Worst life insurance EVER!!!

[Texas Proud]

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)....


I have started to pay my mom's bills... she is 94 and starting to show signs of dementia... I get this bill in the mail for over $214 for life insurance... Now, I know she has two small insurance policies.... but she told me back in 1980 that 'they were paid up', so I did not recommend anything to her for them.... And this is the first I have heard of her paying anything... She does remember paying this over the years...

So, I call the insurance company and ask a bit about the policy... they cannot give me much as I am not with my mom... I ask them to mail the info to my mom... I got that letter earlier this week... here is the important info...

Policy started in 1956... yes... it is that old.... annual payments of over $214... death benefit of $10,000... cash value of about $8,800!!!!


YES... after paying 58 years... for a TOTAL PAID PREMIUMS of $12,000... she has a current cash balance of $8,800... Now, if it had been earning 4% (not unreasonable)... the cash value would be over $46,000.... if 6% over $100,000...


I asked them when it matures.... they said when she turns 100... SO, if she lives that long.... I can pay more than $1,200 to increase my cash value by $1,200...


Bottom line... they 'stole' between $40,000 and $90,000 from my mom!!!

 

[Walt34]

That's almost a new low, even for an insurance company.

 

[LongPrime]

You were lucky to have a mother that recognized the need for LI.

If you dig down into the archives (mid 60's) of Consumer Reports, you will find that they did not recommend Term life.

I bought kiddie whole life for ds. It was cheaper to buy whole life on him rather than add him as a rider on my policy. ... When he became eligible to have his own policy, I had him buy 25x more term insurance for 5x the previous whole life premiums. I still own the term policy- he still pays for it.

 

[ERD50]

While I certainly agree that Whole Life is not an 'investment', I do think 'stealing' is a bit strong (though they should have bought term if they needed insurance).

She was insured during that time. That has some value (assuming they needed it). You have to expect to pay for coverage, but as an investment, yes, it sucks.

You were lucky to have a mother that recognized the need for LI.

The OP did not explain if there was a 'need'. What makes you assume there was one. Very often, people are 'sold' insurance who don't 'need' it.

I bought kiddie whole life for ds. It was cheaper to buy whole life on him rather than add him as a rider on my policy. ... When he became eligible to have his own policy, I had him buy 25x more term insurance for 5x the previous whole life premiums. I still own the term policy- he still pays for it.

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

 

[jIMOh]

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)....


I have started to pay my mom's bills... she is 94 and starting to show signs of dementia... I get this bill in the mail for over $214 for life insurance... Now, I know she has two small insurance policies.... but she told me back in 1980 that 'they were paid up', so I did not recommend anything to her for them.... And this is the first I have heard of her paying anything... She does remember paying this over the years...

So, I call the insurance company and ask a bit about the policy... they cannot give me much as I am not with my mom... I ask them to mail the info to my mom... I got that letter earlier this week... here is the important info...

Policy started in 1956... yes... it is that old.... annual payments of over $214... death benefit of $10,000... cash value of about $8,800!!!!


YES... after paying 58 years... for a TOTAL PAID PREMIUMS of $12,000... she has a current cash balance of $8,800... Now, if it had been earning 4% (not unreasonable)... the cash value would be over $46,000.... if 6% over $100,000...


I asked them when it matures.... they said when she turns 100... SO, if she lives that long.... I can pay more than $1,200 to increase my cash value by $1,200...


Bottom line... they 'stole' between $40,000 and $90,000 from my mom!!!

There is a rule within whole life that there must be a an % higher benefit than premiums paid, so if she paid $12k in premiums, there is a requirement the benefit get raised.

It won't change argument much about investment etc... realize she is at tail end of mortality table where this clause could kick in.

 

[Texas Proud]

There is a rule within whole life that there must be a an % higher benefit than premiums paid, so if she paid $12k in premiums, there is a requirement the benefit get raised.

It won't change argument much about investment etc... realize she is at tail end of mortality table where this clause could kick in.

Do you know where this rule is located so I can talk to them...

We are planning on cashing out... and I would like to get am much as I can...

 

[Texas Proud]

While I certainly agree that Whole Life is not an 'investment', I do think 'stealing' is a bit strong (though they should have bought term if they needed insurance).

She was insured during that time. That has some value (assuming they needed it). You have to expect to pay for coverage, but as an investment, yes, it sucks.



The OP did not explain if there was a 'need'. What makes you assume there was one. Very often, people are 'sold' insurance who don't 'need' it.




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

Nope... I look at it as stealing... I did put it in quotes on my OP...



Just to add to the discussion... and I hate to admit this.... it was probably my dad who 'sold' the policy... he sold life insurance some time before I was born... I think for a year or so...

At the time she got the policy, they probably did need LI... but in 1980 when my dad died.... not... and that is when I had asked about the assets she had and was told about the LI policy and how it was 'paid up'... so, it was a non-issue since there was nothing to pay...

I think she does have another $3K policy, but will need to look... she did say she does not pay for any other policy...

 

[pb4uski]

You are right in that is the poorest whole life policy that I have ever heard of. I have paid just a bit more in premiums annually but for only 36 years and my CSV is over $26k.

Are you sure there are not any paid up additions or dividends held at interest that is being overlooked? It is just hard for me to believe that the IRR has been negative (CSV<premiums paid).

What company is it? You may want to make a complaint to the company's domicillary state insurance department or your Mom's state insurance department. Something does not smell right in those numbers.

 

[GrayHare]

We are planning on cashing out... and I would like to get am much as I can...

My dad had a similar policy. In addition to lump sum, one of the payout options was 3% interest on the value, with the option to withdraw the balance at any time. Can't get a savings account elsewhere paying 3% these days.

 

[Texas Proud]

You are right in that is the poorest whole life policy that I have ever hear of. I have paid just a bit more in premiums annually but for only 36 years and my CSV is over $26k.

Are you sure there are not any paid up additions or dividends held at interest that is being overlooked? It is just hard for me to believe that the IRR has been negative (CSV<premiums paid).

What company is it? You may want to make a complaint to the company's domicillary state insurance department or your Mom's state insurance department. Something does not smell right in those numbers.

Not sure which company issued the policy.... I will have to look... but I do know that it is not the current one we deal with... they original was bought... do not know how long ago...

I would think that the domicile of the company was Texas... but not sure of that either...

 

[LongPrime]

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

It was for final expenses. Mail solicitation. Probably about 1985 (birth year). I can't exactly remember, if the the premium was $5/mn for 5k or $10/mn for 10k, payable yearly. I remember I had to call the term agent to ask for the cost of a rider. The whole life was cheaper, so I bought the whole life.

I also had DS buy LI at 17.5 yo, $250K, $25/mn. He was going to CMU (shameless plug); I knew I had to finance (borrow) most of the costs because 9/11 destroyed his UGMA. He qualified for superior rate, laddered term. He just had a birthday (29). I knew what his health and risks while living at home but didn't know what would happen when he's off at away school, like take up smoking as I did, or contracting a STD. He did gain the frosh 30, so I was correct in that aspect.

 

[LongPrime]

The OP did not explain if there was a 'need'. What makes you assume there was one. Very often, people are 'sold' insurance who don't 'need' it.
-ERD50

You're correct. A forward assumption on my part. I assumed that most of us are Boomers with parents seeing a lot in their lifetime, and like most of us do not recognize the value of insurance until it is sold to us.

 

[samclem]

. . . and like most of us do not recognize the value of insurance until it is sold to us.

That's one way of putting it.
People who depend on salesmen for info on products--whether it be insurance, cars, appliances, investments, or anything else, are just marks, plain and simple.

 

[LongPrime]

^ I have a older bro who is at corporate level at mega bank, risk management in one of their silos. They do a lot of hedging against their portfolio, all the time; Except when it came to mortgages and credit access. They didn't want to be sold insurance since they thought they knew all the risks.

 

[mathjak107]

whole life policies are structured so by age 100 -105 the cash value equals the death benefit of the policy. in fact at that point many insurers mail you back a check dead or alive and say bye bye.

at best, without riders the policy equals the death benefit.

 

[athena53]

Policy started in 1956... yes... it is that old.... annual payments of over $214... death benefit of $10,000... cash value of about $8,800!!!!


<snip>
Bottom line... they 'stole' between $40,000 and $90,000 from my mom!!!

As others have pointed out, you need to factor in the value of their promise to pay $10K at her death. By your reasoning, I guess, someone who took out that same policy and died a year later "stole" from the insurance company.

It does bring up the point, though, that life insurance of any kind can be unnecessary at certain times in your life. I haven't carried anything other than what my employer has offered for years because DH is 15 years older and there are enough assets to support him if I go first. Now that I'm retired, I have zero life insurance and I'm fine with that.

 

[Texas Proud]

As others have pointed out, you need to factor in the value of their promise to pay $10K at her death. By your reasoning, I guess, someone who took out that same policy and died a year later "stole" from the insurance company.

It does bring up the point, though, that life insurance of any kind can be unnecessary at certain times in your life. I haven't carried anything other than what my employer has offered for years because DH is 15 years older and there are enough assets to support him if I go first. Now that I'm retired, I have zero life insurance and I'm fine with that.

Most of the policies that I have heard of are participating policies... IOW, your cash value of the policy grows and a market rate minus the cost of insurance... the cost of insurance when someone is young is small.... assuming a 4% return on a cash balance is not out of line...


Nope, I do not consider someone who dies a year later and getting paid is stealing... that is what life insurance is for... the company received a lot of premiums from others to pay for that one death... and made money doing it...

The company probably had ZERO risk of losing money after 20 something years of premiums and gains... so the last 35 years of premiums were 100% profit with zero going for risk of death... that is why I call it stealing...



My main point is not the 'stealing', but the 'investment' aspect of whole life.... if you need LI, buy term... do not waste money on whole life....

 

[pb4uski]

I think you are painting with too wide a brush when you denigrate whole life. In my case it has protected my family for 36 years and ignoring the insurance aspect, I could cash out today and get back my premiums plus 5% per annum compounded. If I die tomorrow, DW would get a tax-free death benefit equal to my premiums accumulated at 8.3%.

While you are right that most whole life polices are participating, back when your Mom's was purchased there were some par policies issued by stock companies.

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.

 

[jIMOh]

Do you know where this rule is located so I can talk to them...

We are planning on cashing out... and I would like to get am much as I can...

It is in my insurance book I used to study when I took the state insurance test. In order for whole life to meet whatever underwriting guidelines, this clause is there.

If I find the exact page, I'll post again.

 

[MooreBonds]

The company probably had ZERO risk of losing money after 20 something years of premiums and gains... so the last 35 years of premiums were 100% profit with zero going for risk of death... that is why I call it stealing...

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.

Obviously a raw deal financially, but some people are bad at math, or (as is more the case) most people simply don't care about "just a few dozen dollars here or there". There are countless examples everyday of people "wasting" money on things that they could buy cheaper elsewhere. Apparently, your father and/or mother never bothered to do the simple math of "X years * $y/year = more than the death benefit is worth".

 

[samclem]

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.

 

[ERD50]

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?

-ERD50

 

[athena53]

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.

 

[Independent]

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.

 

[Texas Proud]

+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....