Author Topic: Spouse with Whole Life insurance  (Read 3846 times)

R S

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Spouse with Whole Life insurance
« on: September 25, 2016, 04:13:49 PM »
I got married 3 weeks ago and just recently found up my wife has a whole life insurance policy she was talked into about 5 years ago.   She is mostly clueless about anything with financing and investment, but she is frugal (wheww).    Anyway,  she showed me the most recent email update from the insurance salesman.     

Original Face Value  $245,000     Face amount as of March 2016 - $252,497

Cash value as of July 2015 - $795.00        Cash Value as of March 2016 - $1191.00    CV Increase $396

In his email, he also said "Please notice how the cash value of the life insurance policy was not affected by the recent market volatility-one of the reasons we did it."


So,  I admittedly knew very little about Whole Life Insurance,  other than to avoid it.   

She has been paying a premium of $200 per month. 

My immediate thought is anger towards this guy for talking a 26 year old into this,  and that we cancel this policy immediately and cut the losses. 

What does it mean that the face value increased?

Any thoughts?

Also, he kinda hung his hat on the fact that in 9 months the Cash value went up 300 some dollars after she paid $1800 dollars of premiums in that time frame. 


PS:  Background.   We are two healthy individuals in our early 30's with a combined income around $150,000.  No kids yet. 
« Last Edit: September 25, 2016, 04:15:29 PM by R S »

Frankies Girl

  • Magnum Stache
  • ******
  • Posts: 2951
  • Age: 81
  • Location: The laboratory
  • Typical Ghoul Next Door
Re: Spouse with Whole Life insurance
« Reply #1 on: September 25, 2016, 05:17:19 PM »
Cancel immediately. If this was a friend, reconsider the friendship, lose their number and avoid speaking with them ever again as they basically talked your wife into wasting her hard earned money and lining their pockets with a nice commission at her expense. They took advantage of her - plain and simple. No one needs whole life insurance - especially not a young 20-something with no dependents and if it was sold with the idea that whole life insurance is an investment spiel... well, they are just absolute assholes that counted on her not knowing what a real investment actually was. The only reason to get life insurance at all is if she had dependents and in that case, term insurance is the best way to go.

If she understands nothing else, tell her this: Insurance is NOT a good investment. All she is doing is paying them a high cost for a low amount of coverage and they're taking her money and using it to invest for themselves in real investment vehicles - she's getting screwed, and royally. Insurance should never be about earning money - it's there to cover a specific need for a limited amount of time like if you have children - to provide for them until they can be independent or a spouse until they can find a job and start supporting themselves - it is NOT AN INVESTMENT AND SHOULD NEVER BE TREATED AS SUCH.

If there is any cash to be had out of canceling the policy (wow - she's paid in around 12K and might get a bit over 1k back out if she cancels... they really took her for a ride), consider yourselves lucky. But the money she paid in is gone - consider that "sunk cost" and the price of not understanding how investing and insurance actually should work. It hopefully is still cheap for the price (some folks don't figure this stuff out until they've spent tens of thousands of dollars or worse, after decades of "investing" in their whole life policies... so sad).

Funnel the money she was paying into real investments - either through a work provided tax deferred account (401k, 403b, etc) into the closest match to a low cost index fund (can post here for suggestions if you can get the plan's selections) and if none offered, open either a Roth or traditional IRA at Vanguard and place funds there. As you're both young, it would be best to try to get into something like Vanguard's target date funds (Vanguard Target Retirement 2050 Fund (VFIFX) looks good for an example) which have a lower minimum buy-in ($1,000) and you don't have to think about them as they rebalance automatically. Simple, low cost and no hidden gotchas or stupid asshole "friend" like advisers picking your pockets. ;)

Suggest you also do some reading on how the market and investing works. This is the best primer out there (helped me out more than I thought possible): http://jlcollinsnh.com/stock-series/

« Last Edit: September 25, 2016, 05:24:44 PM by Frankies Girl »

pbkmaine

  • Walrus Stache
  • *******
  • Posts: 8291
  • Age: 62
  • Location: The Villages, Florida
Re: Spouse with Whole Life insurance
« Reply #2 on: September 25, 2016, 05:44:55 PM »
Agree with Frankies Girl. When you have kids, you might both want to have inexpensive term policies. I had one for $500k until my stepkids got through college. It cost less than $500 per year.

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 39
  • Location: Honolulu, HI
Re: Spouse with Whole Life insurance
« Reply #3 on: September 25, 2016, 06:08:34 PM »
I got married 3 weeks ago and just recently found up my wife has a whole life insurance policy she was talked into about 5 years ago.   She is mostly clueless about anything with financing and investment, but she is frugal (wheww).    Anyway,  she showed me the most recent email update from the insurance salesman.     

Original Face Value  $245,000     Face amount as of March 2016 - $252,497

Cash value as of July 2015 - $795.00        Cash Value as of March 2016 - $1191.00    CV Increase $396

In his email, he also said "Please notice how the cash value of the life insurance policy was not affected by the recent market volatility-one of the reasons we did it."


So,  I admittedly knew very little about Whole Life Insurance,  other than to avoid it.   

She has been paying a premium of $200 per month. 

My immediate thought is anger towards this guy for talking a 26 year old into this,  and that we cancel this policy immediately and cut the losses. 

What does it mean that the face value increased?

Any thoughts?

Also, he kinda hung his hat on the fact that in 9 months the Cash value went up 300 some dollars after she paid $1800 dollars of premiums in that time frame. 


PS:  Background.   We are two healthy individuals in our early 30's with a combined income around $150,000.  No kids yet.

Oh man. I have a really good friend with this problem. It was so sad to break it to her that the guy who had sold her the policy had basically scammed her. First: since she's a friend (not my spouse--that would be different) I would never have talked to her about it, except she knows me as someone fairly financially literate and directly asked me what I thought. I showed her a Dave Ramsey youtube video on whole life insurance and kind of cringed as I watched her face.

She was horrified and angry. I actually didn't have to say anything beyond the video. She fired her "financial adviser" the next day, and cancelled the policy. It wasn't fun because she had wasted several thousand dollars with the stupid thing (she wasn't married and had no children--there just isn't any kind of justification for life insurance of any kind in her situation, much less the most expensive, stupid life insurance ever).

Anyway, cancel that silliness.

R S

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Spouse with Whole Life insurance
« Reply #4 on: September 25, 2016, 08:32:55 PM »
You guys are confirming my thoughts.  I just got my hands on the actual documents a few hours ago. Luckily, she started the policy in 2013,  not 5 years ago like we initially thought.     

The policy is through Guardian.  There is also an Enhanced Paid Up Addition (EPUA) Rider written into the policy.  I don't really know what that is or if it'd make a difference in anything.

I also came across a a Personal Disability Policy that they signed her up for with a  $46.14 premium.  Same guy, through Guardian.   

R S

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Spouse with Whole Life insurance
« Reply #5 on: September 25, 2016, 08:53:21 PM »
I got married 3 weeks ago and just recently found up my wife has a whole life insurance policy she was talked into about 5 years ago.   She is mostly clueless about anything with financing and investment, but she is frugal (wheww).    Anyway,  she showed me the most recent email update from the insurance salesman.     

Original Face Value  $245,000     Face amount as of March 2016 - $252,497

Cash value as of July 2015 - $795.00        Cash Value as of March 2016 - $1191.00    CV Increase $396

In his email, he also said "Please notice how the cash value of the life insurance policy was not affected by the recent market volatility-one of the reasons we did it."


So,  I admittedly knew very little about Whole Life Insurance,  other than to avoid it.   

She has been paying a premium of $200 per month. 

My immediate thought is anger towards this guy for talking a 26 year old into this,  and that we cancel this policy immediately and cut the losses. 

What does it mean that the face value increased?

Any thoughts?

Also, he kinda hung his hat on the fact that in 9 months the Cash value went up 300 some dollars after she paid $1800 dollars of premiums in that time frame. 


PS:  Background.   We are two healthy individuals in our early 30's with a combined income around $150,000.  No kids yet.

Oh man. I have a really good friend with this problem. It was so sad to break it to her that the guy who had sold her the policy had basically scammed her. First: since she's a friend (not my spouse--that would be different) I would never have talked to her about it, except she knows me as someone fairly financially literate and directly asked me what I thought. I showed her a Dave Ramsey youtube video on whole life insurance and kind of cringed as I watched her face.

She was horrified and angry. I actually didn't have to say anything beyond the video. She fired her "financial adviser" the next day, and cancelled the policy. It wasn't fun because she had wasted several thousand dollars with the stupid thing (she wasn't married and had no children--there just isn't any kind of justification for life insurance of any kind in her situation, much less the most expensive, stupid life insurance ever).

Anyway, cancel that silliness.

Alex,  my wife is also a teacher.   Do you have a disability insurance or do you think that's nonsense?

englishteacheralex

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 39
  • Location: Honolulu, HI
Re: Spouse with Whole Life insurance
« Reply #6 on: September 26, 2016, 12:16:37 AM »
I got married 3 weeks ago and just recently found up my wife has a whole life insurance policy she was talked into about 5 years ago.   She is mostly clueless about anything with financing and investment, but she is frugal (wheww).    Anyway,  she showed me the most recent email update from the insurance salesman.     

Original Face Value  $245,000     Face amount as of March 2016 - $252,497

Cash value as of July 2015 - $795.00        Cash Value as of March 2016 - $1191.00    CV Increase $396

In his email, he also said "Please notice how the cash value of the life insurance policy was not affected by the recent market volatility-one of the reasons we did it."


So,  I admittedly knew very little about Whole Life Insurance,  other than to avoid it.   

She has been paying a premium of $200 per month. 

My immediate thought is anger towards this guy for talking a 26 year old into this,  and that we cancel this policy immediately and cut the losses. 

What does it mean that the face value increased?

Any thoughts?

Also, he kinda hung his hat on the fact that in 9 months the Cash value went up 300 some dollars after she paid $1800 dollars of premiums in that time frame. 


PS:  Background.   We are two healthy individuals in our early 30's with a combined income around $150,000.  No kids yet.

Oh man. I have a really good friend with this problem. It was so sad to break it to her that the guy who had sold her the policy had basically scammed her. First: since she's a friend (not my spouse--that would be different) I would never have talked to her about it, except she knows me as someone fairly financially literate and directly asked me what I thought. I showed her a Dave Ramsey youtube video on whole life insurance and kind of cringed as I watched her face.

She was horrified and angry. I actually didn't have to say anything beyond the video. She fired her "financial adviser" the next day, and cancelled the policy. It wasn't fun because she had wasted several thousand dollars with the stupid thing (she wasn't married and had no children--there just isn't any kind of justification for life insurance of any kind in her situation, much less the most expensive, stupid life insurance ever).

Anyway, cancel that silliness.

Alex,  my wife is also a teacher.   Do you have a disability insurance or do you think that's nonsense?

You know, I probably should get disability insurance. I started looking into it a few months ago and then didn't follow through. It seemed a little pricey and I got discouraged. However, I have two children and a husband, and if I couldn't work or take care of my children it would be a huge financial hit. So...yeah, I don't think LONG TERM disability is a scam in my situation. Short term, we self-insure for (6 month emergency fund).

Kakashi

  • Stubble
  • **
  • Posts: 118
Re: Spouse with Whole Life insurance
« Reply #7 on: September 26, 2016, 12:47:39 AM »
Whole Life insurance is not a scam.  Now the "scam" is that your wife didn't need it.   Not at her income level (notice I didn't say anything about dependents).  And hence while I don't quite agree with the completely 1 sided response of Frankies Girl, I will say that the agent that sold the policy to your wife does what every salesman does...making a sale (and earn a commission).  Are they bad people?  No, that's just what they do.  I've had door to door salesman try and sell me high priced knives.  They don't assess whether I need knives, they just try and sell me on how awesome their knives are.  And that's what insurance salesman do.  Chalk it up as a lesson learned. 

Whole life insurance is a "rich man's Roth IRA".  You either get it because you need permanent life insurance (ie disabled children), or you get it as an asset preservation tax advantaged vehicle.  Whole life insurance is used a lot in wealth management for high earners and high net worth individuals.  But unless you're in that category, you're probably better off focused on other areas (IRA's, 401ks, etc).



Kakashi

  • Stubble
  • **
  • Posts: 118
Re: Spouse with Whole Life insurance
« Reply #8 on: September 26, 2016, 12:54:42 AM »
As for disability insurance, if you expect to be working for an income in the forseeable future, yes it's extremely important.  You're much more likely to become disabled as opposed to die.

If you are in a specialized field, you need own-occupation disability which is more expensive. 


mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Spouse with Whole Life insurance
« Reply #9 on: September 26, 2016, 04:48:22 AM »
whole life is not an investment . it is insurance and it can be a great way of taking forever taxable money and turning much of it in to never taxable money for a spouse .

if i leave a million dollar ira to my wife she has rmd's and taxes to pay . not only that but now she loses an ss check , has to file single and has huge rmd's that can trigger other income linked penalty's like increasing medicare premiums .

but if i take some of that ira money and buy a life insurance policy she now gets 100% tax free money . perhaps not even getting her social security taxed anymore .

yeah , i will owe tax on the amount i use to buy the policy but you will not pay anywhere close to what the policy pays .

whatever is left in the ira's can go to the kids and they can pay the taxes over their life time but my spouse has totally tax free money .


never buy it for the cash value . the cash value is like a refund on  a cancelled gym membership . the cash value is only an agreement on an amount that you will get back if you do not use the insurance you paid for less restocking fees . it is a terrible deal and in fact there is no account in your name with this money .

every penny you pay is premium for a policy with a 100% pay off rate . unlike term where 98% is never paid on .
one other benefit is you can take extra cash and over fund a whole life policy up to the irs limits before it is considered a modified endowment policy .

that extra money by law can have no fees or expenses taken out and usually policy's have a pretty high minimum rate like 4%  because they take some back in fees .

in this case they can't so at retirement you can borrow it out , not ever pay it back and enjoy all that compounding tax free . it just gets deducted off the death benefit .

whole life is a poor deal if you buy it for any  other purpose other than dying . they are priced so usually by age 100-105 you paid in through premiums ,decades of compounding interest and dividends just what the death benefit is less fees .

basically you are eventually self insuring . many insurers just call the policy endowed and dead or alive send you back your money .

permanent life insurance can be a very powerful planning tool because so much other crap is linked to your taxable retirement income .

in fact in a study by dr wade pfau an integrated  plan including  spia's for income /your own investing /whole life , beat buy term and invest the rest 2/3's of the time in over 10,000 different scenario's run .

the buy term and invest the rest if you did actually do that which few do always had a bigger balance by age 65 . but after that is where the advantage ended .

the integrated plan let you draw more income 100% of the time because there was little sequence risk and less powder had to be kept dry , and it left a bigger balance for heirs 2/3's of the time .

it took dying young and only the better outcomes for buy term and invest the rest to be the better deal  because of the tax advantages of the integrated strategy



« Last Edit: September 26, 2016, 05:01:40 AM by mathjak107 »

R S

  • 5 O'Clock Shadow
  • *
  • Posts: 22
Re: Spouse with Whole Life insurance
« Reply #10 on: September 26, 2016, 05:57:45 AM »
Quote
the buy term and invest the rest if you did actually do that which few do always had a bigger balance by age 65 . but after that is where the advantage ended .

Yes,  I've read this a lot.....few actually invest the saved premium...they spend it.     Well,  I think if you're on this forum chances are you're part of the few that will have the discipline to invest. 

mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Spouse with Whole Life insurance
« Reply #11 on: September 26, 2016, 07:21:46 AM »
even if you did  invest the outcome both return wise and most important tax wise is still an obstacle to overcome . many times the tax outcome to a spouse who has now gone from married to single can be substantial .

i had no idea before i retired just how much is linked to taxable income in retirement . you have getting ss taxed to deal with , medicare premiums are based on income , we have medicare surcharges now on income that can drive capital gains taxes as high as 24% . not  just 15 or 20% . we have 0 percent tax brackets to take advantage of  and ploys delaying ss that allow us to get tax free money from ira's as well .

in the end what you give back in taxes and perks can be more than any extra gains you may accumulate . so a good comprehensive plan can always be a benefit in the end . it isn't about who dies with the biggest amount .
« Last Edit: September 26, 2016, 07:24:12 AM by mathjak107 »

Kakashi

  • Stubble
  • **
  • Posts: 118
Re: Spouse with Whole Life insurance
« Reply #12 on: September 26, 2016, 02:03:06 PM »
Quote
the buy term and invest the rest if you did actually do that which few do always had a bigger balance by age 65 . but after that is where the advantage ended .

Yes,  I've read this a lot.....few actually invest the saved premium...they spend it.     Well,  I think if you're on this forum chances are you're part of the few that will have the discipline to invest.

No that's not it.  Most people, and even those on this forum, who espouse BTID philosophy, as popularized by mass media financial gurus like Dave Ramsey, don't understand permanent life insurance policies.  They just read something or listen to a youtube and believe that BTID is the best - it's almost like religion.
Don't think of whole life like an investment because it is not.

The reality is, this is not about "forced savings".  Mathjak107 gave some great examples (I suspect he works in insurance industry).  This is just my take on it in simplified approach.  Whole life is there for you for all of life's twists and turns.  You guys decide to have a child, and the child is born with disability.  Or your child becomes disabled at 16 years old in a car accident.  Or you run out of money after you FIRE.  Or you parents fall ill and need long term care that wasn't planned for.  Or you start a business and need cash flow to sustain it.  That's just the life aspect.

As for the financial aspect, you can imagine the tax (income, SS, medicare, estate) are different for a person making $25K/year with 0 net wealth, vs someone making $500K/year with $10MM net wealth.  The BTID philosophy falls apart the wealthier you are because taxes start to erode more and more.  This is where permanent life insurance comes into play, not as an insurance vehicle, but a wealth planning vehicle. 

You mentioned you guys are in your 20s.  The reality is, whole life policy is cheaper now than when you actually need it.  And you don't know what your future will throw at you.  However the opportunity cost is, you could be investing the difference.  It just depends on your personal choice and decision.






mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Spouse with Whole Life insurance
« Reply #13 on: September 26, 2016, 02:08:04 PM »
NOPE . never worked in insurance or the investment world . in fact i am a retired electrical control panel designer . i just take an interest in all this stuff and the latest in retirement research and study's .
« Last Edit: September 26, 2016, 02:10:03 PM by mathjak107 »

lhamo

  • Walrus Stache
  • *******
  • Posts: 9521
  • Location: Seattle
Re: Spouse with Whole Life insurance
« Reply #14 on: September 26, 2016, 02:13:54 PM »
whole life is not an investment . it is insurance and it can be a great way of taking forever taxable money and turning much of it in to never taxable money for a spouse .

if i leave a million dollar ira to my wife she has rmd's and taxes to pay . not only that but now she loses an ss check , has to file single and has huge rmd's that can trigger other income linked penalty's like increasing medicare premiums .

but if i take some of that ira money and buy a life insurance policy she now gets 100% tax free money . perhaps not even getting her social security taxed anymore .

You get the same tax advantaged benefits with the proceeds from a term policy as you do from a whole policy.  And anyone interested in a non-insurance based way of ensuring tax-advantaged inheritances for their heirs can start using strategic rollovers to a Roth IRA as soon as (or more preferably well before) the nest egg gets into that dangerous territory.


mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Spouse with Whole Life insurance
« Reply #15 on: September 26, 2016, 04:07:27 PM »
the difference with the roth is :

it is not insurance- there is no guarantee you will ever reach the value of the policy or that value will even be there when you die .

dying early can leave you well underfunded , insurance puts you on their dime until you have enough to be close to self insuring .

they are not replacements for each other

darknight

  • 5 O'Clock Shadow
  • *
  • Posts: 54
Re: Spouse with Whole Life insurance
« Reply #16 on: September 26, 2016, 04:40:27 PM »
I'm a licensed life agent.. That is ridiculous to sell someone that expensive of a plan, that young, prior to having a family. Insane. I personally only have term insurance (in my 20's). Honestly regardless of your income/savings, term life is stupid cheap for those under 40. I get the notion of "whole life" but really term is so beneficial to the younger crowd. You can buy decent life insurance for less than $20/month that would pay for final expenses and buy your significant other/kids/whoever a few years of retirement.
https://www.nerdwallet.com/life-insurance
I priced a 225k term for myself at 28yrs old, less than $15/month.

ender

  • Magnum Stache
  • ******
  • Posts: 4734
Re: Spouse with Whole Life insurance
« Reply #17 on: September 26, 2016, 06:45:44 PM »
It's basically a sort of decent investment tool once you have so much money you don't know what to do with anymore.

mathjak107

  • Pencil Stache
  • ****
  • Posts: 558
Re: Spouse with Whole Life insurance
« Reply #18 on: September 27, 2016, 02:30:20 AM »
not always just for the rich .

those of modest means with little discretionary spending can find themselves worse off  trying to invest in equity's . with no where to cut back when everything is a need not a want , if markets crap the bed for a while you could be in worse shape  trying to go with the variables of depending on markets and rates .

a plan ,using spia's for income , which can give you almost 40% more income initially than you can get on your own coupled with guaranteed money for heirs or extra money you can tap in ,whole life might be a very good choice .

any extra money you come across can be invested but at least both income and legacy money are locked in .

not my first choice for a plan but one that can work very well for those who hate markets or have no place to cut back if markets outcomes are poor .

i much prefer the integrated strategy using spia's ,your own investing and permanent life insurance which  has been shown to be a powerful retirement combo  incorporating all the best features  of guarantee's and your own investing .

guaranteed money has zero sequence risk and requires no dry powder for poor outcomes  so it allows higher rates of spending than other wise can be safely done .

one of the reasons the 4% swr has left folks with more than they started with over 90% of every rolling 30 year time frame is because of all the dry powder needed to  allow for those worst case scenario's .

anything better than worst case tends to leave to much money left unspent .

so the spia's allow someone to take a smaller amount of money and derive a much higher income from it . the beauty is if a couple do not take joint spia's . take the higher paying single spia and use the life insurance for the spouse   which is totally tax free instead of a joint spia which is taxable .

unconventional times may now call for unconventional methods of generating that income in retirement . diversification in to dead body's may be the only consistency we see . the ability to invest in dead body's is something non of us can duplicate on our own
« Last Edit: September 27, 2016, 02:44:42 AM by mathjak107 »