More Unprepared Folks

[dgoldenz]

You are wrong, I wasn't sold a Whole Life Policy I was sold 3 of them. All 3 went to court and were with different agents. This all happened during a time when I had no idea what I was doing and trusted the agents. Whats the chances of getting 3 bad agents, could it be a trend?

All a bunch of BS, there is nothing you can say that will change my mind. Don't try to bring up some hypothetical situation and say what if. I feel sorry for anyone getting sucked into this scam and will always voice my opinion that it's nothing but a scam.

Sounds like I was right, but three times. Sure, there is definitely the possibility you were duped by shady agents who presented unreasonable hypothetical illustrations. Like I said, there is a reason the words "vanishing premium" can't be used. Every illustration is required to have a "guaranteed" column and a non-guaranteed (i.e. current scale) column. Some agents back in the 80's ripped out the guaranteed page and only showed the current side. Just because someone did this to you doesn't make permanent life insurance a scam. If someone dies, the death benefit will be paid. If they want to take the cash out, they can. The situations I described are not hypothetical situations, they are the reality for 95% of the people who buy term insurance.

I also have a fishing buddy who is a retired New York Life Insurance salesman and after staying with him in Florida and fishing from his boat I can say he did well. He has been telling me I should buy a second to die policy. I can not understand this at all and told him it probably is a good way to send his grandchildren to college but not mine. I also thought dgoldenz post might shed some light on what he has tried to tell me.

I can certainly say that whole life and second to die policies are not in my retirement plan as there is no need for them. I have however now heard a new argument for whole life other than its a a great investment which I never understood.

Someone selling term insurance can do just as well as someone who only sells whole life. Who makes more, the guy selling $1 million of term to a 60 year old, or the guy selling $50k whole life to a 35 year old?

Regarding the second to die policy, it would be a good idea if you have significant assets and a potential estate tax issue. There is no personal benefit to buying a second to die policy other than the satisfaction of knowing you are leaving your heirs with enough money to pay the estate taxes and be able to keep everything you worked hard to obtain. The question I always ask people is would you rather share your wealth with 300 million people (through paying estate taxes) or would you rather share it with your own family? You could pay those taxes for 1 cent on the dollar each year you live with a second to die policy (e.g. a $1 million policy with a $10k premium, for instance).

The tax-free money paid at death pays the estate tax bill (or part of it). This is especially important to people who are property-rich and cash-poor and their kids would otherwise have to sell off the properties to pay the estate tax. Would you want to sell your property in this market for 50 cents on the dollar, or let it keep producing income for the kids?

Having said that, a second-to-die whole life policy is the worst way to approach it. A second-to-die guaranteed universal life policy will give you the maximum death benefit for the absolute lowest premium possible. Again, think of it as term insurance that has a guaranteed premium for life. Whole life is more expensive and generally builds more cash value than UL. Since a second to die policy is used in conjunction with an irrevocable life insurance trust (ILIT), having a cash value on the policy is useless since you can't take it out of the trust.

Hope that all makes sense...

 

[Emeritus]

Sounds like you had a bad experience with a bad agent selling you "vanishing premium" whole life policies, if I had to guess....FYI I don't sell much whole life, mostly term and guaranteed universal life, which is basically term insurance guaranteed to age 121 and doesn't build cash value. It's also about half the price of a whole life policy with the same death benefit.

Easy for you to say there's no need for anything but term. Tell that to anyone's family who bought term, outlived the term or their conversion period, and became uninsurable or died. There's a reason we get quote requests for life insurance every day from people in their 60's and 70's (and some in their 80's).

OFGS combining insurance and investments ranks with the Spork. Or perhaps a combo dishwasher and microwave. Sure occasionally you can define a scenario where you could use it. But its very difficult to predict such scenarios. The fact that some people want to insure elderly people proves nothing.

The product many people really need is an option contract that would allow them to buy insurance in the future at a price determined today by the current risk. We actually had a faculty member who studied this issue.
It was essentially buying insurance against the risk of becoming uninsurable. The math was impeccable but the industry was uninterested.

 

[dgoldenz]

OFGS combining insurance and investments ranks with the Spork. Or perhaps a combo dishwasher and microwave. Sure occasionally you can define a scenario where you could use it. But its very difficult to predict such scenarios. The fact that some people want to insure elderly people proves nothing.

The product many people really need is an option contract that would allow them to buy insurance in the future at a price determined today by the current risk. We actually had a faculty member who studied this issue.
It was essentially buying insurance against the risk of becoming uninsurable. The math was impeccable but the industry was uninterested.

I agree 100%, insurance is not an investment and the two don't mix. That's why ~95% of the permanent policies I sell are guaranteed universal life, not whole life. Most people won't pay the premiums that a whole life policy would cost for the amount of coverage they really need anyway. GUL is about half the price of a whole life policy with the same death benefit. Some people insist on whole life because their mom's brother's sister said it was the best and they just had to have it. If that's what they really want, I'm not going to turn them down.

The industry was probably uninterested in said options contract because nobody would buy it at the price they'd have to charge. United Health One tried the same thing with health insurance. I asked my rep about it since I was interested in buying it for myself....she said she hasn't seen a single one sold. Surprise.

 

[fritz]

You'll never convince someone that sells whole Life (under its old or new title) insurance policies for a living, that the policy is not worth the paper it's written on...

 

[dgoldenz]

You'll never convince someone that sells whole Life (under its old or new title) insurance policies for a living, that the policy is not worth the paper it's written on...

Term insurance isn't worth the paper it's written on once it expires, so what do people do then? The permanent insurance still has a value equal to the death benefit....forever, whether it's whole life or GUL. GUL is just less expensive with less cash value.

You also fail to understand that for high-risk individuals, a permanent policy can sometimes be about the same cost or less expensive than a term policy because of the underwriting. Companies may give a standard rate to someone on a permanent policy, while they would assign an additional rating (usually up to double the standard premium) for a term policy. If you could get both for about the same price, which would you take?

 

[brewer12345]

Easy for you to say there's no need for anything but term. Tell that to anyone's family who bought term, outlived the term or their conversion period, and became uninsurable or died. There's a reason we get quote requests for life insurance every day from people in their 60's and 70's (and some in their 80's).

Considering how high lapse rates are on Term policies, you shoudl hang onto these people just for rarity value.

 

[dgoldenz]

Considering how high lapse rates are on Term policies, you shoudl hang onto these people just for rarity value.

Most term policy lapses are because they bought another term policy to replace it with....do you know why that happens? Because the original term wasn't long enough and they still needed the coverage. I re-write policies every day from people who bought term and are in year number 8 of 10, 12 of 15, 17 of 20, etc. They get to the point where they realize there is still a need, but now will end up paying 3, 4, 5 times the price for it.

 

[73ss454]

You'll never convince someone that sells whole Life (under its old or new title) insurance policies for a living, that the policy is not worth the paper it's written on...

Yup, I know I won't convince anyone selling this crap that it's a scam, nor am I trying to. But maybe some folks will read this thread and stay away from it.

Staying away from ins comp's and agents have been the most profitable part of my life. I wish I was smarter when I was younger.

 

[brewer12345]

Most term policy lapses are because they bought another term policy to replace it with....do you know why that happens? Because the original term wasn't long enough and they still needed the coverage. I re-write policies every day from people who bought term and are in year number 8 of 10, 12 of 15, 17 of 20, etc. They get to the point where they realize there is still a need, but now will end up paying 3, 4, 5 times the price for it.

Perhaps they were ill-served by their agent when they bought the policy.

 

[dgoldenz]

Perhaps they were ill-served by their agent when they bought the policy.

So they weren't supposed to buy term, they weren't supposed to buy permanent, I guess they weren't supposed to buy anything at all. Consumers pick their term length, not the agent. You'd be amazed how many people will pinch pennies over a difference of $5-10/month and buy a shorter term, then "worry about it later."

 

[HFWR]

But should I pay off my mortgage note?

 

[Emeritus]

So they weren't supposed to buy term, they weren't supposed to buy permanent, I guess they weren't supposed to buy anything at all. Consumers pick their term length, not the agent. You'd be amazed how many people will pinch pennies over a difference of $5-10/month and buy a shorter term, then "worry about it later."

PT Barnum perhaps said it best ......

 

[fritz]

Term insurance isn't worth the paper it's written on once it expires, so what do people do then? The permanent insurance still has a value equal to the death benefit....forever, whether it's whole life or GUL. GUL is just less expensive with less cash value.

You also fail to understand that for high-risk individuals, a permanent policy can sometimes be about the same cost or less expensive than a term policy because of the underwriting. Companies may give a standard rate to someone on a permanent policy, while they would assign an additional rating (usually up to double the standard premium) for a term policy. If you could get both for about the same price, which would you take?

The above reply proves my earlier point.


I believe most term insurance policies are dropped in favor of a more competitive rate with another company - just like shopping for auto/home insurance. This is something you cannot do with a whole life/gul policy (you're screwed from the get-go). FYI - your independent insurance agent also benefits from rewriting you into a new term policy (believe it's called "churning" in the insurance game). This really is an essential process to keep you from being rate-jacked by your current insurance company, and to keep both you and your independent agent happy. Ever wonder how every insurance company can boast savings of up to 20% when switching from ** - surely someone is getting screwed here (and it isn't the insurance companies). And their great customer service - just google anyone of them and read about all the happy customers they have (remember they sell no tangible products, and their ability to provide customer service is all they sell).....

You can also drop term life insurance when you become financially well off and no longer need it. Try to do that with a whole life/gul policy. If you die while insured - you are paid the "face value" of the term life insurance policy (exactly what you paid for). You also get the "face value" of the whole life/gul policy - but what about the rest of "your" money? And what if you can no longer pay for the whole life/gul policy, and you haven't hit the "you got cash" scenario?

I personally think the comment relating to selling whole life/gul(lible) insurance policies on the premise that people are generally too inept to save for their own future is insulting to this forum, and people in general.

 

[dgoldenz]

The above reply proves my earlier point.


I believe most term insurance policies are dropped in favor of a more competitive rate with another company - just like shopping for auto/home insurance. This is something you cannot do with a whole life/gul policy (you're screwed from the get-go). FYI - your independent insurance agent also benefits from rewriting you into a new term policy (believe it's called "churning" in the insurance game). This really is an essential process to keep you from being rate-jacked by your current insurance company, and to keep both you and your independent agent happy. Ever wonder how every insurance company can boast savings of up to 20% when switching from ** - surely someone is getting screwed here (and it isn't the insurance companies). And their great customer service - just google anyone of them and read about all the happy customers the have (remember they sell no tangible products, and their ability to provide customer service is all they sell).....

You can also drop term life insurance when you become financially well off and no longer need it. Try to do that with a whole life/gul policy. If you die while insured - you are paid the "face value" of the term life insurance policy (exactly what you paid for). You also get the "face value" of the whole life/gul policy - but what about the rest of "your" money? And what if you can no longer pay for the whole life/gul policy, and you haven't hit the "you got cash" scenario?

I personally think the comment relating to selling whole life/gul insurance policies on the premise that people are generally too inept to save for their own future is insulting to this forum, and people in general.

Term is rarely dropped for a more competitive rate unless the person didn't shop around in the first place or was assigned an unfavorable risk class when another company could have offered a better one. All things equal, a term policy bought at an older age will be more expensive than bought at a younger age, and the increase gets bigger and bigger each year as you get older. The difference between age 30 and 35 is minimal, the difference between age 55 and 60 can be huge. Not only that, but how many people do you know whose health gets better as they age? The older you get, the more likely you are to be treated for high blood pressure, cholesterol, diabetes, gain weight, have abnormal lab tests, heart issues, etc. More risk factors = much higher premiums, plain and simple. Argue all you want, that's the way it is.

I'm not sure what you mean by the second point. If you buy a whole life or GUL policy, you are paying more money for the guarantee that the rate will never go up. If you die, your beneficiaries get the face amount, plus any paid-up additional insurance if you're talking about whole life. If you cash out before you die, you get the cash value. If you get to the point where you don't need the insurance and don't want to pay for it, either cash out or cancel the policy.

Someone who buys a disability policy with benefits guaranteed to age 65 paid more all those years than someone who bought a 5-year benefit. Do they get the extra money back just because they never used it and now want to cancel? Of course not, you received the protection of the insurance while it was active and there was a cost for that higher level of coverage. If you pay more for a 30-year term policy than a 20-year and cancel in year 5, you don't get anything back then either because you paid more money for the additional guaranteed time period. Whether you used it or not makes no difference.

 

[fritz]

Term is rarely dropped for a more competitive rate unless the person didn't shop around in the first place or was assigned an unfavorable risk class when another company could have offered a better one. All things equal, a term policy bought at an older age will be more expensive than bought at a younger age, and the increase gets bigger and bigger each year as you get older. The difference between age 30 and 35 is minimal, the difference between age 55 and 60 can be huge. Not only that, but how many people do you know whose health gets better as they age? The older you get, the more likely you are to be treated for high blood pressure, cholesterol, diabetes, gain weight, have abnormal lab tests, heart issues, etc. More risk factors = much higher premiums, plain and simple. Argue all you want, that's the way it is.

Yeah, prices never go down on insurance....

I'm not sure what you mean by the second point. If you buy a whole life or GUL policy, you are paying more money for the guarantee that the rate will never go up. If you die, your beneficiaries get the face amount, plus any paid-up additional insurance if you're talking about whole life. If you cash out before you die, you get the cash value. If you get to the point where you don't need the insurance and don't want to pay for it, either cash out or cancel the policy.

You get face value, but not the return of your whole life/gul cash value when you die - or drop the policy.

Someone who buys a disability policy with benefits guaranteed to age 65 paid more all those years than someone who bought a 5-year benefit. Do they get the extra money back just because they never used it and now want to cancel? Of course not, you received the protection of the insurance while it was active and there was a cost for that higher level of coverage. If you pay more for a 30-year term policy than a 20-year and cancel in year 5, you don't get anything back then either because you paid more money for the additional guaranteed time period. Whether you used it or not makes no difference.

This is just plain gibberish.

My original comments still stand on their own merit - you've double-talked around all but my last one.

 

[dgoldenz]

You're right, I'm wrong, never had any experience with any of these things. Everyone gets cheaper term insurance as they get older, nobody needs more than a 10-year term policy at a time, etc.

Thanks for correcting me and letting me see the light though.

 

[Sarah in SC]

dgoldenz, I'd like to thank you for posting your blog comments which do have merit as explanations for reasons why a small subset of people do need to consider these types of policies, especially for estate tax planning purposes.

While I hold term insurance in modest amounts because I lack dependents, I do see folks that have do have need for permanent life insurance. As in most things, there is no one-size-fits-all.

I can appreciate the feelings of those who were taken in by cheeseball salespeople, but it is still up to the buyer to beware. Having reliable people on your team (CPA, estate tax attorney, and possibly a financial advisor not in the insurance business) can help those who do have need for permanent coverage be sure they are buying the right coverage for those needs and not excess. And for the vast majority of us, there is no need for this coverage.

As Khan pointed out--if no one is depending on your income, why carry life insurance? I've been unwinding some old policies of my FIL and am thoroughly disgusted that he's been paying on these for so long (like 73ss454) and dismayed that in his ignorance, he was ripped off on lousy products.

Edit to add: my term policy costs went down, actually--we quit smoking and got a better rating!

 

[ziggy29]

As Khan pointed out--if no one is depending on your income, why carry life insurance?

If there are potential estate tax issues it can still make sense, as you may need the cash to pay the taxes without liquidating the estate. If there are no estate tax issues I would tend to agree.

 

[fritz]

You're right, I'm wrong, never had any experience with any of these things. Everyone gets cheaper term insurance as they get older, nobody needs more than a 10-year term policy at a time, etc.

Thanks for correcting me and letting me see the light though.

Nah - you still don't see the light (and you know my comments were on the money). FYI - you shouldn't assume people on this forum have never walked a mile in your shoes

 

[skyvue]

dgoldenz, I'd like to thank you for posting your blog comments which do have merit as explanations for reasons why a small subset of people do need to consider these types of policies, especially for estate tax planning purposes.

While I hold term insurance in modest amounts because I lack dependents, I do see folks that have do have need for permanent life insurance. As in most things, there is no one-size-fits-all.

I can appreciate the feelings of those who were taken in by cheeseball salespeople, but it is still up to the buyer to beware. Having reliable people on your team (CPA, estate tax attorney, and possibly a financial advisor not in the insurance business) can help those who do have need for permanent coverage be sure they are buying the right coverage for those needs and not excess. And for the vast majority of us, there is no need for this coverage.

As Khan pointed out--if no one is depending on your income, why carry life insurance? I've been unwinding some old policies of my FIL and am thoroughly disgusted that he's been paying on these for so long (like 73ss454) and dismayed that in his ignorance, he was ripped off on lousy products.

Edit to add: my term policy costs went down, actually--we quit smoking and got a better rating!

Why would you have any insurance if you have no dependents? I am divorced with a 15 year old daughter and I don't have any life insurance because I know all my assets will pass to my daughter's trust. I don't see the point in paying for insurance anymore?

 

[ziggy29]

Why would you have any insurance if you have no dependents? I am divorced with a 15 year old daughter and I don't have any life insurance because I know all my assets will pass to my daughter's trust. I don't see the point in paying for insurance anymore?

What if you had a family business that was large enough that your daughter would pay estate taxes on it when she inherited it? Seems to me that if she didn't have the cash to pay the taxes, the other option is to sell or liquidate the business. I doubt that's what you would want, is it? So it is, going back to what I said earlier -- if you have a large enough estate that inheritance taxes are likely, and if paying the taxes required liquidating assets, then life insurance which could pay the taxes might make sense.

 

[Sarah in SC]

Oh, easy. I have a husband who would like to receive a windfall if I die so he can drown his sorrows in a warm, Caribbean climate for a year or so. Likewise, I need to be able to find an attractive cabana boy.
Ours is 20 year, due to lapse in another 10 years. It was pretty cheap, and when we bought it, we still had a mortgage so it was (all kidding aside) intended to help the surviving spouse pay off the house.

 

[fritz]

What if you had a family business that was large enough that your daughter would pay estate taxes on it when she inherited it? Seems to me that if she didn't have the cash to pay the taxes, the other option is to sell or liquidate the business. I doubt that's what you would want, is it? So it is, going back to what I said earlier -- if you have a large enough estate that inheritance taxes are likely, and if paying the taxes required liquidating assets, then life insurance which could pay the taxes might make sense.

If you had a family business that was large enough that your daughter would pay estate taxes on it when she inherited it - and she didn't have the cash to pay the taxes - you've failed your family by not getting with your business advisors and creating a bullet-proof succession plan to avoid that scenario. Your business advisors also failed you....

 

[ziggy29]

If you had a family business that was large enough that your daughter would pay estate taxes on it when she inherited it - and she didn't have the cash to pay the taxes - you've failed your family by not getting with your business advisors and creating a bullet-proof succession plan to avoid that scenario. You business advisors also failed you....

There are multiple ways to handle this. Having enough insurance to pay the taxes upon inheritance is one way. Maybe not the optimal way, but it is a way, and you've really only "failed" if you have no way to pay the taxes upon your death. I know many people hate insurance and insurance companies, but really, having insurance to pay the tax bill is NOT a "failed" financial strategy.

Not having *any* way to pay the taxes and being forced to sell or liquidate the business, on the other hand, IS a fail.

 

[fritz]

There are multiple ways to handle this. Having enough insurance to pay the taxes upon inheritance is one way. Maybe not the optimal way, but it is a way, and you've really only "failed" if you have no way to pay the taxes upon your death. I know many people hate insurance and insurance companies, but really, having insurance to pay the tax bill is NOT a "failed" financial strategy.

Not having *any* way to pay the taxes and being forced to sell or liquidate the business, on the other hand, IS a fail.

I for one don't hate insurance - all of its forms have earned their place in this world, and deserve to be correctly represented where their real marketable value lies, and not misrepresented as an savings investment vehicle (it is really a hedging tool for betting against your life - kind of like annuities).

If you own a family business that potentially faces inheritance taxes, you should have business advisors that advised you to place your business in an LLC, or FLP and to start transferring the assets ASAP (but not the control of them).