. I swear the insurance industry is set up to discriminate against rock climbers and SCUBA divers.

Well forget you guys. I’m just going to be financially independent so I don’t need your stupid insurance anyway. Click to expand...

I had to fill out so much extra paperwork for top roping (they finally accepted that was maybe okay, if I didn't do it full time), but had to agree that if I died during trad climbing, they wouldn't have to pay. Foolish.