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Inappropriate Whole Life Policy of the Week

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  • Avatar Ricky 
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    Status: Dentist, Small Business Owner
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    It’s crazy how many you of these you get by e-mail WCI.  But, it’s how I found your site years ago.  I was being pitched a 2M whole life policy along with a whole bunch of other stuff so I started to look it up.  From there, found your site and the rest is history.  Up until then I wanted to invest, but didn’t like/trust anyone I had met to interview so I just put all the extra money into paying down the mortgage.  Now I have a great laddered term policy, paid off mortgage and a real financial plan.  All this as long way to say that WL policies might be responsible for more people finding your site than anything else…for better or worse.

    #35983 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4546
    Joined: 05/13/2011

    Email, comments, forum, in-person conversations etc. When seemingly at least 1/4 of docs have bought one (including me) there are going to be a lot of dissatisfied customers. Yet I still get these yeahoo agents showing up with 1000 word comments in the comments section of years-old blog posts trying to argue with me. Maybe I’ll start sending them here. Here was the guy today:

    Is A Zero Percent Tax Bracket In Retirement A Good Idea?

     

    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

    #36057 Reply
    Liked by Craigy
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Joined: 05/13/2011

    Here’s another one:

    I am the oldest of 8 children. My great grandma opened a whole life insurance policy ($50,000) for me when I was born, but she passed away before being able to do the same thing for my 7 siblings. The net cash value of the policy is currently $16661.85. I would like to eventually split the sum between all of my siblings.

    Sounds like Great Grandma forced someone else to take over a policy she started and decades later it is still causing issues.

    Would have been nice if Great Grandma had started an ILIT and bought the insurance on HER instead of passing along premiums instead of assets to her heirs.

    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

    #36091 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Joined: 05/13/2011

    Yet another:

    I am an internist graduated from residency in 2015….I got recently introduced to the “White Coat Investor” book…Also I visited your website briefly and I just subscribed to the newsletter. Apparently there are plenty of info there so I am planning to take it slowly.

    I want to ask you how do you feel about cash value life insurance. I recently signed up with life insurance company. They sold that to me saying I can consider this as my personal bank , “infinite banking”?

    Do you suppose this doc who graduated 18 months ago still has student loans? I’d bet on it.

    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

    #36094 Reply
    Craigy Craigy 
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    Email, comments, forum, in-person conversations etc. When seemingly at least 1/4 of docs have bought one (including me) there are going to be a lot of dissatisfied customers. Yet I still get these yeahoo agents showing up with 1000 word comments in the comments section of years-old blog posts trying to argue with me. Maybe I’ll start sending them here. Here was the guy today:

    https://www.whitecoatinvestor.com/is-a-zero-percent-tax-bracket-in-retirement-a-good-idea/#comment-447694

     

    Click to expand…

    WOW not just a 1,000 word comment but comment on top of comment.  Have to say I scrolled to the end and chuckled at your last reply.   😆

    Reading his first comment and a little of the next, aside from the stuff you point out, one thing that is really glaring is how he holds out insurance as some sort of infallible product, often comparing it against market risk and even economic collapse.  He must say “guarantee” about 20 times.  But he completely ignores that the only way the insurance company can continue to pay these “guaranteed” dividends is based upon their own market investments and their ability to sell new policies.

    Insurance companies go bust all the time.  That’s the whole reason that companies like AMbest exist in the first place, to give you an idea of how likely your insurance company is actually going to pay on your claim.

    The only reason they can “guarantee” you a dividend is because they slam you so hard on the policy premium, commissions, fees, that they can afford to throw a tiny portion of your money back at you at a substantially sub-market rate.

    The whole concept of the guarantee is bunk.  Sure you might have some contractual rights, but once it gets to the point of your needing to sue on that contract, the whole company is insolvent and you’re up the proverbial creek.  In some economic meltdown they’re going to get melted down like everyone else.

    The sad thing is, this is a pretty common theme among insurance salesmen.

    LEVEL 1 WCI FORUM MEMBER.

    #36095 Reply
    Liked by artemis
    Avatar artemis 
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    Status: Physician
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    The whole concept of the guarantee is bunk.  Sure you might have some contractual rights, but once it gets to the point of your needing to sue on that contract, the whole company is insolvent and you’re up the proverbial creek.  In some economic meltdown they’re going to get melted down like everyone else.The sad thing is, this is a pretty common theme among insurance salesmen.

    Click to expand…

    The sadder thing is that there are grown adults out there (and I don’t just mean insurance salesmen) who don’t realize this.  History is absolutely littered with huge upheavals like the Black Death, the Mongol invasions, and the Great Leap Forward (to name just three) where merely surviving, never mind keeping any of your wealth, was a major accomplishment.  And there’s no reason to think such momentous changes couldn’t happen again.  An insurance policy isn’t going to provide much of a lifeboat if it turns out we’re all on the Titanic.

    Guaranteed protection from financial loss simply doesn’t exist, no matter how much we may wish it did.

    #36102 Reply
    Liked by Craigy
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
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    Joined: 05/13/2011

    But wait, there’s more:

    My parents bought me a whole life policy in 1984 (so that I could be insured if I acquired an illness). It cost them about $83 per year. When I realized i had one in 2015, I cashed it out immediately (which was actually hard to do; it required many steps).

    The cash value in 2015 was around $2400
    Now $83 per year x 31 years in a savings account= $2573
    $83 per year for 31 years in stock market, 6% return = $7543
    $83 per year for 31 years in stock market, 8% return = $11,139

     

    Kind of a bummer to have such a low return on such an old policy bought at a time of such high interest rates.

    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

    #36104 Reply
    Liked by Craigy
    Zaphod Zaphod 
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    Status: Physician, Small Business Owner
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    Joined: 01/12/2016

    This stuff is crazy.

    This is actually what the fiduciary rule was supposed to target, issues such as these, which is why there was such heavy lobbying against it. Trumps admin is trying to scale it back, hopefully they cannot.

    Its such a lucrative business, on Fintwit there was an ad going selling a practice (due to new rule) around that showed 1 million in income from just 10 million in assets under management. Thats a great gig for the sellers.

    #36108 Reply
    Avatar JR 
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    Status: Resident
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    Joined: 05/30/2016

    This thread just reaffirms the importance of all the work done by WCI in educating physicians and spreading the word around so we don’t fall in the hands of people like that. Last year when I was exploring the market to buy my own DI, asking my co-fellow for advice and he introduced me to his “Financial Advisor” from NWM. He had help him buy “a great own occupation DI” and he was working with him on a WLP. Again, thanks to WCI’s book and this website I escaped from a big big mistake in my life. The guy was selling me the same crap you read about here. Last year I purchased a DI policy with Principal, which I’m very happy with. This year I purchased a 20-year Term Life Ins policy with John Hancock for 3M at a very reasonable price. And now, every opportunity I have, I refer my residents to WCI for education.

    #36146 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4546
    Joined: 05/13/2011

    Email, comments, forum, in-person conversations etc. When seemingly at least 1/4 of docs have bought one (including me) there are going to be a lot of dissatisfied customers. Yet I still get these yeahoo agents showing up with 1000 word comments in the comments section of years-old blog posts trying to argue with me. Maybe I’ll start sending them here. Here was the guy today:

    https://www.whitecoatinvestor.com/is-a-zero-percent-tax-bracket-in-retirement-a-good-idea/#comment-447694

     

    Click to expand…

    WOW not just a 1,000 word comment but comment on top of comment.  Have to say I scrolled to the end and chuckled at your last reply.   ?

     

    Click to expand…

    You’ll love that he sent me two long emails today too. Why? Who is he trying to convince? What he doesn’t realize is I’ve had this argument 50 times already. I know how it ends.

    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

    #36154 Reply
    Liked by Craigy
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4546
    Joined: 05/13/2011

    It’s been quite a day for whole life policies. Here’s another one tonight:

    I bought a $250,000 whole life policy (yes, NWM) in 2001. My annual premium is $4021. A few years ago my solo pediatric practice had a cash flow issue and I borrowed $30,000 from the policy to make ends meet. I’ve been paying back that loan (“to myself, I was told”) slowly, but now still owe $38,000 (I didn’t start repaying that loan immediately). The cash value of the policy is now about $37,000. I’m otherwise doing ok financially (finally). I’ll have my mortgage paid off in 5 years or less (about $100,000 left), and I have been maxing out my 401K. I am now prepared to more aggressively pay down that loan but after reading your blog I realized maybe I should just apply the cash value to the remaining loan debt, cover the difference and be done with the policy….. Should I cash in the policy to cancel this debt and invest future premium payments elsewhere? Or pay off the debt and convert the whole life policy to some other vehicle, or just keep it?

    Obviously not enough info to answer the question, but a few observations can be made:

    1. A pediatrician (so presumably an income of $120K-180K) was sold a $4K/year policy when he was not doing okay financially and had a practice with unstable cash flow.
    2. After making sixteen $4K payments ($64K), the cash value is something like $37K + the $30K borrowed out, or $67K. Not much return there for 16 years of compounding. At least it’s positive I suppose. That probably just happened in the last couple of years.
    3. If you never buy a policy, you’re never stuck with these tough decisions about what to do with it.

    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

    #36175 Reply
    Liked by Zaphod, Craigy
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1316
    Joined: 02/15/2016

    Inappropriate Whole Life Policy of the Week Day

    Fixed the title of the thread for ya.

    #36188 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 593
    Joined: 12/02/2016
    Also, generally speaking, the loss is taken when the policy is first sold and in the first couple years of premiums.  After that, generally the cash value keeps up with the payments in.  So you’re not really saving them from harming themselves financially at this point, they already did that when they got the policy.  You might stop the slow drip of blood but the mack truck already hit them.

    Click to expand…

    That’s the situation I’m in.  I got suckered into buying one of these things many, many years ago, long before WCI and other bloggers were around to warn residents and new attendings of what a bad deal they are.  By the time I learned about my mistake, the damage was done.  Now I’ve decided to make lemonade from this lemon by keeping the policy until I die and just incorporating it into my estate planning; once my elderly parents are deceased, I’ll change the beneficiary on the policy to one of my favorite charities.  It’s not the most efficient way to donate to charity, that’s for certain, and knowing what I know now I’d have chosen differently, but at least this way will force Northwestern Mutual to make a REAL payout one day!

    #36258 Reply
    Liked by Zaphod, Craigy
    Avatar redsand 
    Participant
    Status: Physician
    Posts: 75
    Joined: 01/08/2017

    There are at least two companies (maybe more) that are contacting trainees through the residency/fellowship programs at this institution, offering free dinners to go listen to their talk about financial planning, one at Ruth’s Chris steakhouse and another at a local trendy seafood/steakhouse restaurant.  Also, several months back the NWM agents (who are somehow affiliated with the sponsoring institution as they are the people whom you can buy GSI disability insurance from in the final year of training) contacted me through the program administrator wanting to meet to talk about financial advice (I guess that’s what they wanted to talk about…I never took him up on his “offer”).   After reading the stories, it makes me wonder how the sales people sell whole life insurance, and I thought, maybe they try to push these policies at expensive restaurants.  I’ve never been one for industry-sponsored lectures at dinners relating to pharma/products/medical devices, and financial planning dinners feel like they are an extension of the same concept insofar as they are using food to get you to buy-in to using their product(s).

    #36269 Reply
    Avatar artemis 
    Participant
    Status: Physician
    Posts: 593
    Joined: 12/02/2016

    Be sure people have copies of the policies and know where to submit the death certificate.

    Click to expand…

    That’s an excellent reminder!

    #36293 Reply

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