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Old 08-09-2012, 09:57 PM   #21
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Originally Posted by PennStateCLJ View Post
I would follow the Dave Ramsey approach to paying these off. Site here-http://www.daveramsey.com/new/baby-steps/

I'd pay the small ones with your existing cash to get them out of the way and make life more simple, even though their rate isn't as high. It's an immediate win. That still leaves you with $10k emergency money if you just paid them off and were done with them.

You might want to look into the credit card option others suggested with the remaining loan.

For this specific set of circumstances, I give a hearty +1.
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Old 08-10-2012, 07:06 AM   #22
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Chase slate card offers 0% for 15 months and $0 balance transfer fee.
Yeah, but I don't think I would get approved for a significant amount. Just getting the companies to increase limits on my old cards has been a struggle. I don't want to be in a situation where I take a hard hit on my credit and get approved for something like $2k.
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Old 08-10-2012, 09:09 AM   #23
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I think your arguments about life insurance make it even more reasonable to get a term policy instead of the permanent one. Go to term4sale.com and plug in your age/numbers and compare what you get for your money. A 22 year old female in average health can get a $1,000,000 30 year policy for about $50 a month.
I don't really understand why everyone is totally against the variable investment life insurance policy. For now, the life insurance part is just a security measure and by signing up for the plan at an early age, I qualified as Preferred Elite which means less fees and can ensure I will have life insurance forever not just for 30 years. Right now I am thinking about my family but when I am older and have kids and a family as my dependents I want them to be covered as well. Why waste $50 every month and have it expire at $0 at the end of 30 years.

The minimum premium for this investment/life insurance option was $50, but I chose to start with $150 monthly. I don't think it makes sense for me to max out my 401k instead, money that I won't see until retirement. With the little that I am able to save now, putting everything in just the 401k is putting all eggs in one basket with no access to the money. The investment fee is at about .65% which seems reasonable to me. Portfolio options are similar to 401k and I have more flexibility 10 years from now to use it or borrow against it.

Why is this a bad option and what other options would be better? Aren't they all dependent on the market anyway? I don't have a lot to invest right now but I do want to be smart about the little that I am investing.
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Old 08-10-2012, 09:18 AM   #24
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Why is this a bad option...
Fees. The hidden costs within the product sucks up a substantial portion of your investment returns - each year - every year - and that adds up to a huge difference in what you could earn investing those funds in a simple index fund.
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...what other options would be better?
Term insurance is the lowest cost, but if you insist you know what your life insurance needs will be 30 years in the future (do you? really?), a whole life policy without the costly investment mumbo-jumbo is a reasonable alternative.
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Old 08-10-2012, 09:26 AM   #25
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I think it would be helpful for Coffee to let us know which plan she is investing in (mod hat on: a link to it had been mod-edited earlier) so that those who wish to can give her more focused feedback on it. It might turn out to be a reasonable choice for her goals at this point.

So CoffeeMoney, go ahead and let us know.

PS: Every time I see your user name, it makes me go pour another cup of coffee .
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Old 08-10-2012, 09:49 AM   #26
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Much appreciated. This is helping me tremendously, although a little scary that I may not be on the right track.

The variable universal life insurance plan that I am contributing to is Axa Incentive Life Optimizer® II

Side note - my username comes from my attempt to save up all(some) of my money that I usually spend on coffee. Currently I am drinking the free coffee from the pantry at work. Grr.
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Old 08-10-2012, 09:52 AM   #27
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Portfolio options are similar to 401k and I have more flexibility 10 years from now to use it or borrow against it.
On the money availability front:
If your employer plan allows it you can borrow against 401k (normally not recommended, but if you are really in a bind it can be done).
Another option is, if you open a Roth IRA all your contributions (but not earnings) are available for withdrawal at any time.
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Old 08-10-2012, 10:00 AM   #28
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Much appreciated. This is helping me tremendously, although a little scary that I may not be on the right track.
Do not worry - you are doing great! You are far ahead of your peers.
Keep in mind that nobody makes perfectly "optimal" financial decision in life.
Perspective also helps - at most you are "wasting" $150 per month. While not insignificant, it's only 6% of your monthly expenses. And you probably have not had time to sink any significant money into it.
As long as you LBYM (Live Below Your Means) you should be fine.
I'll try to dig up some info on the internet on the fees of the product you just posted.
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Old 08-10-2012, 10:10 AM   #29
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Much appreciated. This is helping me tremendously, although a little scary that I may not be on the right track.

The variable universal life insurance plan that I am contributing to is Axa Incentive Life Optimizer® II

Side note - my username comes from my attempt to save up all(some) of my money that I usually spend on coffee. Currently I am drinking the free coffee from the pantry at work. Grr.
Saving coffee money is right up there with cutting dryer sheets in half in terms of frugality. If you want life insurance and investment, you will probably save much more money buying term life insurance and investing the difference at Vanguand in their index funds.

Here's a summary
Quote:
Incentive Life Optimizer® II is a variable universal life insurance contract with the primary purpose of providing a death benefit. It is a long-term financial product that can also allow potential accumulation of assets through customized, professionally managed investment portfolios. These portfolios are closely managed in order to satisfy stated investment objectives.
There are fees and charges associated with Incentive Life Optimizer® II including mortality and expense risk charges, administrative fees, investment management fees, surrender charges, and charges for optional riders Additionally, Incentive Life Optimizer® II and its riders have restrictions and limitations.
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Old 08-10-2012, 10:12 AM   #30
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Do not worry - you are doing great! You are far ahead of your peers.
Keep in mind that nobody makes perfectly "optimal" financial decision in life.
+1

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Perspective also helps - at most you are "wasting" $150 per month.
Coffee, I don't believe you are "wasting" your $150/mo payment to your VUL, but you aren't getting the best value for your money.

Please don't take our comments as criticism. You are in the process of learning about insurance "investments" the same way we (OK, I) did - the hard way. But better a little discomfort now than a lot of pain many years down the road.
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Old 08-10-2012, 10:22 AM   #31
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I don't really understand why everyone is totally against the variable investment life insurance policy. For now, the life insurance part is just a security measure and by signing up for the plan at an early age, I qualified as Preferred Elite which means less fees and can ensure I will have life insurance forever not just for 30 years. Right now I am thinking about my family but when I am older and have kids and a family as my dependents I want them to be covered as well. Why waste $50 every month and have it expire at $0 at the end of 30 years.
Why is everyone totally against the whole life insurance policy? They are generally horrible deals and make no sense at all financially.

You have recited verbatim the sales pitch that whole life salespeople give, to wit:

1. Right now you qualify for Platinum Preferred Elite, something that we only offer to our extra Special customers that meet very strict underwriting criteria.

2. With Term coverage you risk becoming uninsurable and seeing huge rate increases as you age.

3. Why waste any money on Term, when it will expire worthless at the end of the couple of decades of coverage? Build up value with Whole Life coverage and you will have something of value at the end of the couple decades. Having something is better than having nothing right?

(end of summary of sales pitch)

Instead of dropping $150/month on whole life, at least analyze the alternative before ruling it out. As another poster mentioned, you can spend $50/month on a 30 year Term policy and get a $1,000,000 coverage amount. Probably much more coverage than you are getting now, right? The goal of life insurance is to provide for your dependents, and a million should help them out immensely.

Then take the $100 per month you have left and put it into a 401k or IRA or brokerage account.

I'll do the math for you. $100 per month invested in an average mutual fund returning an average of 8% per year will leave you with $136,000 in 30 years. Not exactly nothing.

After 30 years of spending $150 per month on a combo of $50 Term life insurance and investing $100, you will have $136,000 left to do with as you like. Odds are your insurance needs in 30 years will not look anything like they are today. $1 million coverage may be sorely inadequate. Or you may have done very well building wealth and be a multi-millionaire on your own accord and have no need for additional life insurance.

Another way to look at the Whole Life policy is to examine the commissions the salespeople receive when they sell it. If it is like typical whole life policies, the salesperson receives almost all the first year's premium, and then receives a significant portion of the premium for some number of years after that, eventually only receiving a few percent of your premium each year after 8-10 years. Sounds like a very lucrative sale for your salesperson because it is. Probably not the best deal for the customer unfortunately.

My advice would be to do the math yourself and figure out what is the best alternative for you long term. Make a decision based on what your analysis reveals and what your goals are. Don't be suckered by the salesperson's appeals to your emotions and fears.

I speak from experience. About 8 years ago (when I was 24) an old "friend" tried to sell me a whole life policy with $10,000 per year in premiums. I forget the coverage amount, but it wasn't anywhere near a million. Luckily I decided against buying the whole life policy. Now I find myself with an extra $100,000 or so in my investment portfolio due to paying myself that $10,000 a year and allowing it to compound and grow in my own accounts. And that ignores the fact that I was able to contribute that $10,000 per year to tax advantaged accounts like 401k and IRAs that led to significant tax savings as well.
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Old 08-10-2012, 11:01 AM   #32
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The variable universal life insurance plan that I am contributing to is Axa Incentive Life Optimizer® II
Just a quick look at the lovely prospectus ( what, only 320 pages? ).
So some copy and paste from the prospectus to summarize some fees.
Right of the bat you are paying:
* Premium charge From each premium 6% of each premium
* Monthly administrative charge $15 plus at least .09 times face amount ( so $45 for 500k policy)
* Mortality and expense risk charge 1%
* I hope you did not get MSO rider for paltry 2.4% (Did you get any riders?)
* Total Annual Portfolio Operating Expenses 0.62%-1.60% (for comparison, using decent index mutual funds or ETFs you average portfolio expense ratio can be probably brought down to .20%, with the cheapest funds in 0.07-0.10 ratio)

That's a lot!

FUEGO in the email above presented a nice summary of why most of us think it's a bad idea.
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Old 08-10-2012, 11:34 AM   #33
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I will need some time to process this and figure out my options. If I cancel, does anyone know if I at least get my investment part back? I have invested $750 so far...
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Old 08-10-2012, 11:43 AM   #34
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I will need some time to process this and figure out my options. If I cancel, does anyone know if I at least get my investment part back? I have invested $750 so far...
You will probably get back part of that $750. You may be able to check your statement for "surrender value" or see how much you can borrow against it. Even if you get back zero, it is better to stop funding a less than optimal investment and start funding an investment/insurance combo that fits your needs and goals (protecting family and getting wealthier??).

Worst case you have just paid $750 in tuition at the School of Smart Investing. This may suck but it is WAAAAY better than continuing to pay $1800 per year in tuition, with that amount under pressure to be constantly increased by phone calls from your friendly salesperson "just checking in to see how they can continue meeting your needs".
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Old 08-10-2012, 11:49 AM   #35
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I will need some time to process this and figure out my options. If I cancel, does anyone know if I at least get my investment part back? I have invested $750 so far...
Don't beat yourself up too much. Many of us fell pray to the life insurance salesman's siren song at one point or another. This kind of experience teaches you to be more protective of your money and that's an invaluable lesson for anyone who would like to become wealthier than their insurance agent, broker, banker, financial planner, etc...
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Old 08-10-2012, 12:43 PM   #36
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Welcome CoffeeMoney!

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Dependents = yes, pretty much 3 of them at this time but I do expect the situation to improve. Forget the 6 month EF, the major reason why I am not jumping the gun and paying off as much as possible is that I need to have money to spare for them.

Right now I am thinking about my family but when I am older and have kids and a family as my dependents I want them to be covered as well.
Could you clarify your situation regarding dependents? Do you mean that you are currently supporting someone besides children but that you may have kids in the future? Or are you referring to the loans in your mom's name that you feel responsible for?

Your goal to be debt free is one of the best things you can do in early adulthood. Those student loans are like a weight that you constantly carry.

You are getting very good advice about the life insurance. You need it if someone is depending on your income. Term insurance is very inexpensive, especially at your age.

Like others have mentioned, check out Dave Ramsey's site and his method of attacking debt. You can also listen to his show online at the site or podcasts on iTunes or he has a new channel on iHeartRadio. You don't have to buy the kit or subscribe to anything. Here is his very simple explanation about Life Insurance.
The Truth About Life Insurance - daveramsey.com

If you get focused you can make it happen.
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Old 08-10-2012, 01:55 PM   #37
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I will need some time to process this and figure out my options. If I cancel, does anyone know if I at least get my investment part back? I have invested $750 so far...
You might get none, from the prospectus:
Surrender (turning in) of your policy during its first 10 years or the first 10 years after you have requested an increase in your policy’s face amount(3)(5) Upon surrender
Initial surrender charge per $1,000 of initial base policy face amount or per $1,000 of requested base policy face amount increase: (4)
Highest: $45.91
Lowest: $8.71
Representative: $16.62(6)


So for even for 100k policy lowest surrender charge would be $871, more than $750 you paid.
Do you know what is the current net value of your policy?
If it's small you might just as well let it go. I think (I'm not an insurance expert, just a dude on the Internet though!) you could just stop paying and your life insurance part will be in effect as long as your policy has positive net value. The premiums will be deducted from your policy net value.
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Old 08-10-2012, 06:06 PM   #38
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Don't beat yourself up too much. Many of us fell pray to the life insurance salesman's siren song at one point or another.
Yes we sure do. When I was 22 years old, I bought a car and financed through one of the large automotive finance companies. Sad to say now, but I bought the credit life insurance. Did I have any dependents? Nope -- single and childless. There was absolutely no need to have that life insurance. In the unlikely event that I died, they could just come and take the car back and no one would miss it. But the finance guy at the dealership said the credit life was required, and I didn't know any better, so I paid up.
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Old 08-10-2012, 08:44 PM   #39
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Your best bet to wind down the Axa policy is probably to just stop making premium payments. The policy will continue to provide coverage for some period of time until the balance is zero, at which point the policy will expire. At least you get something other than "education" out of your $750.

When I was your age, I bought a whole life insurance policy (which is different from the VUL policy you bought). I retrospect I would have been better off to buy term and invest the difference in low cost index funds. However, by the time I figured this out I was much further along and the premium was only $22 a month so I have kept it. While it has worked out ok in that the current cash value is about equal to all the insurance premiums that I have paid over the last 35 years plus 5.2% annual interest and "free" insurance coverage, I would have done things differently if I knew then what I know now.

In your case since you have so little invested, instead of throwing good money after bad I would just stop making premium payments and once the policy is exhausted buy a term policy and use the difference to paydown debt and invest once debt is gone.
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Old 08-10-2012, 11:57 PM   #40
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Side note - my username comes from my attempt to save up all(some) of my money that I usually spend on coffee. Currently I am drinking the free coffee from the pantry at work. Grr.
Excellent idea. I did the same, only 'free' mega-corp coffee. You can do better than me though as I used to spend some of that saved money on lunches out. I think I got better value though, at that time I could get a decent lunch at a Vietnamese restraunt for ~5$, coffee was ~$1.50.
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