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Inappropriate Whole Life Policy of the Week

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  • Ugh. Selling whole life to med students. One of my first financial mistakes!
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    Sorry, should have said "old medical school classmates. . . "

    We are 3 years out from residency/fellowship now.

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    • This week's edition. Not only a whole life policy on each member of the family, but a VUL one too. And then either lying or ignorant on annuity penalties. Included was a worksheet showing losses on 10 of the 12 policies. (The two VULs bought on the parents 10 years ago were slightly positive.)
      This is my first email to you hopefully this is the right was to get in touch with you. First off I want to say thank you, the wealth of information on this site, your online course, blog posts, and even Twitter, has proven to be more valuable to me personally and professionally than any other financial advice I have received. I am a private practicing dentist about 13 years out of school.

      I appreciate all of your attention on the whole life insurance topic. I fear I have succumbed to the siren call of my Northwestern Mutual rep’s view on whole life insurance. I not only have whole life on myself, wife, and 4 kids, I also have Variable universal Life insurance plans on all of us as well. The policies on my wife and I are around 10 years old. I have made the decision to no longer pay premiums on the policies and my rep has said I can take the policies as “paid up” which will reduce the insurance amount and cause the cash value to grow slower since no additional monies will be added. Or he suggested that some or all of the policies could be cashed out. Many of the policies have substantial losses in them, so I was/am hesitant to do that.

      My initial plan was to set up a 1035 exchange and let the policies grow to their basis and then close the annuity per your recommendations. My NWM insurance salesman has suggested that closing the VA prior to age 59 1/2 will incur a 10% penalty regardless of the policy not having any gain. Is there truth to that?
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • How....much....did...that...cost...?

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        • How….much….did…that…cost…?
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          Losses at this point total around $50K.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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          • The 10% penalty on an annuity is only applied to any gain in an annuity that is cashed out prior to age 59.5. There is no 10% penalty applied to the basis regardless of when distribution occurs.

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            • Another insurance agent strikes! You can't make this stuff up.
              Wow. I thought I was alone in my regret of buying whole life insurance. I feel so embarrassed that I took terrible advice from a life insurance agent (I was only 20 yo). Thank you so much for posting this and for all the people replying who make me feel like I’m not alone. I bought whole life insurance 10 years ago. The face amount is 400k. I’ve put in 13k, and surrender value is 9k (4k loss). After reading your blog I’m pretty sure I want to surrender it. Currently, I have no kids, no property, and more than $250k in student loans from med school.

               
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

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              • Two in one day today. I should have a calendar of these.
                Super simple but “face-palm” question that I keep perseverating over…
                Bought a $300K whole life from NWM four years ago. Have put in $18K ($300/mo) and forgot about it. Just looked at it for the first time in four years (I know, I know). Cash value is $12K so I’m $6K under.
                What do I do? Eat the $6K as a life lesson? No student loans so I just want to stop flushing money down the proverbial toilet.
                Just bought the WCI book too so looking forward to paying attention as I should have been years ago!
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.

                  - Sam Walton

                  Hopefully the entire WLI industry can experience people spending their money somewhere else.

                   

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                  • I was approached by a “friend” trying to sell me a whole life policy while I was still in residency. I politely declined but later bought a term policy from him. I also have all personal liability insurance with him. He has tried to sell me whole policies for me, my wife, and my young child on a couple different occasions. Finally I had to tell him that I was not interested and was never going to be interested and he has quit asking me. In the mean time, I found a similar term life policy for about half of what I was paying with him and promptly switched. My question is, should I be offended that he was trying to sell me crap I don’t need? Knowing what I know about WLI (it sucks), I have to wonder, would a true friend try to make a buck off me by selling me junk? Or do these insurance agents get brainwashed into thinking WLI is really an awesome product??

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                    • I have to wonder, would a true friend try to make a buck off me by selling me junk? Or do these insurance agents get brainwashed into thinking WLI is really an awesome product??
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                      They get brainwashed, but he truly was trying to steal from your family to provide for his (even if he didn't realize it).

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                      • Two in one day today. I should have a calendar of these.
                        Super simple but “face-palm” question that I keep perseverating over…
                        Bought a $300K whole life from NWM four years ago. Have put in $18K ($300/mo) and forgot about it. Just looked at it for the first time in four years (I know, I know). Cash value is $12K so I’m $6K under.
                        What do I do? Eat the $6K as a life lesson? No student loans so I just want to stop flushing money down the proverbial toilet.
                        Just bought the WCI book too so looking forward to paying attention as I should have been years ago!

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                        I want to read your answer and to know if s/he took your advice. I think a calendar is a great idea. My guess is a contributing problem with this person, in addition to good old-fashioned ignorance (not meant as an insult), was signing up for a monthly auto-draft. Writing a check, paying cash, being directly involved in spending your own money is *so* much more educational. I think this is the reason insurance companies encourage this method as the default payment.

                        (Insignificant factoid: I was the expert witness in a class-action lawsuit against a well-known insurance company on this very topic several years ago - which we won.)
                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                        • Variation on a theme here, this one is an IUL. WL doesn't have this issue.
                          Agent sold me an IUL with too much face amount and said if S&P returned 8% like always, this policy will perform well. Now, the insurance company reduced the caps to almost 8%. No way this will perform 8% every year. I have to double my premium to get those kind of returns which is not affordable to me. The other solution is to cut the death benefit in half but I will lose the accumulated cash value in half.
                          Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                          • A double today. Merry Christmas. Another doc who bought WL without understanding how it works.

                            Hello, I have been reading your articles as I was searching for more
                            information on whole life insurance policies. Unfortunately, like most
                            as it appears, I am looking for information in hide sight! I am 32, my
                            wife is 31 and we currently have 4 policies (2 each), all are 20pay
                            through MassMutual. I'd love to be able to send you the documents for
                            each and you tell me if what I have is a complete waste of money or if
                            I am just as well off sticking it out... I know that you are not
                            offering financial advise or a final decision but I would love to have
                            some help deciphering what I have!

                            It was explained to me that although they are not huge on returns like
                            stocks and other investments, these policies will be utilized in
                            retirement to keep us in lower tax brackets by using the cash value
                            (taken out/borrowed tax free) to supliment other retirement income. Or
                            to help protect while markets are low, instead of taking money out of
                            the markets when they dip, you take more out of these accounts. I also
                            have Long Term Care and Renewable Term riders as well... Im thinking
                            that at least it may be a good decision to dump the Term Riders for my
                            policies and get different Term insurance for cheaper. My Wife's term
                            riders are much cheaper than mine, maybe they are ok to keep?

                            From what I have read, it all is a poor choice, but I want to
                            understand better before I cut bait or stick it out for the 20 years I
                            have to pay the premiums!

                            Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                            • On another note, do people seriously think it’s reasonable to email you and ask if they can send you all their plan documents to go over so you can tell them what to do?

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                              • On another note, do people seriously think it’s reasonable to email you and ask if they can send you all their plan documents to go over so you can tell them what to do?
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                                Clearly that's unreasonable.

                                To be fair, though, the guy didn't technically ask for that.  He seems so deliberate in not actually asking for it, that it seems that he knows it would be an unreasonable request.  He does dance around it nicely.

                                I think if WCI said, "I'd recommend you should seek advice from X", with X being someone WCI knows to be competent in these issues, then it would be a completely appropriate response and well-received by the person who sent the message.

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