Help! Cut my losses with variable investment life insurance policy or not?

[oscalulo]

I've had a variable investment life insurance policy for awhile now, and I just recently came to understand why they are a bad idea. Now that I'm done beating myself up over this, I'm stuck on what to do about it. The product that I have is this:

AXA Incentive Life Optimizer, Series 149, allocated in a moderate risk portfolio.

The policy account value is at $10,605. (I've paid $16,100 so far in premiums since early 2009, the cost of insurance is around $130 per month so that's eaten up the amount I've put in; in terms of the amount that's been invested after the cost of insurance was taken out, it has actually grown moderately - which makes sense since it's allocated in a moderate risk portfolio.)

Death benefit is 1,360,605 (original face value of 1,350,000+policy account value; all the life insurance I'll need for several years)

I will get no money back if I surrender it because the surrender fee will eat up the entire account value.

So my question is, given that there is currently $10,605 sunk into this, should I:

1. cut my losses and stop contributing and just wait for the cost of insurance to finish eating up that amount? (I calculate it'll last about 6-7 years depending on growth and then I'll just get a term policy through work) or

2. should I continue contributing so that the $10,605 continues to be invested and not lost?

And if I should go with option 2, how much should I contribute a month? Should I contribute only the cost of insurance (around $130) just to keep the $10,605 invested and growing or should I contribute more than the cost of insurance so that I'm also adding a bit more a month to be invested - since I've already made this bed for some time now, maybe the financially smart thing is to just continue lying in it?

If it helps to know, I'm 30 years old this year so I don't have forever until retirement, but I've got awhile.

Thank you for any advice you can give!

 

[RE2Boys]

Do you need life insurance? Are there others that are dependent on you for financial support?

 

[oscalulo]

I don't need life insurance right now but I hope to need it in the next year or so. That being said, surrendering the policy isn't an option because the surrender fee is about $13k and the policy value is at $10k, so even though I don't need life insurance right now, I'm stuck with this policy for the time being.

 

[aja8888]

Does the surrender fee have a termination date? If so, just pay the cost of the insurance only and when the surrender fee terminates, cancel the policy and buy a term only one.

 

[pb4uski]

That surrender fee sounds very high. Was the source of the $13k surrender charge the contract, AXA or the agent?

Also, surrender fees generally grade out over some period, I think 10 years in the case of this product so you're almost half way done the surrender period. You could stop paying premiums, let it ride until the 10 years is up and then surrender it. In the meantime you'll be paying for life insurance that you don't need.

Also, inquire (preferable with AXA and not the agent) if you can elect to place the policy in paid up status and what would happen if you elected that. Usually, what they would do is apply your account value to a paid up life insurance policy with a much smaller face amount but with no further premium payments being required.

If you don't need life insurance now, did you really need $1.35 million of insurance coverage back in 2009? If not, you may make some noise that you were mis-sold that contract and it was not suitable for you. IOW, they duped you into buying a contract that was not suitable for your circumstances. If this is the case you may also consider filing a complaint with your state insurance department. This is a hard way to go but if the sale was particularly egregious it may have merit.

 

[oscalulo]

Thanks for all the advice! I will definitely ask about applying it to a paid up life insurance policy with AXA and how that would work out. This forum is fantastic with how knowledgeable you people are!

You are also correct about the surrender fee - it does grade down over 10 years so it will be zero in June 2019.

I absolutely did not need $1.35 mil of life insurance coverage back in 2009. I was 25 years old with more money than sense and more than I knew what to do with, and the agent presented life insurance like the adult thing to do since I had some graduate student loans and talked about what a great retirement investment tool it was supposed to be, and I didn't even think to do independent research before signing up (which blows my mind now). And now of course I know public student loans are totally discharged upon death anyway, so I never needed a cent of life insurance to begin with. It was only after I removed myself from a soul-sucking job into one that paid a lot less (but actually contributes to society in a positive way) that I started looking at where I could trim expenses, and from there, it's been a slow path to researching and realizing why this policy I bound myself to was stupid. But I'm not sure if a state insurance department would consider those circumstances egregious enough to do something about it. I'll have to consider it if putting it in paid up status doesn't work.

 

[Willers]

If you don't need life insurance now, did you really need $1.35 million of insurance coverage back in 2009? If not, you may make some noise that you were mis-sold that contract and it was not suitable for you. IOW, they duped you into buying a contract that was not suitable for your circumstances. If this is the case you may also consider filing a complaint with your state insurance department. This is a hard way to go but if the sale was particularly egregious it may have merit.

+1

We went to our insurance commission regarding a similar issue a while back and they were actually very helpful and acted as our advocate. At least in our state they get really cranky when a company misbehaves. In most states there is an online form to get the process started.

 

[pb4uski]

..... I absolutely did not need $1.35 mil of life insurance coverage back in 2009. I was 25 years old with more money than sense and more than I knew what to do with, and the agent presented life insurance like the adult thing to do since I had some graduate student loans and talked about what a great retirement investment tool it was supposed to be, and I didn't even think to do independent research before signing up (which blows my mind now). And now of course I know public student loans are totally discharged upon death anyway, so I never needed a cent of life insurance to begin with. It was only after I removed myself from a soul-sucking job into one that paid a lot less (but actually contributes to society in a positive way) that I started looking at where I could trim expenses, and from there, it's been a slow path to researching and realizing why this policy I bound myself to was stupid. But I'm not sure if a state insurance department would consider those circumstances egregious enough to do something about it. I'll have to consider it if putting it in paid up status doesn't work.

Assuming that you are healthy and were at the time and did not have any significant financial obligations in the event you died, to me it is outrageous that an agent would pitch a $1.35m policy to a 25 year old. The proper thing is probably to file a complaint with AXA that you were mis-sold and would like all your premiums back. They'll likely say no. When they do tell them you are filing a complaint with the state insurance department. If that doesn't change their tune, then file a complaint. Faced with a valid complaint, they might offer to waive surrender charges and give you your $10,605 and then you'll need to decide if you want more or consider the $5,495 hard knock school tuition.

Deal with AXA, not your agent. Be polite but firm with a bit of indigence at being shammed.

Worst case is that you stop paying premiums, they nick $130/month from your account value for cost of insurance and after the 10 years is up you surrender the policy.

 

[oscalulo]

Just wanted to check back in with an update for everyone who was so helpful. I took the advice given here and approached them about how I thought it was unethical of them to pitch this policy to me at the time and how the agent misled me about certain things in selling me the policy. I did also mention that I was considering filing a complaint to this effect with the state insurance department. AXA then offered to waive the surrender charges and after speaking with my state insurance commission, it seems that filing a complaint with them is unlikely to get me any more than that. So I am cutting my losses and agreed to cancel the policy for get a refund of my current account value with a full waiver of surrender charges, and just accepting the additional $5K+ I've paid over the years as a loss+hard lesson learned. Thank you everyone for the help, I'm happy to get the bulk of my money back with your advice to have become much more educated about all this in the process!

 

[robnplunder]

Wow, which other forum can save you money like this? Good story, & update.

 

[Rothman]

Oscalulo it really was the best conclusion, saved you some value that you can invest properly. Based on your description you don't need life insurance now, when you do buy the best for the situation, usually term to cover dependents. You actually should feel good you figured it out now, many people never do so and pay into bad schemes for many years. Unfortunately sales people without morals will always exist.

 

[pb4uski]

Good result. If it makes you feel better, in addition to the lesson learned for $5,495 you also had $1.35 million of life insurance coverage during that time that luckily did not get utilized.

 

[diamondinterlude]

Just wanted to check back in with an update for everyone who was so helpful. I took the advice given here and approached them about how I thought it was unethical of them to pitch this policy to me at the time and how the agent misled me about certain things in selling me the policy. I did also mention that I was considering filing a complaint to this effect with the state insurance department. AXA then offered to waive the surrender charges and after speaking with my state insurance commission, it seems that filing a complaint with them is unlikely to get me any more than that. So I am cutting my losses and agreed to cancel the policy for get a refund of my current account value with a full waiver of surrender charges, and just accepting the additional $5K+ I've paid over the years as a loss+hard lesson learned. Thank you everyone for the help, I'm happy to get the bulk of my money back with your advice to have become much more educated about all this in the process!

Bumping this old thread to see if anyone else has had any experiences fighting variable life insurance contracts, particularly the AXA Incentive Life Optimizer. I'm currently in the appeals stage of one such dispute; they denied my original claim and I am now threatening to file complaints with FINRA and the state department of insurance, and have submitted a variety of additional background information. However, they are very slow to respond and my complaint currently shows up on my FINRA broker's "disclosures" section as "denied." Is there anything else that may help me?

I should also add that based on my research, I actually believe that their sales methods are borderline illegal and that they are targeting highly unsuitable (but naive) customers for sales of these policies, so I probably will go ahead and file a complaint if the dispute is not resolved.

 

[pb4uski]

I'm skeptical that FINRA will do much for you.

Since it is a life insurance contract, I would file a complaint with the state insurance commissioner. Focus on your specific situation rather than mis-selling in general. If you want to share some details of your compliant then perhaps we can give you more detailed advice as to how best to proceed.

 

[diamondinterlude]

I'm skeptical that FINRA will do much for you.

Since it is a life insurance contract, I would file a complaint with the state insurance commissioner. Focus on your specific situation rather than mis-selling in general. If you want to share some details of your compliant then perhaps we can give you more detailed advice as to how best to proceed.

Basically what happened is that my sales agent lied about the tax benefits of the contract. She claimed that gains are tax free (she even drew a chart comparing the tax benefits of the contract with other types of investments) and said that while gains in stocks/bonds/MFs are taxable, gains in the life insurance contract are tax-free. I bought the policy based on that totally false statement. She also sold me the contract as a retirement policy rather than as a life insurance contract (e.g. leading me to believe that the death benefit was incidental rather than the primary benefit), and pitched me the policy instead of a mutual fund investment, even though I specifically said I was looking for mutual funds. Finally, based on my monthly savings vs. debt load, she should have known that I'd be unable to afford the premium payments.

 

[pb4uski]

Did she say that gains are tax-free in any of her pitch materials?

As you have probably learned... tax-free is a half-truth in that if you were to die then the death benefits would be tax free to your beneficiaries. The other half-truth is if you take out a max policy loan and keep it at max until you die then the policy loan and any excess of the death benefit over the loan is tax-free.

However, what they don't tell you is that if you surrender the contract (either with or without a loan) then there is a gain for the amount receive in excess of the premiums paid less tax-free amounts previously received (like a loan). And to make it worse, any gain is ordinary and not a capital gain. Also see http://www.360financialliteracy.org...rance-Policy-Loans-Tax-and-Other-Implications

If you have something from her in writing that erroneously represents the tax benefits of the contract then you might have a good case. If it is a he said/she said thing then it might be a tough road to win unless the sale is particularly egregious, like the premiums were a very high percentage of your income at the time (or like selling a $1.35m policy to a 25 yo with no dependents like in the OP's case).

 

[haha]

I would say that you will get nowhere with this. Most of the financial service industry is based on naive customers. So what, did Exxon gasoline really put a tiger in anyone's tank?

How about all the people buying premium vodka? I'd love to see blind taste tests to see who can differentiate it from Popov. I buy whatever Trader Joe has for $10 or less whenever I am thirsty or in need of self medication.

Ha

 

[diamondinterlude]

Did she say that gains are tax-free in any of her pitch materials?

As you have probably learned... tax-free is a half-truth in that if you were to die then the death benefits would be tax free to your beneficiaries. The other half-truth is if you take out a max policy loan and keep it at max until you die then the policy loan and any excess of the death benefit over the loan is tax-free.

However, what they don't tell you is that if you surrender the contract (either with or without a loan) then there is a gain for the amount receive in excess of the premiums paid less tax-free amounts previously received (like a loan). And to make it worse, any gain is ordinary and not a capital gain. Also see Life Insurance Policy Loans: Tax and Other Implications - 360 Degrees of Financial Literacy

If you have something from her in writing that erroneously represents the tax benefits of the contract then you might have a good case. If it is a he said/she said thing then it might be a tough road to win unless the sale is particularly egregious, like the premiums were a very high percentage of your income at the time (or like selling a $1.35m policy to a 25 yo with no dependents like in the OP's case).

Yes, she drew a chart for me at the sales pitch comparing the tax benefits of different kinds of investments - 401K, IRA, stocks, and the life insurance contract - whether they're tax deductible, tax deferred or tax free at withdrawal. For the life insurance contract, her chart shows that it's not tax deductible, but is tax deferred and tax free at withdrawal. It's clear that the chart is talking about gains because for stocks, the chart says that stocks are none of tax deductible, tax deferred or tax free (even though stock basis is tax free when you sell it). It's also clear from the context of the chart that it's referring to the life insurance contract as a type of financial planning to be used for retirement/investing rather than for the death benefit.

I sent a picture of the chart to the insurance company and they claimed that they were not presented with evidence that the policy was misrepresented, though.

Also, is it an egregious sale if the sales broker knew that I didn't have any room in my savings to pay the premiums on the insurance? e.g. my monthly savings are X, my monthly debt load is more than X...

 

[pb4uski]

If you still have the chart, it would support that the agent misrepresented the tax benefits but not necessarily the policy. If the premiums were simply expensive compared to your income but not outrageous then unsuitability might be a tougher sell.

How long have you had the policy? How much of a loss would you have if you surrendered it today? How much of a loss would you have if they waived the surrender fees? Percentages are fine if you prefer. What would be an acceptable outcome for you?

I encourage you to proceed but given what I know it is not as clear cut a case as the OPs where the agent sold a $1.35 million policy to a 25 yo with no dependents. It probably wouldn't hurt to talk with the consumer ombudsman at your state insurance department... if they have had a lot of similar complaints against that company or agent then they might be more inclined to pressure the company to do something.

Another track would be to write a letter to the CEO or President of the company. Where I worked complaints addressed to the President or CEO got special handling by the head of the audit department (for a short time unfortunately, by me).

 

[diamondinterlude]

If you still have the chart, it would support that the agent misrepresented the tax benefits but not necessarily the policy. If the premiums were simply expensive compared to your income but not outrageous then unsuitability might be a tougher sell.

How long have you had the policy? How much of a loss would you have if you surrendered it today? How much of a loss would you have if they waived the surrender fees? Percentages are fine if you prefer. What would be an acceptable outcome for you?

I encourage you to proceed but given what I know it is not as clear cut a case as the OPs where the agent sold a $1.35 million policy to a 25 yo with no dependents. It probably wouldn't hurt to talk with the consumer ombudsman at your state insurance department... if they have had a lot of similar complaints against that company or agent then they might be more inclined to pressure the company to do something.

Another track would be to write a letter to the CEO or President of the company. Where I worked complaints addressed to the President or CEO got special handling by the head of the audit department (for a short time unfortunately, by me).

It is a $500,000 policy, sold to a 25 y/o also without any dependents. The surrender charge is around $5000 and if they waived it, I'd only lose about 1/3 of what I put in (the part that went to pay for premiums), so that would be an acceptable outcome for me. I have had it for two years. Another possibility would be to convert it to a different kind of policy, I guess. Per my calculations, I would spend more in premiums to maintain the policy for 8 more years so that the surrender charge gets taken away than to surrender it now and take the loss.

Thanks for the suggestion re CEO/President letter -- I have written to the company's customer relations dep't, who denied my claim, but I will try that as a next step. They're asserting that the sales broker made all the required disclosures and representations but obviously at least one statement was misleading.

What do you mean about misrepresenting tax benefits but not the policy? I have gone ahead and filed a complaint with my state insurance department; there is a 45-day waiting period.

 

[pb4uski]

I think your best course is to make your primary argument unsuitability... selling a $500k policy to a 25 yo with no dependents... while it is not as egregious as the OPs case it is pretty bad. And have the tax misrepresentation be another factor in your complaint.

Just for sh*ts and giggles I went to the AXA website. They have a "How much life insurance do you need?" calculator with three questions. 1) What is your current age? Input: 25 2) What is your income? Input: $40k 3)Value of other unpaid services you perform? Input: $0

Output: You need $707,120 of life insurance. WTF

I guess they never think to ask if there are any dependents.

 

[diamondinterlude]

I think your best course is to make your primary argument unsuitability... selling a $500k policy to a 25 yo with no dependents... while it is not as egregious as the OPs case it is pretty bad. And have the tax misrepresentation be another factor in your complaint.

Just for sh*ts and giggles I went to the AXA website. They have a "How much life insurance do you need?" calculator with three questions. 1) What is your current age? Input: 25 2) What is your income? Input: $40k 3)Value of other unpaid services you perform? Input: $0

Output: You need $707,120 of life insurance. WTF

I guess they never think to ask if there are any dependents.

Thanks -- this is helpful. They claim that I agreed that the contract was suitable in purchasing the policy but I never filled out that portion of the contract -- the sales broker filled the suitability section out for me (they admit the contract was prefilled) and I do not recall ever seeing that specific part of the contract before signing the contract.

 

[pb4uski]

.....What do you mean about misrepresenting tax benefits but not the policy? ...

If they misrepresented the policy (how it operates, surrender charges, COI charges, expense charges, loads, etc.) to me that would be more actionable than if they misrepresented the tax benefits.

Thanks -- this is helpful. They claim that I agreed that the contract was suitable in purchasing the policy but I never filled out that portion of the contract -- the sales broker filled the suitability section out for me (they admit the contract was prefilled) and I do not recall ever seeing that specific part of the contract before signing the contract.

It is their responsibility to assess suitability, not yours... how would you know... they are the alleged experts and it is their responsibility.

 

[diamondinterlude]

If they misrepresented the policy (how it operates, surrender charges, COI charges, expense charges, loads, etc.) to me that would be more actionable than if they misrepresented the tax benefits.



It is their responsibility to assess suitability, not yours... how would you know... they are the alleged experts and it is their responsibility.

Got it. I think basically what happened is that they misled me as to how it would work if I wanted to withdraw and use the money in the policy in my middle life. I would not have purchased it if I knew the gains were going to be taxed as income -- I only thought it was a good investment because it seemed tax-sheltered, which, as I later found out, was a total misrepresentation.

 

[pb4uski]

The VL product is tax-deferred (you don't pay taxes on any gains until you surrender the contract)... it can be tax-free if you keep it until you die but the big disadvantage (beyond high fees and paying for life insurance coverage that you don't need) is that if you surrender that gains are taxed at ordinary rates and not preferential capital gains tax rates.

For the mutual fund that you wanted the dividends are taxed when received but at preferential rates, and when you sell you are taxed on the gain but again, at preferential rates as long as you have held the lot for more than a year. The mutual fund that you desired was probably more suitable but not as lucrative for the sale rep which is why they steered you into the variable life contract.

Scum buckets.