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Old 05-18-2014, 12:16 PM   #21
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Originally Posted by MooreBonds View Post
It's no different than "payday loan" companies charging annualized interest rates in the HUNDREDS of percent to people for short-term loans, even in factoring the credit worthiness factor.
These payday loans are also typically for small amounts and short periods, so even a small $15 service fee for doing the paperwork on a small 30 day loan gets portrayed in the press as a "200% annual interest rate". And, compared to the alternative (e.g. the $50 fee for bouncing a check, etc), sometimes a payday loan is actually the smartest option available to some people.
I'm not saying people who get payday loans are typically smart with money--their poor choices often led to the need for a loan.
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Old 05-18-2014, 01:43 PM   #22
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Originally Posted by samclem View Post
These payday loans are also typically for small amounts and short periods, so even a small $15 service fee for doing the paperwork on a small 30 day loan gets portrayed in the press as a "200% annual interest rate". And, compared to the alternative (e.g. the $50 fee for bouncing a check, etc), sometimes a payday loan is actually the smartest option available to some people.

I'm not saying people who get payday loans are typically smart with money--their poor choices often led to the need for a loan.
+1

The post you quoted is an example where the math may be correct, but that math is out of context and irrelevant. It appears to be used to merely sensationalize the issue - as you say 200% sounds more exciting than a $15 fee.

In some cases, I think it makes people feel better to 'demonize' the supplier of a product that others willing choose to purchase. In this case, I think educating the people that are purchasing payday loans would be of greater benefit.


Back to the OP - since your Mom said the policy was paid up many years ago, I wonder if it was set up to pay the premiums from the investment gains, and the gains no longer kept up? Maybe those payments were not made during the entire life of the product?

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Old 05-18-2014, 03:18 PM   #23
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In any event, it makes no sense that the CSV is less than premiums paid that is worth chasing down. Something doesn't sound right - there is no way such a product would have ever been approved for sale.
This occurred to me, too- insurance rates have to be approved by state insurance departments. I know the OP's mother bought the policy in 1956 so regulation may have been less strict, but I would think there would have been an approval required before the company could sell it.

Could it have started out as a "debit policy"? Those were sold with weekly premiums and the agent would come around to your house and collect. I'm 61 and dimly remember one who used to visit us when I was little. They may have carried pretty high expense ratios because they involved so much human interaction. I'm not sure if debit policies were term, whole life or both.
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Old 05-18-2014, 05:38 PM   #24
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OK... I am going to vent...

I am going to give a real life example of WHY whole life insurance is a bad 'investment'.... my example has to be the worst that anybody has ever heard of... (I bet nobody will be able to find one worse than this)....
Whole Life was typical insurance in 1956. When she bought it, she probably lived in a state where the minimum valuation standard was 1941 CSO mortality table and 2.5% interest. The net annual premium on that basis was probably around $190/year. The company added expenses to that net premium and got $214.

So, I'd guess that your mom got a "typical" premium for the time that she bought the policy.

Lots of people bought participating policies instead of nonparticipating. They probably had even higher gross premiums, but carried the promise of refunds if mortality went down or interest rates went up. Of course, both of those things happened and those people did better.

So, it's unlikely that you'll find someone who had a particularly worse deal than this, lots of people did better, but there were plenty of people like your mom.

The good news is that after years of consumer education, including state mandatory disclosure laws, most 30-somethings who really need life insurance buy term today. (But, you already know this.)

Kind of like, in 1956 lots of people saved money in passbook savings accounts at banks and S&Ls. Those accounts turned out to be a lousy deal as market interest rates went up but passbook interest rates didn't. Fortunately, most people go with other options today.
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Old 05-18-2014, 06:29 PM   #25
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Originally Posted by ERD50 View Post
+1

The post you quoted is an example where the math may be correct, but that math is out of context and irrelevant. It appears to be used to merely sensationalize the issue - as you say 200% sounds more exciting than a $15 fee.

In some cases, I think it makes people feel better to 'demonize' the supplier of a product that others willing choose to purchase. In this case, I think educating the people that are purchasing payday loans would be of greater benefit.


Back to the OP - since your Mom said the policy was paid up many years ago, I wonder if it was set up to pay the premiums from the investment gains, and the gains no longer kept up? Maybe those payments were not made during the entire life of the product?

-ERD50


Nope... the payments were never paid from the policy.... she remembers paying all those years... wish it were true though....
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Old 05-19-2014, 08:54 AM   #26
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Why the heck would you buy LI on a child (unless they are high profile child actors)? They are not wage earners, their demise has no financial effect that needs to be insured against.

A lot of us are smelling 'sales-person'. That never ends well.

-ERD50
My grandmother took out a life insurance policy for me when I was either an infant or a little kid...can't remember which. I forget the specifics on it, but it was enough to pay for my funeral in the event I died prematurely. Probably should have done term though, rather than whole, as I'm now 44, and can afford to pay for my own funeral.

Next time it comes up for renewal, I'm going to check the specifics on it. For the longest time, the annual payment was only $50 per year, but last year I think it jumped up to close to $200. And, with the way funeral costs have gone up, I don't think it would be enough to cover one, nowadays.
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Old 05-19-2014, 08:58 AM   #27
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My grandmother took out a life insurance policy for me when I was either an infant or a little kid...can't remember which. I forget the specifics on it, but it was enough to pay for my funeral in the event I died prematurely. Probably should have done term though, rather than whole, as I'm now 44, and can afford to pay for my own funeral.

Next time it comes up for renewal, I'm going to check the specifics on it. For the longest time, the annual payment was only $50 per year, but last year I think it jumped up to close to $200. And, with the way funeral costs have gone up, I don't think it would be enough to cover one, nowadays.
That partly depends on if you want cremation or burial. Cremation runs in the 2-4k range, while burial runs 8-10k. This is why cremation is approaching a 50% market share.
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Old 05-19-2014, 10:25 AM   #28
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Texas Proud; Are you sure that your Mom has been paying those premiums all of these years? I have a whole life policy (sold to me by my Dad - yup) that has been paid up for many years. I get a bill every year stating what the increased CSV will be if I pay the annual premium and what the increased CSV will be if I elect to use the "accelerated payment method". Of course the increase in the CSV is less if I don't pay the premium.

My Dad sold me this policy in 1971 in order to make sure that "final expenses" were covered. It was a very small policy. It was common back in the day for whole life policies to be sold in order to cover funeral costs. Pretty morbid, but that was the sale's pitch.
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Old 05-19-2014, 10:42 AM   #29
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It happened to me... here:
Sharing 23 years of Frugal Retirement


excerpt...
Quote:
I'll start with an example... Whole life policy, with cash value. Trust in God, all others pay cash.
When this policy reach the 30 yr point, rather than taking the cash decided to leave the money in the account, and let it accrue the reasonable fixed interest rate. Verified the cash value (small policy ... thankfully) and just let it sit. Yesterday 5 years later, decided to take the cash value... to be told that the policy no longer existed.
Seems there was a clause that said at term, the policy would automatically renew and the cash value would used for payment. It renewed at an outrageous rate, and the cash value was used up... account closed.
Dumb, yes... but the policy was issued nearly 40 years ago, and well... my dumb.
Read the contract...
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Old 05-19-2014, 10:43 AM   #30
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For Texas Proud -

Your mother's policy should have a table showing the amount of her payment that goes to pay for the insurance and the amount that goes to increase the cash value. The insurance part increases as the insured ages. It may be that the cost of the insurance has exceeded her cash value growth. Back in the 1950's interest rates were low and nobody ever imagined the rates that have been seen since. There may have been a low cap on this interest rate.

Yes, you have the worst WL insurance policy I've every seen.

My FIL has an older policy and I anguished over whether it made sense to pay it every year. Since he was in a nursing home, it seemed like the near term likelihood of the death benefit was worth paying for.
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Old 05-19-2014, 12:29 PM   #31
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A long time ago, I was reading a book on options- still trying to get through it and got several other books on options. Anyway, right away, the author said that call options is like life insurance-has time value, a strike date, and intrinsic value.

This year I sold a few covered calls. At the time it was to protect my downside risk in exchange of receiving the premium and limiting my upside. It was a good trade until the underlying stock continued dropping past the strike, where upon it became a "worse" option because it encourage me to keep the underlying asset.

LI is an option on Life's worth. At time of purchase the LI had value. Today that LI no longer has much future value but has intrinsic value (the cash value). Hence the quandary either continue to pay the premiium for low future value or collect it's intrinsic value, making the choice the "worse ever"
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Old 05-19-2014, 12:37 PM   #32
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That partly depends on if you want cremation or burial. Cremation runs in the 2-4k range, while burial runs 8-10k. This is why cremation is approaching a 50% market share.
We were involved in three cremations over the last three years and each one was no more than $900 which included the pick up of the body, cremation, issuance of a death certificate, and delivery to a home address of the ashes in a container.

I don't know how it can cost $2 - $4K unless there are some other services that are performed?
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Old 05-19-2014, 12:48 PM   #33
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the life insurance value is $10,000 less the $8800=$1200 for which you are paying $214/yr or a hugely bad return on investment, at this time and future, Alternatively, is the CV of $8800 worth more now vs collecting it in death?
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Old 05-19-2014, 12:55 PM   #34
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I bought a prepaid cremation, no services, no urn, plan for my mother. It was an annuity $1200 about 3 years ago. That same plan cost me $900 for my FIL, 7 years ago. I could have bought a plan for $500. I just didn't feel like doing this type of transaction over the phone.
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Old 05-19-2014, 01:01 PM   #35
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I bought a prepaid cremation, no services, no urn, plan for my mother. It was an annuity $1200 about 3 years ago. That same plan cost me $900 for my FIL, 7 years ago. I could have bought a plan for $500. I just didn't feel like doing this type of transaction over the phone.
You sure buy a lot of financial "products" to avoid risk--LI on infants, annuities for yourself, annuities to pay for final services for relatives, etc. Do you buy the extended warranties on appliances, too? Is it possible to buy insurance against a bad haircut?
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Old 05-19-2014, 01:46 PM   #36
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Is it possible to buy insurance against a bad haircut?
Is Haircut Insurance Next? – optoblog.com
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Old 05-19-2014, 02:07 PM   #37
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^LOL,
Final expenses for relatives- I just don't want to deal with it when the time arrives. I did it because I could do it when I have the mental and emotional energy. I am not sure that I could do it when it comes.

Insurance products exist because I don't like taking the risk. So I layoff my risk for a known amount of money.

It gives the ability to take higher risks and FIRE.

The prepaid funeral is an annuity because the State requires the offering company able to guarantee the payment for services provide. I could care less whether I bought an annuity or LI or something else-( Personally I thought I was buying LI with an assigned beneficiary). I just want the service paid for when I need it.
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Old 05-19-2014, 02:16 PM   #38
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Haircut insurance: I shoulda, if I coulda, but the wife'a wouldn'ta like'a it'a.

Got a haircut this weekend from dw. She said that it was pretty good. I said she always gives me a good hair cut. She said, this one is a lot better than the previous haircut-her's .
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Old 05-19-2014, 02:24 PM   #39
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The prepaid funeral is an annuity because the State requires the offering company able to guarantee the payment for services provide. I could care less whether I bought an annuity or LI or something else-( Personally I thought I was buying LI with an assigned beneficiary). I just want the service paid for when I need it.
That's a pretty broad definition of an annuity.
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Old 05-19-2014, 02:34 PM   #40
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...

This year I sold a few covered calls. At the time it was to protect my downside risk in exchange of receiving the premium and limiting my upside. It was a good trade until the underlying stock continued dropping past the strike, where upon it became a "worse" option because it encourage me to keep the underlying asset.

...
Covered calls don't protect against downside risk, unless you consider the premium you receive as an offset against that degree of loss. But that is pretty small on an OTM covered call, which is what I assume you sold, since you mentioned 'limiting your upside' - an ITM call would eliminate any upside (beyond the premium).

Are you sure you understand covered calls? Or was there a typo in there?

OTM - out of the money
ITM - in the money

-ERD50
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