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Inappropriate Whole Life Policy of the Week

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  • Avatar racelari 
    Participant
    Status: Physician
    Posts: 26
    Joined: 03/10/2019

    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.

    #238195 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4610
    Joined: 05/13/2011

    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.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #241966 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4610
    Joined: 05/13/2011

    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

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #249366 Reply
    Avatar Hospitalist 
    Participant
    Status: Physician
    Posts: 9
    Joined: 12/31/2017

    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.

    #249382 Reply
    Liked by adventure
    Avatar racelari 
    Participant
    Status: Physician
    Posts: 26
    Joined: 03/10/2019

    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.

    #250253 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4610
    Joined: 05/13/2011

    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.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #255074 Reply

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