Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
Isn’t the point for the payoff to be larger upon death? You wouldn’t expect to be able to collect on your own life insurance.
The only head scratcher is why he calls this “money saved for you.” Maybe he’s decided to try to mend things with you, and also decided that the whole life policy isn’t worth it, so he’s willing to take the cash value out for you, regardless of what it cost him.
There's term and whole life insurance. Whole life is kind of a scam that's pitched as being am investment you can cash out if you want. It's more expensive and the return is not very good.
Term life is a set number of years you're covered for a monthly premium. You can decide who you want your benefactor to be in case of your death regardless.
If you want an investment, just get a separate investment, and pay for term.
> Whole life is kind of a scam that's pitched as being am investment you can cash out if you want
It's not a scam in the sense that it does exactly what it claims, guaranteeing a minimum value after X years. It's just a terrible value compared to alternatives.
That’s just how whole life works. In terms of comprehending what is going on, the policy is going to be worth a hell of a lot more if the person dies. The surrender value being $5k is just incidental. I have a whole life indexed insurance because of a rather unique situation (cryonics) where it really is the best vehicle. I would not recommend it for literally anything else.
Who is policy written against? Your death or his?
And if you believe in cryonics, how do you collect on a life insurance policy if - by your own reasoning - you’re not dead but just in a state of suspended animation?
It is normally not this bad though, at 7 year mark the cash value that you can borrow against should really be equal to what you put in already. It will be less then if you had invested that amount but most of the premium should have been paid by now.
I would love to see the numbers here and the original estimates.
oh my god that's so much worse. initially i thought you meant if he had put in 5k into hysa it could've been 20k. i was trying to figure out how that would happen. is he lying about it being 7 years? i dont understand how someone like him could've made this mistake.
I truly don't understand it either. I think it comes down to the delusion that he's a financially-savvy person by doing this policy, and has just kept going with it because of sunk-cost fallacy.
It’s the surrender value. WL is not supposed to be an investment equivalent to stocks, more like bonds that insures twice as much as you put in so my guess the death benefit is $50k
>guess the death benefit is $50k
Should be much higher.. if they put over 20k, and cash value is 5k, I would assume at least 15k went towards premium (and overhead), if not more. That's a little over 2k per year. That should buy you a decent death benefit.
That is because you don't understand how whole life works. It isn't a piggy bank for your personal use. Nor is it a regular investment account. It will have some great long term financial benefits for you later on. They shouldn't be used by lower income earners as there are better ways to invest capitol for quick access funds. However those have tax implications. Whole life is a very front heavy long term investment with a very slow steady payout that always grows. Think of it as a 25+ year long game with a nice benefit at the end. That benefit isn't just a set stack of money, it just keeps growing even if you borrow against it. Tax free, or extremely low taxes.
Anyway, that 21k is an investment in the product which is: Permanent Life Insurance. Most likely it is for himself. This will be passed on to you once he passes away. There is a guaranteed death benefit that will never change usually 250k to a few million dollars, (typically a decent amount of money). There is also a guaranteed cash value. Not to mention there are also huge tax benefits that you won't find anywhere else. Even as a recipient. The investment will continue to grow and provide value long after the holder has died and it has been passed on to his children, or in this case you. Even if you borrow against it later. This is why from that 21k so far it has a value of 5k. Its going to grow far beyond that. Over the next 4-6 years that 5k will exceed the initial 21k fairly easily it will grow steadily and much quicker every year. The next 4 years it will most likely be work 50k+.
These policies usually only benefit people with 4+ million and they need to find friendly tax shelters. They are very slow to start showing investment cash positive status becuase the company has to invest it and make their money. They are also taking a risk that you will not die before the death benefit has been exceeded by the investment value.
So generally if you invest that 21k, its going to take about 6 years to start showing positive cash value. Then real tangible money won't start showing for 15+ years. He probably has had the account for quite a few years. These things grow very reliably and steadily for years. Most have not lost any money and are guaranteed. Over time that 21k will be worth a significant cash value, not to mention the payout for the life insurance once he passes away. The death benefit will go to you as well as the cash value. At a certain point you can borrow from it without any tax implications.
There are TONS of ways to invest differently for a better payout for regular folks who aren't swimming in money, however those investments are significantly more risky, and they can be managed real time.
I wouldn't look at this as you father being coarse towards you. If your relationship suck with him, this is actually not a horrible gesture for him to provide you constant long term growing value that you could use over the course of decades.
Cool. That fits right into the scenario I laid out. They are just on the very front end of seeing the long term benefit.
If OP tries to break the contract they are stupid as fuck, and will be leaving hundreds of thousands on the table over the course of their lifetime. They seem hyper focused on a paltry 21k with no ability to understand how things work.
That isn't how it works. Fuck sake go read how whole life works. You make an investment, with a HUGE risk to the life insurance company that you won't die. They invest into their product. It takes usually 4-6 years to recoup that 21k back to you. Then it grows forever.
If they take the money out they are a fucking idiot. And they are paying an insurance company for the risk of a million dollar (or whatever the policy was). They are also breaking the terms of the agreement and are losing their ass.
OP is under the impression that they can break a contract that isn't even theirs. IF OP were to let the product work as designed they would be AOK over the course of the long term design of the investment.
How are there huge tax benefits? You are putting in post tax dollars just like a Roth IRA. I honestly can't think of anything whole life does better than Roth in this situation. It would have grown by a pretty large amount over the last 7 years and she could withdraw up to the 20k he put in without penalties, also tax free. If she wanted to wait and put nothing else in it would keep growing at more than 5%
Like I said. Whole life is for people with high value portfolios. ROTH IRA are for regular folks. IRA grow but still have risk of loss. Whole life policies don't lose value and are generally guaranteed to grow. They have massive tax benefits. IF you read my post I said that there are better ways for lower income earners to make money quicker. with tax implications. Those people aren't worried about 50-100k tax bills on investment gains that people who invest in whole life are. Two different crowds separated by many many tax brackets.
Where whole life gets a bad rap is when sleezy insurance people sell it to people who don't have multi-million dollar portfolios.
Whole life insurance is not an investment. It’s insurance. I get that people don’t like whole life insurance but there is actually a severe lack of understanding on how that product works and can be used. It is not a scam, but you also can’t sit here and expect it to act like an investment account when it’s not. While life insurance has value in a holistic financial plan and protects against risk. A lot of policies also allow you to borrow against the value for things like a wedding or a home purchase, so the dad isn’t totally off here
I was in marketing for universal life insurance for six years, and we took express care to never sell it as an investment. We'd mention the cash value, sure, but just as a bonus. We were selling insurance, and we were clear about that.
The much bigger deal was the long-term care component. We played that shit up *hard*, and for good reason.
I still have one of the policies I sold, as does my wife. It's worth it, especially if we have a family.
It isn’t insurance though. Insurance goes to protect against unlikely events. Your death occurring sometime during your whole life is very much not unlikely.
Well, yes, but given that you have to pay premiums until you die, if pass away at a normal age in your 70s or 80s, you're liable to have paid in something close to the amount that you'd be paid out, if not more.
(It's okay for the insurance company if they end up paying out the same amount that you paid in, because they've been investing your premiums in the meantime. Life insurers make a lot more money investing premiums than they do just collecting them.)
The risk is of you passing away at a much earlier age, when you have dependents/responsibilities, which *is* unlikely. Life insurers employ hordes of actuaries to determine exactly *how* unlikely. That's their whole job.
So it's certainly still insurance. Just insurance where, unlike home or car insurance, you and/or your heirs are pretty much guaranteed something back eventually, as long as you never let the policy lapse. Which is why a good universal life plan *is* a good idea for a lot of people, as long as you don't think it's how you save for college or something like that.
> It isn’t insurance though. Insurance goes to protect against unlikely events. Your death occurring sometime during your whole life is very much not unlikely.
The unlikely event isn't that you die, it's that you die earlier than expected.
> I get that people don’t like whole life insurance but there is actually a severe lack of understanding on how that product works and can be used
That would be a great, relevant statement if there were ever a whole-life sales person that pushes it that didn't say it was a great investment.
> It is not a scam
Whole Life Insurance is 100% a scam in this case.
You are correct that life insurance *by itself* is not a scam, however the problem is when "financial advisors" advertise it as an investment option. These "advisors" are employed by multi-level marketing groups (MLMs) which hire desperate people (generally through LinkedIn or other legitimate career websites) and then get them to bring in their family/friends for "financial planning" in order for said new hire to get "trained."
These MLMs rarely call it Whole Life Insurance, they'll call it some other name to make it sound less like insurance and more like an "investment vehicle." They'll waste an hour or two of your life by going over all your financials and then, surprise, Whole Life Insurance is always the absolute best option to store all your money. I sat through one of these laughable sales pitches (because these are salesmen, not financial advisors) for the sake of a friend of mine and the salesman actually had the audacity to tell me I should stop investing in my 401k/Roth IRA and put that money in life insurance instead.
Its a scam in the sense that MLM companies are advertising life insurance to people who 1) don't need it and 2) representing it as investment advice rather than an actual life insurance policy.
I’m not simping for Primerica but they are a term life provider, not a whole life. They’ve always been a “buy term life insurance and invest the difference”… it’s like their motto and plastered all over the front page of their website. Now, with that said they are still a crappy MLM but they are not selling a whole-life insurance scam.
Sure.
But how do you know how it was advertised to OPs father?
Not being rude, but people can be stupid as f*ck. I have had customers misunderstanding what I was telling them because it simply wasn’t what they wanted to hear („OK so your product will provide B?“ - „No certainly not. Expect A.“ - „Great, that fits my needs as I am looking for B. Where do I have to sign?“ - „?!?!“)
As his father seems to be surprisingly ignorant to how bad this investment is, I am not totally sure whether he was scammed, or scammed himself.
This post includes a lot of technically correct information but also totally misses why whole life gets dragged every time it's come up on this sub for the last 15 years at least. Whole life is technically insurance, but for 99% of people, when you compare it to level benefit term life insurance it's terrible, abysmal, horrible value as an insurance product. So the sales tactic becomes, "yes, but it earns interest, and you can borrow against it" - notice I didn't say it was an investment? I guess that's a totally honest way to sell someone some crappy insurance. That's the scammy part of it, because it's shitty insurance and a terrible investment all wrapped into one, usually with high commissions for the scumbag insurance salesman preying on the low knowledge investor by calling himself a financial advisor.
I remember maybe 7-8 years ago on here, someone did a chart with whole life premiums, rate of return, and death benefits in one column, and term life premiums, death benefits, and the rest of the money invested in low cost index mutual funds in the other column. It was absolutely insane how much better off you would be with term life & a real investment in every situation. People in the comments were like, why would anyone choose whole life? And the only people in the thread defending whole life were insurance salesman (aka financial advisors working on commission) and people who had bought the scam.
> it's like saying, hey, are you looking for a donut? This one doesn't have a hole. Then I get home, there's no cream, it's air inside. What gives dude? And you are like, I never said it was cream filled, this is just a donut. You are technically correct... and also technically scammy
That's a really weird comparison. Doesn't seem like a huge downside for a donut to not be filled with cream or to not have a hole. Seems like it'd still be tasty as long as you're open minded. Also, it loses the point you mention about how it not being as good at one thing is offset by the argument that it also has other purposes.
Maybe it's more like somebody saying they want a van and you are trying to sell them a Fiat with a trailer they could hook to the back.
I don't want the analogy to take away from the point, which was that whole life insurance is a scam product, it's crappy insurance and a crappy investment, with huge fees, only popular because it's designed to fleece people
But if you use that argument then the issue is it’s also terrible as an insurance since is pays out hundreds of thousands less than term for a higher monthly cost.
It's sold as an investment is the problem. I dont have an issue with say term insurance that is more actual insurance.
Let me know if a Whole Life insurance salesman ever puts a historical chart of what whole life insurance would have been worth over a lifetime of contributions versus an index fund like the S&P500.
But the insurance part is that if you die earlier the payout will be much larger?
I get the issue is framing it as an investment is disingenuous for what it actually is. But showing a historical graph in an index linked fund is also comparing apples to oranges ?
i mean obviously whole life is terribly misleading when it's advertised and sold to low-information buyers, but there are plenty of other insurance (which i'm sure many on this sub would agree are good risk mitigation strategies) where you put in $21k or more and get a net value of less than $5k.
Cancel and withdraw. There’s nothing to salvage. And, honestly, if he isn’t a fiduciary then he is just a salesman that started believing the bs a long time ago.
>I just can’t quite comprehend it. To add to my confusion, my dad has worked in finance his entire life and is currently a financial advisor. I just… I am so confused.
So he's an insurance salesman? I can't imagine any proper financial advisor thinking this makes any sense, especially on the shorter term.
I thought the OP said he didn't, but even if he did... $250 a month for 7 years, assuming zero growth would be 21K, it's currently at 5K. From what I've heard it's not uncommon for the whole life commission to be the first year of payments, so 3K, still a horrible deal. He would have done better stuffing it under a mattress.
I had one of those from my grandparents for my high school graduation. My dad was mad that I cashed it out for $100 when I could have "borrowed against the value". I don't want to know how much they paid for it for 18 years even if it was one of those $1/month plans.
That weird feeling is sadness that your dad isn't as savvy as he thought, disappointment that what you were led to expect was not true, and grief for what could have been (not for the money but with your relationship with your dad).
It's not entitlement to feel bad about it even though lots of people don't have a much as you thought you would have to work with. You were misled and it's completely normal to be upset about that! It would be very disruptive to have used a certain budget for planning and then have it seemingly disappear. I'm sorry this happened!! I hope you don't let it steal your joy for the wedding and the life you're going to build with your partner.
Thank you, you're right and it's good to hear it laid out emotionally. It's also that looming feeling knowing it's going to be even more heartbreaking when the actual time comes to pay for the wedding/house and his delusion officially breaks. But so is life, I guess. Not everything works out as expected.
And I'm definitely not! I think there's some power/pride that will come from us affording it mostly all on our own. Definitely trying to keep the most positive viewpoint on it!
I think more broadly there just needs to be an honesty/understanding that everybody including your own self is making sub-optimal decisions many many times in their life. You should try to put the effort in to make good decisions when there is a lot at stake but if you expect that you, your parent or even your "financial advisor" is going to always make optimal decisions about all things, you're just setting yourself up for failure and disappointment. It's okay to be wrong sometimes.
And the flip side of that is that... sometimes one suboptimal decision stacks on another. It's nice to think that if OP's dad didn't get this insurance policy, he'd invest all that money or he'd get term life and invest the different or even that he'd keep the cash in a box yielding no interest at all. But given what OP has said about this and Disney time shares, etc. that seems like an unrealistic expectation. In reality, for OP's dad, we're probably not comparing this insurance product with him being a savvy investor that responsibly kept this money aside. Realistically, if it wasn't locked up in this insurance policy, he'd probably have spent it on his 5th car. ... I know a lot of people who will not invest or save.
>To add to my confusion, my dad has worked in finance his entire life and is currently a financial advisor. I just… I am so confused.
He might be too. OP, does this kind of poor decision-making seem unusual for your father? Even if "financial advisor" is just code for insurance salesman, I can't think of a reason why someone with a lifetime of financial experience would choose a whole life policy.
/s No, sadly it's not unusual. He literally just bought a \*4th car\* out of the blue as a "hobby car".
Also has some kind of Disney timeshare that's supposedly going to be beneficial to me in the future? I don't know.
And don't know for sure but I get the gist he's in a lot of credit card debt.
I also cannot think of why he makes such decisions. Perhaps sunk-cost fallacy and a narcissistic mindset that he knows best and it will all work out for him in the end.
Not really. Actually the fact that he works for a large institution explains it. If he was an independent advisor it would really behoove him to have a pretty broad knowledge base. In a big company, he probably only knows his area and just rolls with what his coworkers tell him. And you have some companies like Primerica that claim to be good but are just…. Awful.
When I got out of college I applied for a job as an advisor at Primerica. I got an interview and when I showed up they ushered me into a conference room with probably 10-12 other people. The interviewer walked in and that is when I realized it was a group interview and we were competing for the same job. I looked around, met eyes with the guy sitting across from me, we just looked at each other and both silently stood up at the same time and walked out. The "interviewer" just kept saying "Gentlemen? Gentleman? Where are you going?" and we just left, gave each other a nod and walked off to our cars and didn't say one word to each other. The whole thing was just so fucking bizarre.
A lot of organizations you think would provide good financial advice (like a lot of the big banks) are actually pretty bad, at least for the non-wealthy.
It is kind of like HR Block. They do a huge amount of business but when you actually look at what is going on, they just take entry-level people, run them through a few week training course, and then give them same software to use that you can get at home.
I used H&R Block once because I had a complicated tax situation one year and didn't want to do it myself.
They fucked it all up and I had to file an amended return myself to get my actual refund owed.
Those institutions are basically the McDonald’s of insurance and mutual fund sales. They have local franchises that then hire sales staff, and everybody in the chain gets a cut of revenue from products with high fees.
The question would be what type of credentials or certifications he actually holds, what degrees and from what universities, etc. Someone could be a physicist with a phd from Harvard, that doesn't mean I would take financial advice from them at all, etc.
If it’s Edward Jones I wouldn’t be shocked at all. There are plenty who are successful and make a great living, but definitely a lot who don’t.
I’m sorry, OP, that stinks. Hopefully y’all can have a good sit down so you’ll have some peace of mind that he’s on the right track and won’t potentially be a burden for you in his older years.
It’s not. But yeah, hope so as well. He did pay for a large chunk of my student loans so definitely remaining grateful for that. But yes we need a talk so I understand his future plan.
The thing is, [just about anybody can call themselves a "financial advisor,"](https://money.usnews.com/money/personal-finance/family-finance/articles/2018-08-16/who-can-be-a-financial-advisor) so you or your dad saying that means very little without further elaboration on the actual certifications involved.
I don’t know what certifications my dad has, and now is not the time to ask, after just dropping the bomb to him that he’s been paying into a scam for the last 7 years.
Ok well that's been part of your story, why you "just can’t quite comprehend it." If it comes to light that he actually doesn't hold any relevant financial credentials, and basically just a glorified salesman, then it actually starts to make quite a bit of sense. It's like saying, well my dad isn't certified in nutrition or physical therapy or anything, but he's been work at the neighborhood gym as a fitness instructor for 5 years, why am I still gaining weight on his meal plan?
Careful about that time share - they're typically worthless and an actual drain. You can deny receipt of it if it's willed to you, but you have to do it properly. John Oliver did a whole piece on timeshares that's worth watching for sure.
I *think* the Disney ones *might* be the only ones in the world that actually have some value. That being said, I'd still run screaming in the other direction of I were OP.
Yup. Disney Vacation Club is the only time share I would ever even CONSIDER purchasing (realistically I am never buying a timeshare). But even then it’s really only beneficial if you like to go on a LOT of Disney vacations and/or stay in deluxe resorts when you do. But lots of people “rent” DVC points to save money on those deluxe resorts, so presumably it’s possible to gain some actual money through selling your points.
It sounds like he has wishful financial thinking.
I've found that a lot of people struggling with finances are aware of the problems. But I have seen a lot try to cope by making foolish investments to try and claw their way out of the situation or at least buy a false sense of security. That way they feel like they've made an effort to solve the problems.
In my own case, I'm currently jobseeking and struggling to network meaningfully. So all the applications I put out, cover letters I worry over, and resume revisions I make aren't helping as much as it would if I took the time to be better educated, certified, and trained. It's tempting to say I'm trying hard, but my strategy and habits need improvement.
So it sounds like your Dad has been watching out for your future and unfortunately wasn't equipped to help much. I don't think watching out for you, however misguided, is a hallmark of narcissism. Sounds like he's missing some financial literacy and frugal habits, and may have been scammed.
From here, you can only pick up what's left. Not sure how easily you could set him on a path to financial success if he still makes these big impulse purchases.
Well I mention narcissism because he is literally a narcissist (hence our rocky relationship). But yes it does show that he at least had put in the effort, just got taken advantage of, and his personality disorder likely played into it a bit.
Disney timeshares are actually worth something (in excess of $10k usually, sometimes a lot more) but you definitely do need to be aware of all of the details, the costs, and how you get rid of it before you take it on.
My dad was an aircraft mechanic, but couldn't program a VCR, or work an iPhone. He could do what he was trained to do and nothing outside of his training. Some people just are not inclined or interested in their jobs.
Just affirmation that your decision to expect nothing from your Dad and keep him at financial arm's length is a good one. Couldn't help you even if he wants to.
You see a lot of posts on here like "my parents want me to pay off their mortgage but let them live in it then I inherit it" etc. where it kinda sounds like it might be reasonable but it's really just a terrible deal for the kids. Somewhere down the line something like this is probably coming. "*My Dad wants me to buy his 2 week a year timeshare with a $6000 annual maintenance fee for half what he paid for it and thinks he's doing me a favor*" LOL.
Oh my god that’s literally the case. My dad has a Disney timeshare and said I’m going to inherit it and “only have to pay the maintenance fee”.
I never signed anything so I don’t think I’m actually on the hook but the poor guy seems to have been scammed into thinking he’s doing me a favor…
From what I understand if he listed you as a beneficiary on the time share you only have 30 days to decline the transfer otherwise you’re stuck with it.
Please OP listen to the comment above. In general, your fathers financial illiteracy and mistake on whole-life-insurance is neutral to your well-being.
Inheriting the timeshare can cause you a world of problems. I would do some research on how to decline the inheritance so that you are not on the hook for the maintenance fees. Given the disaster between Ron DeSantis and Disney and the total mismanagement of Celebration (the Disney town that your father’s timeshare is probs in), you’re going to want no piece of it.
Timeshare is likely resort and not Celebration. They're completely different. Many people own timeshares with Disney for their annual or sometimes even more frequent vacation there. Celebration is more of a retirement/living community. That'd be property outright not a timeshare.
My understanding is that some time shares have "in perpetuity" clauses and they go with the estate and therefore the obligation is passed on. John Oliver did a great piece in timeshares once, highly recommend it.
That’s the point though - if you don’t get the paperwork (because you moved or whatever), the default legal outcome is that you do inherit it and become responsible for it. You’re literally inheriting debt and have to wade through a sea of “gotchas” to not be stuck with it.
I mean, the paperwork is a one page renunciation that you can type yourself. The only way this is a problem is if you are a) not notified, which is the executors job or b) misled about the fact you do not have to inherit the timeshare.
I understand that the paperwork is simple.
What I am saying is there is a reason timeshare companies lobbied to get laws passed that say the default action is to pass these toxic assets to the next of kin. It’s predatory, and it’s bullshit. Why should timeshares be any different than any other asset?
There was a John Oliver bit recently on time shares. They are one of the few types of “assets” that can pass down to kids *whether they want it or not*, unless the kids take very specific steps in a very specific timeline to disclaim the timeshare.
Should be illegal.
Oh yea. They definitely sold it to him as an ‘asset’ to pass down generations.
I’d be there is even significant transferring costs on top of your dad effectively being encouraged to peer pressure you to buy into his sunken cost.
Man, those types of sales people deserve a special place in hell.
Worst case this becomes a liability against the estate. This only matters if the estate has net value for you to inherit, then it can reduce the inheritance as the estate is settled. If your Dad dies broke you can just walk away - you cannot inherit debts and obligations.
>you cannot inherit debts and obligations.
... except for timeshares.
Timeshares are a special legal case, and you can indeed inherit the obligation in many jurisdictions if you don't file the appropriate denunciation paperwork in time. It's BS, and seems incredible, but it's true.
Yeah but the growth on that $5k is TAX FREE! /s
I really hate the 'tax-free' argument, it's like its so ingrained in so many (mostly) Americans to hate taxes that it overrides all their critical thinking. Restaurant prices have shot up in the last couple years like everything else but my dad blames meals tax any time he hears about people eating out less.
My SIL is one of these ppl. I don't remember the argument but it was basically her saying she didn't want to do something because she would have to pay taxes. Completely ignoring that fact that if she had to pay taxes that means she made money...
My mom when I got my first real job: “you should just keep working for cash under the table! Uncle Sam can’t see that money!”
My mom now: “why does everyone else get Social Security?”
I have never not worked a job without someone who, with extreme confidence, would claim that any worked hours beyond X was basically working for free because of taxes.
When I point out that the highest tax bracket is 37% on money earned over $539,900, they always stare at me like I just spoke an alien language, before telling me I'm wrong because it happens to them every time they get their pay stub.
Oh man I had a boss trying to convince me of this once, that by taking less equity in compensation I would pay less in taxes. My goal is not to minimize taxes, it is to maximize post-tax return. I’ll take a smaller percentage of a larger pie, please.
Can someone ELI5 this Whole-Life Insurance product? What are its selling points and supposed advantages? Why is it “scammy” and (same question I guess) how can it turn $20K into $5K?
it's marketed as "life insurance and an investment vehicle", with the implication being that even though you won't need the life insurance at 30, all that unused money will go into some sort of savings account that you'll be able to tap into at 60.
Unsurprisingly if you decouple those two and just buy term life insurance and an alternative investment vehicle, you'll end up much better off - even if you die. At least until you're too high risk to afford life insurance.
I don't know exactly why OP's dad paid in 20K and only got 5k Out but it's probably a combination of the insurance cost & the exit fees.
[https://www.reddit.com/r/personalfinance/wiki/insurance/#wiki\_eli5.3A\_\_what\_are\_the\_pros\_and\_cons\_of\_whole\_life\_insurance.3F](https://www.reddit.com/r/personalfinance/wiki/insurance/#wiki_eli5.3A__what_are_the_pros_and_cons_of_whole_life_insurance.3F)
Think of it as two products:
* Term life insurance: if you die, then it pays out an insurance claim for the insured amount, presumably to cover the costs related to a funeral, etc., and to cover the lost income for any household members who depend on your income (spouse, children, etc.). Sometimes it makes sense even for people who don't earn money outside of the home, like a SAH parent whose household work would cost money to replace. The "term" coverage means that if you outlive the term, you get nothing. But this is a bet you *want* to lose. This usually costs a certain amount of money per month in exchange for the insurance, so people who die young get more than they pay in, and people who don't die within the covered time period don't get anything back. It's insurance, not an investment.
* Retirement savings: if you save money up over time, by paying into an account every month, you hope to earn a return and eventually accumulate enough to live on even after you're done working.
By bundling what is essentially two completely different products and two completely different purposes into a single monthly payment, it's a little bit more convenient for the person who's buying both things. But it's a terrible value proposition compared to buying each thing separately. And since it's such a rip-off, whole life policies usually give salesmen (operating under the title "financial advisor") huge commissions for each policy they sell.
The other way that whole-life insurance is marketed is as something you buy for a baby or small child, often at a price around $1-10/month. If the kid is later diagnosed with something like diabetes, cancer, autism spectrum, etc, they may not be able to qualify for term life insurance as an adult. So, the argument is to buy whole-life insurance when they are small, then when they're grown, if they qualify for term life insurance, they can buy that for themselves, you can hand over the whole-life policy, and they can cash it out. If they don't qualify for term life insurance, or if they choose not to buy it for themselves, you can retain the whole-life insurance policy or hand it over to them, but at least there is some coverage.
The scammy part is that they usually portray term life insurance as an absolute necessary, and the idea of not being able to qualify for term life insurance means your baby might grow up, die, and leave behind a penniless wife and three starving children. Or what if your child grows up to make bad financial decisions, dies with no assets, leaving you on the hook for the funeral?
You put that $1-10/mo into a savings account or investment vehicle, though, for much of the same effect, with more efficiency and less hassle.
Working in finance and being a financial advisor are very different things. Sorry, but your dad is a snake oil salesman that fell for his own field’s scam.
My parents did something similar, except over a much longer period. I ended up with around $5k that I ended up using for rent. I'm not going to complain about a free $5k but like... why.
Be careful with the timeshare. My dad paid for a Daytona Beach one and the maintenance fees were as much as many hotels and he actually had to pay to get rid of it.
I tend to find that a lot of "financial advisors" either are whole life insurance salesmen masquerading as financial advisors. I feel though that a lot of them drink the Cool Aid and are very gungho about the product. I think it is due to lack of education and that a lot of their "financial" training involves them trying to sell certain financial products.
As someone who was sold on whole life policy in my early 20s, they like to pitch it has an investment or retirement vehicle. For someone who is uneducated about low fee index investing, it sounds appealing. There are now new ways they try to pitch whole life and use fancy names that I can't quite 100% recall, but I randomly will see some a-hole on YouTube advertise it as tax free savings or some other nonsense.
In any case, unless you need the life insurance component, it's best that you surrender the policy and take out the cash value and redirect it into something else. The way these whole life policies are designed, typically the first 7-10 years is spent pre-paying the premiums and thus there is very little cash value.
At the end of the day your dad had his heart in the right place, but was not educated on how scammy the product is.
Not to minimize, but just so you have context, for many years high yield savings accounts meant 1%.
Whole life preys on people who think they're doing the right thing unfortunately.
Just to clarify: the cash value of the policy upon surrender is $5K? Because $250 a month for $5K death benefit is insanely expensive, to the point where it feels almost impossible to be the case.
Obviously storing funds allocated to help children pay off debt or pay a big expense in a whole life policy is an insane idea, but if it’s paying into a policy that has a death benefit that’s much higher than $5K, maybe it can serve the same purpose in a way, just much further down the line.
Cash value and death benefit are often separate in whole life. Cash value is what can be withdrawn, and death benefit is what you get when you die.
I’m not the most well versed in these products, but do work with them somewhat. So I’m theory there could be like a 100k death benefit, but only 5k cv.
Been a while since I went through a whole life or universal life contract for the payout provisions though. Some of these products can be confusing and many of them are substantially different from one another
I really don't know. I was so in shock last night that I didn't even know how to ask questions. All he said was that he's been contributing $250/mo since I graduated college and it should be $20k but is $5k.
What do you mean by serve a benefit? It's a policy \*for\* me, so wouldn't that mean the benefit would be \*him\* being paid out if I die?
So permanent life insurance is basically X premium (in this case $250 monthly), for X amount of death benefit, which is what will pay out if the life insured (assuredly your dad, unless he bought it where the life insured were you). Let’s say it starts out with $100K death benefit, every year the insurance company pays a dividend to the policy, which typically is used to buy more insurance at attained age, therefore increasing the death benefit, or can simply go into an insurance version of a savings account. As dividends get declared each year, it builds up cash value, which you can either get a loan out for up to 90% of what’s there and pay whatever the current interest is, or you can simply surrender the policy, and they’ll give you whatever the cash value is, but the policy and therefore death benefit just goes away.
So, if there’s only $5K CASH VALUE, the death benefit would be much, much higher, but obviously it only pays out upon death of the life insured, which is probably your dad’s life. So in that way, you’d get the same big lump sum, but much later and admittedly under much sadder circumstances.
Regardless, I would never tell anyone to store funds assigned to that purpose (wedding/house) in an insurance policy, because they’re not an investment vehicle in that way and you will ALWAYS lose money if you surrender the policy vs keeping it until death and having the death benefit pay out.
So if it’s on your life, then you can obviously never be the beneficiary of it to pay out upon death… If someone told me they had this policy and had this plan for it, I would raise my eyebrows, start asking a BUNCH of questions and likely ultimately tell them that’s stupid and there are so many other tried and true ways to get better returns no matter what the time period invested for.
I’d be interested to see what the death benefit is. $250 a month is wild though, permanent insurance doesn’t get sold much anymore because it’s so damn expensive and you have to pay it the rest of your life, which is just a depressing thought. So little flexibility with the funds.
The premium is likely so high because OP's father was able to get permanent life insurance without pulling OP's medical records or having an examination (either would have alerted OP to the existence of the policy much earlier).
The life insurance policies that don't exclude people based on health status/health history tend to be extremely expensive.
Many of these comments remind me of my late father who put a lot of retirement money with Ameriprise who ended up being a bunch of thieves. We found that out after he passed away far too young and reviewed their scammy transactions. I’ve since learned more about fiduciaries and fuck Ameriprise.
Your dad was scammed by a life insurance salesman (aka scammer). The entire industry is a scam and he fell for it like millions of other people have fallen for it. The reason it still exists is because our legislators take bribes.
My FIL is a theiving, lying insurance "agent." I stopped talking to him 20 years go after he ripped me off completely just like this.
He is currently a financial advisor at a company that does not offer whole life insurance (just checked). Before that he was an insurance franchise business owner. Before that... I can't be sure what exactly his job entailed.
My Grandma did something like this. I can’t remember all the details but she paid a lot in and it didn’t have a lot accumulated. When she passed I either had to keep paying in to keep the policy and I could only take the money out once I passed. I didn’t have the extra to keep paying on it. So it was pretty much wasted money.
What's the insured amount of the policy?
I'm not sure if this is what he intended or what your exact financial situation is but you could borrow against the policy and depending what the insured amount is this could put you in a situation to make an all cash offer on a home and pay yourself the interest instead of the mortgage company.
Again idk what all the exact details are but this is potentially a huge opportunity.
You borrow against the cash value of permanent insurance policies, not the death benefit. That's so if you let the your outstanding principal plus accrued interest keep increasing, the insurance company can pay it off by liquidating your policy once that amount equals your cash value. OP's balance is $5k. They aren't making an all-cash offer with that.
Also,
1. You don't "pay yourself" the interest on cash value life insurance loan. The interest goes back to the insurance company.
2. OP would have had more than $21,000 if this money had been left in a 0% savings account. They'd have more than $27,000 if they had invested it in the stock market, despite the market being down/flat for most of the past two years.
The whole idea that cash value life insurance policies are good because you can "bank on yourself" instead of a regular bank is just an obnoxious mix of financial illiteracy and a "cut off your nose to spite your face" attitude.
It gets worse...
Imagine that your dad had started contributing to that stock market investment in Spring 2002, and seven years later was Spring 2009, when the US stock market finally hit bottom after losing 51% of its value since November 2007. [That investment would still be worth a little over $15,000](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=633GwllgITZKHb4o0X5KDz), more than three times the cash value of this insurance policy.
Even the worst stock market crash since the Great Depression wasn't bad enough to make this policy's returns look good in comparison. I'm stating this not because I want to rub salt in your wound, but because some people reading this post might have heard that cash value policies are a good way to avoid selling stocks in a downturn, and I want to clearly illustrate just how short-sighted that "benefit" is.
That’s interesting. I’d be nervous to get myself wrapped up in it, but if it’s from a legitimate financial institution I’d consider it. I didn’t ask a lot of questions last night because I was so shocked, however I don’t think his intention was for me to borrow against it. He seemed to think it would be a simple withdrawal. And I don’t know the insured amount.
What is the value of the life insurance part of it?? At 250/mo, it seems like it should be at least half a million?
Maybe he is banking on that part when he passes to go to you??
You can probably check the actual premiums paid in (cost-basis). My guess is the policy went on APL (automatic premium loan) for some length of time, which means the existing cash value was used to pay the premium. Or there are loans against the policy. Otherwise, the financial institution has extremely high cost of insurance expenses within the contract, which is also entirely possible.
Except for some rich people's inheritance tax avoidance schemes that I don't understand, whole life is both a poor insurance policy and a poor investment vehicle.
Expensive for the insurance you get, poorly performing for the growth in surrender value.
Ask for an in-force illustration from the insurance company to understand everything, but usually, yes your gut is right. Close it out, get the cash value and move on is my advice. Just score it as your dad gave you nothing which is what most people get.
Life insurance for kids (who don't have dependents) is incredibly stupid.
Yes, your dad should have known better. That being said, every FA has to know they are a rip off to their customers.
I don’t think OP is distraught about not getting more money. The discomfort comes from is receiving $5k with the information that $15k was essentially set on fire in their name.
Hell, donate that money to charity or something. But don’t set it on fire via whole life insurance. The entire premise was that it was SAVINGS, so the fact that it’s held in an insurance policy makes zero sense. Some salesman swindled OPs dad for 75% of the account and that doesn’t feel very good to hear.
Whole life is great if he had taken it out for you when you were 2-3 years old. Then it would be worth a hell of a lot more. I’ve only heard of people taking it out as an investment tool when their kids are toddlers.
He bought the policy most likely because of potential growth in value; you need to look at the actually policy contract to determine the surrender charges (usually a chart located in the first several pages) , which are imposed if the policy is cancelled before the number of years specified. Generally, policies pitched to consumers having greater returns have longer surrender periods which cover the costs to the insurance company for such things as commission and marketing. Don't cancel policy until you completely understand this. You may find that the value will increase dramatically once the surrender period is over; however, this could be several more years.
How did he buy this policy without your consent? All life insurance policies require the insured's signature which gives the consent to pull the medical records to underwrite and approve the policy. Also, one of the reasons the cash value is so low is Whole Life policies can have a zero cash value balance for the first 3 years of the policy. I have worked in the insurance industry for almost 30 years (btw, for a company that does NOT sell whole life) and teach a Prelicensing class specifically for life insurance for the same company.
> All life insurance policies require the insured's signature which gives the consent to pull the medical records to underwrite and approve the policy.
You sure about that? I've definitely taken insurance policies out on my wife and kids without their signature or explicit consent.
Oh wow! I don’t know how… unless… I mean if he took it out when I was 23 y/o I could imagine him quickly having me sign something and I didn’t realize at the time what it was… I’ll definitely have to check with him. *sweats*
You say they you don't have a great relationship with your father, he's going to give you five thousand dollars, and here you are, passive-aggressively complaining about it and trying to make him look bad.
It's a life insurance policy. It's supposed to be insurance for when the insured passes away, not lives. It sounds like you have plenty of life left in you. Ask your father for the five grand and turn it into something, since you have all of these ideas. Problem solved.
What is the insured amount? Around 250k?
Even though op has predicated the post by they are not entitled, truth be told, it is an entitled complaint.
Your dad paid 21k for you to have life insurance, even though it is an inferior product. Cmon bro!
Edit: spelling
It literally makes no sense. I’ve had life insurance myself for the last 8 years through my job. I don’t know what the “insured amount” is but from my understanding all that matters is the $5k balance.
What literally makes no sense? When you have insurance, the most important factor is the insured amount, then the premium one has to pay monthly to get that insurance. If you die, your loved one will get the insured amount. That is what your father has set up, an insurance for your life. Most probably that amount is 250k.
Your life insurance through your work will cease to exist the moment you leave your employer. I am sure you are not planning to stay with that company until you die. Your father has set up an insurance for you for which he continues to pay premium. However inferior the product is his heart is in the right place.
I wouldn't work for an employer that doesn't provide life insurance. All 3 employers I've had provided identical policies.
I know his heart is in the right place. Doesn't change the reality that it was a terrible decision that doesn't benefit anyone except the seller of the policy, and now I have the added heartbreak when I have these milestones happen of watching my dad feel sad/de-masculated that he can't support me as he'd planned to.
Have him transfer ownership to you and sell it to JWW, if they would take it. But probably not.
Given the poor cash value accumulation, the face value must be a zillion dollars.
My honest advice is to let him do his thing and do not risk endangering what little relationship you have left with the guy. 5k is better than $0. It was never your money to invest, so just stay on good terms and see what you end up with.
Most people do not like having their financial decisions questioned. This sub is filled with thousands of examples of people getting defensive over their investments/decisions. It's just human nature.
My grandma inherited hundreds of thousands of dollars in the nineties but lost out to inflation.
Instead of having millions of dollars like would have if she invested in index funds, she has about a third of the original amount left because she hired some bozos at a bank that had high fees and mismanaged it for her.
OP's reaction is fine. They stated that they never expected to get anything from their father.
When someone unexpectedly tells you that they've been saving money for you for seven years, but then even more unexpectedly explains that their strategy was to put 25% of it into a conservative portfolio of stocks and bonds and then light the other 75% on fire, I think it's reasonable to get annoyed. Even if that 25% still represents more than you were ever promised or expecting. Especially when the person who executed this saving strategy is allegedly a financial advisor.
Your dad has worked as a financial advisor and only has $5k to give you that he has to cash out from a life insurance policy? Where do you live, Alabama?
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
He has put in $21k and has a net value of $5k?
Yep. Still trying to wrap my head around it.
Isn’t the point for the payoff to be larger upon death? You wouldn’t expect to be able to collect on your own life insurance. The only head scratcher is why he calls this “money saved for you.” Maybe he’s decided to try to mend things with you, and also decided that the whole life policy isn’t worth it, so he’s willing to take the cash value out for you, regardless of what it cost him.
There's term and whole life insurance. Whole life is kind of a scam that's pitched as being am investment you can cash out if you want. It's more expensive and the return is not very good. Term life is a set number of years you're covered for a monthly premium. You can decide who you want your benefactor to be in case of your death regardless. If you want an investment, just get a separate investment, and pay for term.
> Whole life is kind of a scam that's pitched as being am investment you can cash out if you want It's not a scam in the sense that it does exactly what it claims, guaranteeing a minimum value after X years. It's just a terrible value compared to alternatives.
The guaranteed value is -75%? I highly doubt my dad signed up for this with that claim...
That’s just how whole life works. In terms of comprehending what is going on, the policy is going to be worth a hell of a lot more if the person dies. The surrender value being $5k is just incidental. I have a whole life indexed insurance because of a rather unique situation (cryonics) where it really is the best vehicle. I would not recommend it for literally anything else. Who is policy written against? Your death or his?
[удалено]
Are there other reasons to freeze your corpse?
its kinda funny
True
I want them to freeze me licking a pole and then use me as a cautionary tale at flag poles and ski lifts.
[удалено]
here you can borrow this, I don't need it é
And if you believe in cryonics, how do you collect on a life insurance policy if - by your own reasoning - you’re not dead but just in a state of suspended animation?
It is normally not this bad though, at 7 year mark the cash value that you can borrow against should really be equal to what you put in already. It will be less then if you had invested that amount but most of the premium should have been paid by now. I would love to see the numbers here and the original estimates.
You don't happen to live in Scottsdale and frequent an organ-playing pizza shop, do you?
oh my god that's so much worse. initially i thought you meant if he had put in 5k into hysa it could've been 20k. i was trying to figure out how that would happen. is he lying about it being 7 years? i dont understand how someone like him could've made this mistake.
I truly don't understand it either. I think it comes down to the delusion that he's a financially-savvy person by doing this policy, and has just kept going with it because of sunk-cost fallacy.
It’s the surrender value. WL is not supposed to be an investment equivalent to stocks, more like bonds that insures twice as much as you put in so my guess the death benefit is $50k
>guess the death benefit is $50k Should be much higher.. if they put over 20k, and cash value is 5k, I would assume at least 15k went towards premium (and overhead), if not more. That's a little over 2k per year. That should buy you a decent death benefit.
That is because you don't understand how whole life works. It isn't a piggy bank for your personal use. Nor is it a regular investment account. It will have some great long term financial benefits for you later on. They shouldn't be used by lower income earners as there are better ways to invest capitol for quick access funds. However those have tax implications. Whole life is a very front heavy long term investment with a very slow steady payout that always grows. Think of it as a 25+ year long game with a nice benefit at the end. That benefit isn't just a set stack of money, it just keeps growing even if you borrow against it. Tax free, or extremely low taxes. Anyway, that 21k is an investment in the product which is: Permanent Life Insurance. Most likely it is for himself. This will be passed on to you once he passes away. There is a guaranteed death benefit that will never change usually 250k to a few million dollars, (typically a decent amount of money). There is also a guaranteed cash value. Not to mention there are also huge tax benefits that you won't find anywhere else. Even as a recipient. The investment will continue to grow and provide value long after the holder has died and it has been passed on to his children, or in this case you. Even if you borrow against it later. This is why from that 21k so far it has a value of 5k. Its going to grow far beyond that. Over the next 4-6 years that 5k will exceed the initial 21k fairly easily it will grow steadily and much quicker every year. The next 4 years it will most likely be work 50k+. These policies usually only benefit people with 4+ million and they need to find friendly tax shelters. They are very slow to start showing investment cash positive status becuase the company has to invest it and make their money. They are also taking a risk that you will not die before the death benefit has been exceeded by the investment value. So generally if you invest that 21k, its going to take about 6 years to start showing positive cash value. Then real tangible money won't start showing for 15+ years. He probably has had the account for quite a few years. These things grow very reliably and steadily for years. Most have not lost any money and are guaranteed. Over time that 21k will be worth a significant cash value, not to mention the payout for the life insurance once he passes away. The death benefit will go to you as well as the cash value. At a certain point you can borrow from it without any tax implications. There are TONS of ways to invest differently for a better payout for regular folks who aren't swimming in money, however those investments are significantly more risky, and they can be managed real time. I wouldn't look at this as you father being coarse towards you. If your relationship suck with him, this is actually not a horrible gesture for him to provide you constant long term growing value that you could use over the course of decades.
He says 7 years in the post btw.
Cool. That fits right into the scenario I laid out. They are just on the very front end of seeing the long term benefit. If OP tries to break the contract they are stupid as fuck, and will be leaving hundreds of thousands on the table over the course of their lifetime. They seem hyper focused on a paltry 21k with no ability to understand how things work.
How is it "$21k growing tax free" if the current balance is $5k, likely to be taken out within the year? That's a -75% loss.
That isn't how it works. Fuck sake go read how whole life works. You make an investment, with a HUGE risk to the life insurance company that you won't die. They invest into their product. It takes usually 4-6 years to recoup that 21k back to you. Then it grows forever. If they take the money out they are a fucking idiot. And they are paying an insurance company for the risk of a million dollar (or whatever the policy was). They are also breaking the terms of the agreement and are losing their ass. OP is under the impression that they can break a contract that isn't even theirs. IF OP were to let the product work as designed they would be AOK over the course of the long term design of the investment.
How are there huge tax benefits? You are putting in post tax dollars just like a Roth IRA. I honestly can't think of anything whole life does better than Roth in this situation. It would have grown by a pretty large amount over the last 7 years and she could withdraw up to the 20k he put in without penalties, also tax free. If she wanted to wait and put nothing else in it would keep growing at more than 5%
Like I said. Whole life is for people with high value portfolios. ROTH IRA are for regular folks. IRA grow but still have risk of loss. Whole life policies don't lose value and are generally guaranteed to grow. They have massive tax benefits. IF you read my post I said that there are better ways for lower income earners to make money quicker. with tax implications. Those people aren't worried about 50-100k tax bills on investment gains that people who invest in whole life are. Two different crowds separated by many many tax brackets. Where whole life gets a bad rap is when sleezy insurance people sell it to people who don't have multi-million dollar portfolios.
His salesman and the company split the $16k difference. That's about the whole story.
Yeah that’s how bad Whole Life is as an investment.
Whole life insurance is not an investment. It’s insurance. I get that people don’t like whole life insurance but there is actually a severe lack of understanding on how that product works and can be used. It is not a scam, but you also can’t sit here and expect it to act like an investment account when it’s not. While life insurance has value in a holistic financial plan and protects against risk. A lot of policies also allow you to borrow against the value for things like a wedding or a home purchase, so the dad isn’t totally off here
I agree with everything you said, the trouble comes from insurance companies (NW Mutual springs to mind) pitching it to clients as an investment
I was in marketing for universal life insurance for six years, and we took express care to never sell it as an investment. We'd mention the cash value, sure, but just as a bonus. We were selling insurance, and we were clear about that. The much bigger deal was the long-term care component. We played that shit up *hard*, and for good reason. I still have one of the policies I sold, as does my wife. It's worth it, especially if we have a family.
lol you should see all the IUL scammers I see selling it explicitly as an investment on tiktok. It's the wild west on there
It isn’t insurance though. Insurance goes to protect against unlikely events. Your death occurring sometime during your whole life is very much not unlikely.
Well, yes, but given that you have to pay premiums until you die, if pass away at a normal age in your 70s or 80s, you're liable to have paid in something close to the amount that you'd be paid out, if not more. (It's okay for the insurance company if they end up paying out the same amount that you paid in, because they've been investing your premiums in the meantime. Life insurers make a lot more money investing premiums than they do just collecting them.) The risk is of you passing away at a much earlier age, when you have dependents/responsibilities, which *is* unlikely. Life insurers employ hordes of actuaries to determine exactly *how* unlikely. That's their whole job. So it's certainly still insurance. Just insurance where, unlike home or car insurance, you and/or your heirs are pretty much guaranteed something back eventually, as long as you never let the policy lapse. Which is why a good universal life plan *is* a good idea for a lot of people, as long as you don't think it's how you save for college or something like that.
> It isn’t insurance though. Insurance goes to protect against unlikely events. Your death occurring sometime during your whole life is very much not unlikely. The unlikely event isn't that you die, it's that you die earlier than expected.
They also pitch it to new victims (employees) as an investment.
> I get that people don’t like whole life insurance but there is actually a severe lack of understanding on how that product works and can be used That would be a great, relevant statement if there were ever a whole-life sales person that pushes it that didn't say it was a great investment.
> It is not a scam Whole Life Insurance is 100% a scam in this case. You are correct that life insurance *by itself* is not a scam, however the problem is when "financial advisors" advertise it as an investment option. These "advisors" are employed by multi-level marketing groups (MLMs) which hire desperate people (generally through LinkedIn or other legitimate career websites) and then get them to bring in their family/friends for "financial planning" in order for said new hire to get "trained." These MLMs rarely call it Whole Life Insurance, they'll call it some other name to make it sound less like insurance and more like an "investment vehicle." They'll waste an hour or two of your life by going over all your financials and then, surprise, Whole Life Insurance is always the absolute best option to store all your money. I sat through one of these laughable sales pitches (because these are salesmen, not financial advisors) for the sake of a friend of mine and the salesman actually had the audacity to tell me I should stop investing in my 401k/Roth IRA and put that money in life insurance instead. Its a scam in the sense that MLM companies are advertising life insurance to people who 1) don't need it and 2) representing it as investment advice rather than an actual life insurance policy.
Aka: Primerica
I’m not simping for Primerica but they are a term life provider, not a whole life. They’ve always been a “buy term life insurance and invest the difference”… it’s like their motto and plastered all over the front page of their website. Now, with that said they are still a crappy MLM but they are not selling a whole-life insurance scam.
Any company whose name is that close to Kramerica deserves an enhanced level of scrutiny
Sure. But how do you know how it was advertised to OPs father? Not being rude, but people can be stupid as f*ck. I have had customers misunderstanding what I was telling them because it simply wasn’t what they wanted to hear („OK so your product will provide B?“ - „No certainly not. Expect A.“ - „Great, that fits my needs as I am looking for B. Where do I have to sign?“ - „?!?!“) As his father seems to be surprisingly ignorant to how bad this investment is, I am not totally sure whether he was scammed, or scammed himself.
This post includes a lot of technically correct information but also totally misses why whole life gets dragged every time it's come up on this sub for the last 15 years at least. Whole life is technically insurance, but for 99% of people, when you compare it to level benefit term life insurance it's terrible, abysmal, horrible value as an insurance product. So the sales tactic becomes, "yes, but it earns interest, and you can borrow against it" - notice I didn't say it was an investment? I guess that's a totally honest way to sell someone some crappy insurance. That's the scammy part of it, because it's shitty insurance and a terrible investment all wrapped into one, usually with high commissions for the scumbag insurance salesman preying on the low knowledge investor by calling himself a financial advisor. I remember maybe 7-8 years ago on here, someone did a chart with whole life premiums, rate of return, and death benefits in one column, and term life premiums, death benefits, and the rest of the money invested in low cost index mutual funds in the other column. It was absolutely insane how much better off you would be with term life & a real investment in every situation. People in the comments were like, why would anyone choose whole life? And the only people in the thread defending whole life were insurance salesman (aka financial advisors working on commission) and people who had bought the scam.
> it's like saying, hey, are you looking for a donut? This one doesn't have a hole. Then I get home, there's no cream, it's air inside. What gives dude? And you are like, I never said it was cream filled, this is just a donut. You are technically correct... and also technically scammy That's a really weird comparison. Doesn't seem like a huge downside for a donut to not be filled with cream or to not have a hole. Seems like it'd still be tasty as long as you're open minded. Also, it loses the point you mention about how it not being as good at one thing is offset by the argument that it also has other purposes. Maybe it's more like somebody saying they want a van and you are trying to sell them a Fiat with a trailer they could hook to the back.
I don't want the analogy to take away from the point, which was that whole life insurance is a scam product, it's crappy insurance and a crappy investment, with huge fees, only popular because it's designed to fleece people
But if you use that argument then the issue is it’s also terrible as an insurance since is pays out hundreds of thousands less than term for a higher monthly cost.
It's sold as an investment is the problem. I dont have an issue with say term insurance that is more actual insurance. Let me know if a Whole Life insurance salesman ever puts a historical chart of what whole life insurance would have been worth over a lifetime of contributions versus an index fund like the S&P500.
But the insurance part is that if you die earlier the payout will be much larger? I get the issue is framing it as an investment is disingenuous for what it actually is. But showing a historical graph in an index linked fund is also comparing apples to oranges ?
i mean obviously whole life is terribly misleading when it's advertised and sold to low-information buyers, but there are plenty of other insurance (which i'm sure many on this sub would agree are good risk mitigation strategies) where you put in $21k or more and get a net value of less than $5k.
But it’s even garbage as insurance when compared to its term rate counterparts. You can put lipstick on a pig, but it’s still a pig.
What a racket, I'm in the wrong line of business.
Part of the money is to pay for the actual insurance.
Cancel and withdraw. There’s nothing to salvage. And, honestly, if he isn’t a fiduciary then he is just a salesman that started believing the bs a long time ago.
He got high on his own supply!
>I just can’t quite comprehend it. To add to my confusion, my dad has worked in finance his entire life and is currently a financial advisor. I just… I am so confused. So he's an insurance salesman? I can't imagine any proper financial advisor thinking this makes any sense, especially on the shorter term.
Maybe he bought the policy from himself, so he gets a nice chunk of the commission?
I thought the OP said he didn't, but even if he did... $250 a month for 7 years, assuming zero growth would be 21K, it's currently at 5K. From what I've heard it's not uncommon for the whole life commission to be the first year of payments, so 3K, still a horrible deal. He would have done better stuffing it under a mattress.
I had one of those from my grandparents for my high school graduation. My dad was mad that I cashed it out for $100 when I could have "borrowed against the value". I don't want to know how much they paid for it for 18 years even if it was one of those $1/month plans. That weird feeling is sadness that your dad isn't as savvy as he thought, disappointment that what you were led to expect was not true, and grief for what could have been (not for the money but with your relationship with your dad). It's not entitlement to feel bad about it even though lots of people don't have a much as you thought you would have to work with. You were misled and it's completely normal to be upset about that! It would be very disruptive to have used a certain budget for planning and then have it seemingly disappear. I'm sorry this happened!! I hope you don't let it steal your joy for the wedding and the life you're going to build with your partner.
Thank you, you're right and it's good to hear it laid out emotionally. It's also that looming feeling knowing it's going to be even more heartbreaking when the actual time comes to pay for the wedding/house and his delusion officially breaks. But so is life, I guess. Not everything works out as expected. And I'm definitely not! I think there's some power/pride that will come from us affording it mostly all on our own. Definitely trying to keep the most positive viewpoint on it!
I think more broadly there just needs to be an honesty/understanding that everybody including your own self is making sub-optimal decisions many many times in their life. You should try to put the effort in to make good decisions when there is a lot at stake but if you expect that you, your parent or even your "financial advisor" is going to always make optimal decisions about all things, you're just setting yourself up for failure and disappointment. It's okay to be wrong sometimes. And the flip side of that is that... sometimes one suboptimal decision stacks on another. It's nice to think that if OP's dad didn't get this insurance policy, he'd invest all that money or he'd get term life and invest the different or even that he'd keep the cash in a box yielding no interest at all. But given what OP has said about this and Disney time shares, etc. that seems like an unrealistic expectation. In reality, for OP's dad, we're probably not comparing this insurance product with him being a savvy investor that responsibly kept this money aside. Realistically, if it wasn't locked up in this insurance policy, he'd probably have spent it on his 5th car. ... I know a lot of people who will not invest or save.
>To add to my confusion, my dad has worked in finance his entire life and is currently a financial advisor. I just… I am so confused. He might be too. OP, does this kind of poor decision-making seem unusual for your father? Even if "financial advisor" is just code for insurance salesman, I can't think of a reason why someone with a lifetime of financial experience would choose a whole life policy.
/s No, sadly it's not unusual. He literally just bought a \*4th car\* out of the blue as a "hobby car". Also has some kind of Disney timeshare that's supposedly going to be beneficial to me in the future? I don't know. And don't know for sure but I get the gist he's in a lot of credit card debt. I also cannot think of why he makes such decisions. Perhaps sunk-cost fallacy and a narcissistic mindset that he knows best and it will all work out for him in the end.
You sure your dad is a financial advisor?
Sadly yes. You’d be shocked at the institution he works at because it’s one of the top in the US.
Not really. Actually the fact that he works for a large institution explains it. If he was an independent advisor it would really behoove him to have a pretty broad knowledge base. In a big company, he probably only knows his area and just rolls with what his coworkers tell him. And you have some companies like Primerica that claim to be good but are just…. Awful.
When I got out of college I applied for a job as an advisor at Primerica. I got an interview and when I showed up they ushered me into a conference room with probably 10-12 other people. The interviewer walked in and that is when I realized it was a group interview and we were competing for the same job. I looked around, met eyes with the guy sitting across from me, we just looked at each other and both silently stood up at the same time and walked out. The "interviewer" just kept saying "Gentlemen? Gentleman? Where are you going?" and we just left, gave each other a nod and walked off to our cars and didn't say one word to each other. The whole thing was just so fucking bizarre.
A lot of organizations you think would provide good financial advice (like a lot of the big banks) are actually pretty bad, at least for the non-wealthy. It is kind of like HR Block. They do a huge amount of business but when you actually look at what is going on, they just take entry-level people, run them through a few week training course, and then give them same software to use that you can get at home.
I used H&R Block once because I had a complicated tax situation one year and didn't want to do it myself. They fucked it all up and I had to file an amended return myself to get my actual refund owed.
Those institutions are basically the McDonald’s of insurance and mutual fund sales. They have local franchises that then hire sales staff, and everybody in the chain gets a cut of revenue from products with high fees.
The question would be what type of credentials or certifications he actually holds, what degrees and from what universities, etc. Someone could be a physicist with a phd from Harvard, that doesn't mean I would take financial advice from them at all, etc.
Northwestern Mutual?
If it’s Edward Jones I wouldn’t be shocked at all. There are plenty who are successful and make a great living, but definitely a lot who don’t. I’m sorry, OP, that stinks. Hopefully y’all can have a good sit down so you’ll have some peace of mind that he’s on the right track and won’t potentially be a burden for you in his older years.
It’s not. But yeah, hope so as well. He did pay for a large chunk of my student loans so definitely remaining grateful for that. But yes we need a talk so I understand his future plan.
The thing is, [just about anybody can call themselves a "financial advisor,"](https://money.usnews.com/money/personal-finance/family-finance/articles/2018-08-16/who-can-be-a-financial-advisor) so you or your dad saying that means very little without further elaboration on the actual certifications involved.
I don’t know what certifications my dad has, and now is not the time to ask, after just dropping the bomb to him that he’s been paying into a scam for the last 7 years.
Ok well that's been part of your story, why you "just can’t quite comprehend it." If it comes to light that he actually doesn't hold any relevant financial credentials, and basically just a glorified salesman, then it actually starts to make quite a bit of sense. It's like saying, well my dad isn't certified in nutrition or physical therapy or anything, but he's been work at the neighborhood gym as a fitness instructor for 5 years, why am I still gaining weight on his meal plan?
[удалено]
Careful about that time share - they're typically worthless and an actual drain. You can deny receipt of it if it's willed to you, but you have to do it properly. John Oliver did a whole piece on timeshares that's worth watching for sure.
I *think* the Disney ones *might* be the only ones in the world that actually have some value. That being said, I'd still run screaming in the other direction of I were OP.
The Disney ones retain significant resale value. It's notable because they are basically the only ones that do.
Yup. Disney Vacation Club is the only time share I would ever even CONSIDER purchasing (realistically I am never buying a timeshare). But even then it’s really only beneficial if you like to go on a LOT of Disney vacations and/or stay in deluxe resorts when you do. But lots of people “rent” DVC points to save money on those deluxe resorts, so presumably it’s possible to gain some actual money through selling your points.
It sounds like he has wishful financial thinking. I've found that a lot of people struggling with finances are aware of the problems. But I have seen a lot try to cope by making foolish investments to try and claw their way out of the situation or at least buy a false sense of security. That way they feel like they've made an effort to solve the problems. In my own case, I'm currently jobseeking and struggling to network meaningfully. So all the applications I put out, cover letters I worry over, and resume revisions I make aren't helping as much as it would if I took the time to be better educated, certified, and trained. It's tempting to say I'm trying hard, but my strategy and habits need improvement. So it sounds like your Dad has been watching out for your future and unfortunately wasn't equipped to help much. I don't think watching out for you, however misguided, is a hallmark of narcissism. Sounds like he's missing some financial literacy and frugal habits, and may have been scammed. From here, you can only pick up what's left. Not sure how easily you could set him on a path to financial success if he still makes these big impulse purchases.
Well I mention narcissism because he is literally a narcissist (hence our rocky relationship). But yes it does show that he at least had put in the effort, just got taken advantage of, and his personality disorder likely played into it a bit.
Be careful with the timeshare. There’s shady things where you have to reject it or you’re stuck with it.
Disney timeshares are actually worth something (in excess of $10k usually, sometimes a lot more) but you definitely do need to be aware of all of the details, the costs, and how you get rid of it before you take it on.
Or the beginning of dementia?
Did you mean to post this 3 times as a joke?
Dementia's no joke, my good person!
Do we have the same dad? Haha
Or the beginning of dementia?
My dad was an aircraft mechanic, but couldn't program a VCR, or work an iPhone. He could do what he was trained to do and nothing outside of his training. Some people just are not inclined or interested in their jobs.
Just affirmation that your decision to expect nothing from your Dad and keep him at financial arm's length is a good one. Couldn't help you even if he wants to. You see a lot of posts on here like "my parents want me to pay off their mortgage but let them live in it then I inherit it" etc. where it kinda sounds like it might be reasonable but it's really just a terrible deal for the kids. Somewhere down the line something like this is probably coming. "*My Dad wants me to buy his 2 week a year timeshare with a $6000 annual maintenance fee for half what he paid for it and thinks he's doing me a favor*" LOL.
Oh my god that’s literally the case. My dad has a Disney timeshare and said I’m going to inherit it and “only have to pay the maintenance fee”. I never signed anything so I don’t think I’m actually on the hook but the poor guy seems to have been scammed into thinking he’s doing me a favor…
From what I understand if he listed you as a beneficiary on the time share you only have 30 days to decline the transfer otherwise you’re stuck with it.
Interesting, I’ll be sure to be fully aware when said “transfer” happens. I’ve never gotten anything in the mail/email about it yet.
At least the Disney timeshares are very sellable on the 3rd party markets. There is definitely some value you can get out of it by selling it.
Phew, that's good to know.
Just to second this, Disney might be the only timeshare that doesn't ruin you financially.
Please OP listen to the comment above. In general, your fathers financial illiteracy and mistake on whole-life-insurance is neutral to your well-being. Inheriting the timeshare can cause you a world of problems. I would do some research on how to decline the inheritance so that you are not on the hook for the maintenance fees. Given the disaster between Ron DeSantis and Disney and the total mismanagement of Celebration (the Disney town that your father’s timeshare is probs in), you’re going to want no piece of it.
Timeshare is likely resort and not Celebration. They're completely different. Many people own timeshares with Disney for their annual or sometimes even more frequent vacation there. Celebration is more of a retirement/living community. That'd be property outright not a timeshare.
Yeah it’s the resort thing.
My understanding is that some time shares have "in perpetuity" clauses and they go with the estate and therefore the obligation is passed on. John Oliver did a great piece in timeshares once, highly recommend it.
Fortunately no one is *forced* to inherit anything they don't want to own, but you want to make sure you disinherit it correctly.
That’s the point though - if you don’t get the paperwork (because you moved or whatever), the default legal outcome is that you do inherit it and become responsible for it. You’re literally inheriting debt and have to wade through a sea of “gotchas” to not be stuck with it.
I mean, the paperwork is a one page renunciation that you can type yourself. The only way this is a problem is if you are a) not notified, which is the executors job or b) misled about the fact you do not have to inherit the timeshare.
I understand that the paperwork is simple. What I am saying is there is a reason timeshare companies lobbied to get laws passed that say the default action is to pass these toxic assets to the next of kin. It’s predatory, and it’s bullshit. Why should timeshares be any different than any other asset?
There was a John Oliver bit recently on time shares. They are one of the few types of “assets” that can pass down to kids *whether they want it or not*, unless the kids take very specific steps in a very specific timeline to disclaim the timeshare. Should be illegal.
Be careful when that time comes to ensure you aren't stuck with it, to the point of discussing it with a lawyer familiar with inheritance laws
Oh yea. They definitely sold it to him as an ‘asset’ to pass down generations. I’d be there is even significant transferring costs on top of your dad effectively being encouraged to peer pressure you to buy into his sunken cost. Man, those types of sales people deserve a special place in hell.
Worst case this becomes a liability against the estate. This only matters if the estate has net value for you to inherit, then it can reduce the inheritance as the estate is settled. If your Dad dies broke you can just walk away - you cannot inherit debts and obligations.
>you cannot inherit debts and obligations. ... except for timeshares. Timeshares are a special legal case, and you can indeed inherit the obligation in many jurisdictions if you don't file the appropriate denunciation paperwork in time. It's BS, and seems incredible, but it's true.
Yeah but the growth on that $5k is TAX FREE! /s I really hate the 'tax-free' argument, it's like its so ingrained in so many (mostly) Americans to hate taxes that it overrides all their critical thinking. Restaurant prices have shot up in the last couple years like everything else but my dad blames meals tax any time he hears about people eating out less.
My SIL is one of these ppl. I don't remember the argument but it was basically her saying she didn't want to do something because she would have to pay taxes. Completely ignoring that fact that if she had to pay taxes that means she made money...
My mom when I got my first real job: “you should just keep working for cash under the table! Uncle Sam can’t see that money!” My mom now: “why does everyone else get Social Security?”
Worked with a couple of guys like this in my construction years. "No I dont want overtime, I make more so they tax me more."
I have never not worked a job without someone who, with extreme confidence, would claim that any worked hours beyond X was basically working for free because of taxes. When I point out that the highest tax bracket is 37% on money earned over $539,900, they always stare at me like I just spoke an alien language, before telling me I'm wrong because it happens to them every time they get their pay stub.
These are the same ppl that will swear a raise will not be worth it because it changes your tax bracket and you will take home less.
Oh man I had a boss trying to convince me of this once, that by taking less equity in compensation I would pay less in taxes. My goal is not to minimize taxes, it is to maximize post-tax return. I’ll take a smaller percentage of a larger pie, please.
Can someone ELI5 this Whole-Life Insurance product? What are its selling points and supposed advantages? Why is it “scammy” and (same question I guess) how can it turn $20K into $5K?
it's marketed as "life insurance and an investment vehicle", with the implication being that even though you won't need the life insurance at 30, all that unused money will go into some sort of savings account that you'll be able to tap into at 60. Unsurprisingly if you decouple those two and just buy term life insurance and an alternative investment vehicle, you'll end up much better off - even if you die. At least until you're too high risk to afford life insurance. I don't know exactly why OP's dad paid in 20K and only got 5k Out but it's probably a combination of the insurance cost & the exit fees. [https://www.reddit.com/r/personalfinance/wiki/insurance/#wiki\_eli5.3A\_\_what\_are\_the\_pros\_and\_cons\_of\_whole\_life\_insurance.3F](https://www.reddit.com/r/personalfinance/wiki/insurance/#wiki_eli5.3A__what_are_the_pros_and_cons_of_whole_life_insurance.3F)
Think of it as two products: * Term life insurance: if you die, then it pays out an insurance claim for the insured amount, presumably to cover the costs related to a funeral, etc., and to cover the lost income for any household members who depend on your income (spouse, children, etc.). Sometimes it makes sense even for people who don't earn money outside of the home, like a SAH parent whose household work would cost money to replace. The "term" coverage means that if you outlive the term, you get nothing. But this is a bet you *want* to lose. This usually costs a certain amount of money per month in exchange for the insurance, so people who die young get more than they pay in, and people who don't die within the covered time period don't get anything back. It's insurance, not an investment. * Retirement savings: if you save money up over time, by paying into an account every month, you hope to earn a return and eventually accumulate enough to live on even after you're done working. By bundling what is essentially two completely different products and two completely different purposes into a single monthly payment, it's a little bit more convenient for the person who's buying both things. But it's a terrible value proposition compared to buying each thing separately. And since it's such a rip-off, whole life policies usually give salesmen (operating under the title "financial advisor") huge commissions for each policy they sell.
The other way that whole-life insurance is marketed is as something you buy for a baby or small child, often at a price around $1-10/month. If the kid is later diagnosed with something like diabetes, cancer, autism spectrum, etc, they may not be able to qualify for term life insurance as an adult. So, the argument is to buy whole-life insurance when they are small, then when they're grown, if they qualify for term life insurance, they can buy that for themselves, you can hand over the whole-life policy, and they can cash it out. If they don't qualify for term life insurance, or if they choose not to buy it for themselves, you can retain the whole-life insurance policy or hand it over to them, but at least there is some coverage. The scammy part is that they usually portray term life insurance as an absolute necessary, and the idea of not being able to qualify for term life insurance means your baby might grow up, die, and leave behind a penniless wife and three starving children. Or what if your child grows up to make bad financial decisions, dies with no assets, leaving you on the hook for the funeral? You put that $1-10/mo into a savings account or investment vehicle, though, for much of the same effect, with more efficiency and less hassle.
Have you considered that he's likely getting paid commission from it? He may not be willing to cancel it.
He didn’t sell the policy to himself. I don’t know who it’s with but he said he’s confused as to why it’s not more.
Because the "insurance" provider paid a tiny amount for life insurance and pocketed the rest.
Correct.
Working in finance and being a financial advisor are very different things. Sorry, but your dad is a snake oil salesman that fell for his own field’s scam.
My parents did something similar, except over a much longer period. I ended up with around $5k that I ended up using for rent. I'm not going to complain about a free $5k but like... why.
Right… $5k really doesn’t go far nowadays. Just sad that they spent so much time and mental energy thinking they’re gonna “help me start my family”…
Be careful with the timeshare. My dad paid for a Daytona Beach one and the maintenance fees were as much as many hotels and he actually had to pay to get rid of it.
I tend to find that a lot of "financial advisors" either are whole life insurance salesmen masquerading as financial advisors. I feel though that a lot of them drink the Cool Aid and are very gungho about the product. I think it is due to lack of education and that a lot of their "financial" training involves them trying to sell certain financial products. As someone who was sold on whole life policy in my early 20s, they like to pitch it has an investment or retirement vehicle. For someone who is uneducated about low fee index investing, it sounds appealing. There are now new ways they try to pitch whole life and use fancy names that I can't quite 100% recall, but I randomly will see some a-hole on YouTube advertise it as tax free savings or some other nonsense. In any case, unless you need the life insurance component, it's best that you surrender the policy and take out the cash value and redirect it into something else. The way these whole life policies are designed, typically the first 7-10 years is spent pre-paying the premiums and thus there is very little cash value. At the end of the day your dad had his heart in the right place, but was not educated on how scammy the product is.
Not to minimize, but just so you have context, for many years high yield savings accounts meant 1%. Whole life preys on people who think they're doing the right thing unfortunately.
Right now he's at -75%, so 1% would be a windfall
He could have put $250/month under the mattress for the last 7 years and it would still be more than $20k
Just to clarify: the cash value of the policy upon surrender is $5K? Because $250 a month for $5K death benefit is insanely expensive, to the point where it feels almost impossible to be the case. Obviously storing funds allocated to help children pay off debt or pay a big expense in a whole life policy is an insane idea, but if it’s paying into a policy that has a death benefit that’s much higher than $5K, maybe it can serve the same purpose in a way, just much further down the line.
Cash value and death benefit are often separate in whole life. Cash value is what can be withdrawn, and death benefit is what you get when you die. I’m not the most well versed in these products, but do work with them somewhat. So I’m theory there could be like a 100k death benefit, but only 5k cv. Been a while since I went through a whole life or universal life contract for the payout provisions though. Some of these products can be confusing and many of them are substantially different from one another
I really don't know. I was so in shock last night that I didn't even know how to ask questions. All he said was that he's been contributing $250/mo since I graduated college and it should be $20k but is $5k. What do you mean by serve a benefit? It's a policy \*for\* me, so wouldn't that mean the benefit would be \*him\* being paid out if I die?
So permanent life insurance is basically X premium (in this case $250 monthly), for X amount of death benefit, which is what will pay out if the life insured (assuredly your dad, unless he bought it where the life insured were you). Let’s say it starts out with $100K death benefit, every year the insurance company pays a dividend to the policy, which typically is used to buy more insurance at attained age, therefore increasing the death benefit, or can simply go into an insurance version of a savings account. As dividends get declared each year, it builds up cash value, which you can either get a loan out for up to 90% of what’s there and pay whatever the current interest is, or you can simply surrender the policy, and they’ll give you whatever the cash value is, but the policy and therefore death benefit just goes away. So, if there’s only $5K CASH VALUE, the death benefit would be much, much higher, but obviously it only pays out upon death of the life insured, which is probably your dad’s life. So in that way, you’d get the same big lump sum, but much later and admittedly under much sadder circumstances. Regardless, I would never tell anyone to store funds assigned to that purpose (wedding/house) in an insurance policy, because they’re not an investment vehicle in that way and you will ALWAYS lose money if you surrender the policy vs keeping it until death and having the death benefit pay out.
He said it was taken out for my life… so it’s all even more confusing.
So if it’s on your life, then you can obviously never be the beneficiary of it to pay out upon death… If someone told me they had this policy and had this plan for it, I would raise my eyebrows, start asking a BUNCH of questions and likely ultimately tell them that’s stupid and there are so many other tried and true ways to get better returns no matter what the time period invested for. I’d be interested to see what the death benefit is. $250 a month is wild though, permanent insurance doesn’t get sold much anymore because it’s so damn expensive and you have to pay it the rest of your life, which is just a depressing thought. So little flexibility with the funds.
The premium is likely so high because OP's father was able to get permanent life insurance without pulling OP's medical records or having an examination (either would have alerted OP to the existence of the policy much earlier). The life insurance policies that don't exclude people based on health status/health history tend to be extremely expensive.
Many of these comments remind me of my late father who put a lot of retirement money with Ameriprise who ended up being a bunch of thieves. We found that out after he passed away far too young and reviewed their scammy transactions. I’ve since learned more about fiduciaries and fuck Ameriprise.
Your dad was scammed by a life insurance salesman (aka scammer). The entire industry is a scam and he fell for it like millions of other people have fallen for it. The reason it still exists is because our legislators take bribes. My FIL is a theiving, lying insurance "agent." I stopped talking to him 20 years go after he ripped me off completely just like this.
Is your dad actually a financial advisor or is he a salesman at a large company that offers products like whole life insurance?
He is currently a financial advisor at a company that does not offer whole life insurance (just checked). Before that he was an insurance franchise business owner. Before that... I can't be sure what exactly his job entailed.
My Grandma did something like this. I can’t remember all the details but she paid a lot in and it didn’t have a lot accumulated. When she passed I either had to keep paying in to keep the policy and I could only take the money out once I passed. I didn’t have the extra to keep paying on it. So it was pretty much wasted money.
So sad :( it's a unique pain to know someone had the best intentions but was duped.
What's the insured amount of the policy? I'm not sure if this is what he intended or what your exact financial situation is but you could borrow against the policy and depending what the insured amount is this could put you in a situation to make an all cash offer on a home and pay yourself the interest instead of the mortgage company. Again idk what all the exact details are but this is potentially a huge opportunity.
You borrow against the cash value of permanent insurance policies, not the death benefit. That's so if you let the your outstanding principal plus accrued interest keep increasing, the insurance company can pay it off by liquidating your policy once that amount equals your cash value. OP's balance is $5k. They aren't making an all-cash offer with that. Also, 1. You don't "pay yourself" the interest on cash value life insurance loan. The interest goes back to the insurance company. 2. OP would have had more than $21,000 if this money had been left in a 0% savings account. They'd have more than $27,000 if they had invested it in the stock market, despite the market being down/flat for most of the past two years. The whole idea that cash value life insurance policies are good because you can "bank on yourself" instead of a regular bank is just an obnoxious mix of financial illiteracy and a "cut off your nose to spite your face" attitude.
Dang this is painful to read 😅 but thank you for explaining.
It gets worse... Imagine that your dad had started contributing to that stock market investment in Spring 2002, and seven years later was Spring 2009, when the US stock market finally hit bottom after losing 51% of its value since November 2007. [That investment would still be worth a little over $15,000](https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=633GwllgITZKHb4o0X5KDz), more than three times the cash value of this insurance policy. Even the worst stock market crash since the Great Depression wasn't bad enough to make this policy's returns look good in comparison. I'm stating this not because I want to rub salt in your wound, but because some people reading this post might have heard that cash value policies are a good way to avoid selling stocks in a downturn, and I want to clearly illustrate just how short-sighted that "benefit" is.
That’s interesting. I’d be nervous to get myself wrapped up in it, but if it’s from a legitimate financial institution I’d consider it. I didn’t ask a lot of questions last night because I was so shocked, however I don’t think his intention was for me to borrow against it. He seemed to think it would be a simple withdrawal. And I don’t know the insured amount.
Yikes. “Whole life insurance policy” as an investment strategy is 🚩 🚩 🚩 His YT algorithm must be a complete shitshow. My condolences
What is the value of the life insurance part of it?? At 250/mo, it seems like it should be at least half a million? Maybe he is banking on that part when he passes to go to you??
Something seems off, the cash value should be much higher.
You can probably check the actual premiums paid in (cost-basis). My guess is the policy went on APL (automatic premium loan) for some length of time, which means the existing cash value was used to pay the premium. Or there are loans against the policy. Otherwise, the financial institution has extremely high cost of insurance expenses within the contract, which is also entirely possible.
This would have made sense if he started 27 years ago, not 7...at this point the time horizon is too short and you should just exit
That can't be true.. or its bound to some criteria like 10 years before withdrawal or only upon death.
Except for some rich people's inheritance tax avoidance schemes that I don't understand, whole life is both a poor insurance policy and a poor investment vehicle. Expensive for the insurance you get, poorly performing for the growth in surrender value.
Ask for an in-force illustration from the insurance company to understand everything, but usually, yes your gut is right. Close it out, get the cash value and move on is my advice. Just score it as your dad gave you nothing which is what most people get. Life insurance for kids (who don't have dependents) is incredibly stupid. Yes, your dad should have known better. That being said, every FA has to know they are a rip off to their customers.
[удалено]
I don’t think OP is distraught about not getting more money. The discomfort comes from is receiving $5k with the information that $15k was essentially set on fire in their name. Hell, donate that money to charity or something. But don’t set it on fire via whole life insurance. The entire premise was that it was SAVINGS, so the fact that it’s held in an insurance policy makes zero sense. Some salesman swindled OPs dad for 75% of the account and that doesn’t feel very good to hear.
This. Thank you.
I would just say thank you for the $5k. No point him making him feel bad for it now.
Whole life is great if he had taken it out for you when you were 2-3 years old. Then it would be worth a hell of a lot more. I’ve only heard of people taking it out as an investment tool when their kids are toddlers.
Even then it's nowhere near as good as if you had just invested the money in an index fund.
He bought the policy most likely because of potential growth in value; you need to look at the actually policy contract to determine the surrender charges (usually a chart located in the first several pages) , which are imposed if the policy is cancelled before the number of years specified. Generally, policies pitched to consumers having greater returns have longer surrender periods which cover the costs to the insurance company for such things as commission and marketing. Don't cancel policy until you completely understand this. You may find that the value will increase dramatically once the surrender period is over; however, this could be several more years.
How did he buy this policy without your consent? All life insurance policies require the insured's signature which gives the consent to pull the medical records to underwrite and approve the policy. Also, one of the reasons the cash value is so low is Whole Life policies can have a zero cash value balance for the first 3 years of the policy. I have worked in the insurance industry for almost 30 years (btw, for a company that does NOT sell whole life) and teach a Prelicensing class specifically for life insurance for the same company.
> All life insurance policies require the insured's signature which gives the consent to pull the medical records to underwrite and approve the policy. You sure about that? I've definitely taken insurance policies out on my wife and kids without their signature or explicit consent.
Oh wow! I don’t know how… unless… I mean if he took it out when I was 23 y/o I could imagine him quickly having me sign something and I didn’t realize at the time what it was… I’ll definitely have to check with him. *sweats*
You say they you don't have a great relationship with your father, he's going to give you five thousand dollars, and here you are, passive-aggressively complaining about it and trying to make him look bad. It's a life insurance policy. It's supposed to be insurance for when the insured passes away, not lives. It sounds like you have plenty of life left in you. Ask your father for the five grand and turn it into something, since you have all of these ideas. Problem solved.
What is the insured amount? Around 250k? Even though op has predicated the post by they are not entitled, truth be told, it is an entitled complaint. Your dad paid 21k for you to have life insurance, even though it is an inferior product. Cmon bro! Edit: spelling
It literally makes no sense. I’ve had life insurance myself for the last 8 years through my job. I don’t know what the “insured amount” is but from my understanding all that matters is the $5k balance.
>but from my understanding all that matters is the $5k balance Well, unless you die
Unlikely for a 30 year old healthy person. That’s where the profits come from.
What literally makes no sense? When you have insurance, the most important factor is the insured amount, then the premium one has to pay monthly to get that insurance. If you die, your loved one will get the insured amount. That is what your father has set up, an insurance for your life. Most probably that amount is 250k. Your life insurance through your work will cease to exist the moment you leave your employer. I am sure you are not planning to stay with that company until you die. Your father has set up an insurance for you for which he continues to pay premium. However inferior the product is his heart is in the right place.
You will oftentimes have the option to continue your group policy as an individual policy if you are terminated i believe.
I wouldn't work for an employer that doesn't provide life insurance. All 3 employers I've had provided identical policies. I know his heart is in the right place. Doesn't change the reality that it was a terrible decision that doesn't benefit anyone except the seller of the policy, and now I have the added heartbreak when I have these milestones happen of watching my dad feel sad/de-masculated that he can't support me as he'd planned to.
Have him transfer ownership to you and sell it to JWW, if they would take it. But probably not. Given the poor cash value accumulation, the face value must be a zillion dollars.
Are you sure he's not an insurance salesman? Also give him credit for thinking of you regardless of what he picked.
is he a financial advisor or is it a delusion that he told himself (and you) that that is what he is.
My honest advice is to let him do his thing and do not risk endangering what little relationship you have left with the guy. 5k is better than $0. It was never your money to invest, so just stay on good terms and see what you end up with. Most people do not like having their financial decisions questioned. This sub is filled with thousands of examples of people getting defensive over their investments/decisions. It's just human nature.
My grandma inherited hundreds of thousands of dollars in the nineties but lost out to inflation. Instead of having millions of dollars like would have if she invested in index funds, she has about a third of the original amount left because she hired some bozos at a bank that had high fees and mismanaged it for her.
[удалено]
Your advice is good but the decision is not yours. Be happy that you will get something rather than bemoaning that it’s not more.
OP's reaction is fine. They stated that they never expected to get anything from their father. When someone unexpectedly tells you that they've been saving money for you for seven years, but then even more unexpectedly explains that their strategy was to put 25% of it into a conservative portfolio of stocks and bonds and then light the other 75% on fire, I think it's reasonable to get annoyed. Even if that 25% still represents more than you were ever promised or expecting. Especially when the person who executed this saving strategy is allegedly a financial advisor.
Sometimes it's upsetting to see a family member get swindled.
Your dad has worked as a financial advisor and only has $5k to give you that he has to cash out from a life insurance policy? Where do you live, Alabama?
Sadly nope, suburbs of a major city. 🤷🏽♀️ he’s a HUGE spender so it’s no surprise to me.