They are go-getters, I’ll give them that. Slick-tongued and ambitious. You need to be in order to succeed in that world. But is your life insurance agent lying?
They’ll bemoan the complacency of their peers that some agents are comfortable collecting on home and auto policies. “The real money is in life,” they’ll say. And it’s true… The real money for insurance agents IS in selling permanent life insurance policies. That’s why they’ll manipulate the truth until it feels like you’re in a warped reality in order to sell it.
Fortunately for my readers, I’ve seen a number of shitty policies presented to my clients, friends and family over the years. After reading this post, you’ll be well equipped to see right through the gap in that crooked insurance salesman’s teeth. The best advise I can give you; however, is a cold turkey approach: Avoid at all costs the misfortune of sitting in a room with these slimy creatures.
Yes, this is real and I was fortunately able to speak with the agent who tried to shovel this shit on my friend. I’ll briefly explain what all this means so if you understand (or think you understand), you may feel free to skip to the list below.
This is what you’re paying into the policy every year. The monthly premium in this policy is $1,500. The policy projects it will be paid over 28 years resulting in $504,000 of total premium payments.
Cash Value Distributions is the “retirement plan” aspect of this presentation. The section should actually just have a big picture of Adam Sandler lighting shit on fire in ‘Billy Madison.’ Not only is this policy dog shit, and thus metaphoric, but you are also essentially lighting money on fire. What’s really happening is you’re paying 70%-100% of your policy premium to your insurance agent for at least the first year. That’s how they get paid and that’s why they’re pushing this garbage. No wonder you have no cash value after a year of paying into the policy!!!!
“Don’t worry!” your insurance salesman will say if you question it. You need to “trust the plan.” We’ll cover this blatant manipulation shortly…
This is a pre-tax version of the “Cash Value Distributions” section and should really just show Philip Seymour Hoffman sharting in ‘Along Came Polly.’ The discomfort Hoffman’s character, Sandy Lyle, feels in this scene pales in comparison to the discomfort you will feel 1-2 years after taking out this policy… And, as previously mentioned… this shit reference is entirely appropriate.
This is what your beneficiary will get when you die assuming the policy is in force. You know how they say you shit your pants when you die? Mostly that’s from your bowels releasing excrement, but it’s also because the life insurance policy you spent a fortune on might not pay out. It might not be in force, you ask??? There’s a good chance it won’t be… But we’ll get there later.
Let’s start with one simple fact: A financial plan is a comprehensive plan that may or MAY NOT include life insurance. Life insurance is simply a tool that can be beneficial if used appropriately. Unfortunately, it is an absurdly abused product by professionals because of the high payouts offered to agents who sell them.
Financial plans include an element of cash flow planning, investment planning, tax planning, retirement planning, estate planning, insurance planning and sometimes education planning. If you notice, insurance is just 1/6th (and sometimes 1/7th) of the list.
These plans are also best done by a CFP® Practitioner. Some slimy insurance agents have actually managed to achieve the professional designation, but that doesn’t mean they’re trustworthy… If anything, they’re worse… It means they learned the correct path and now manipulate unsuspecting victims by choice. At least agents without the marks can claim ignorance.
Look at all that juicy cash value!!! Look at how much you’ll be able to pull out!!! And up to $504,000 of it is TAX FREE!!!
Well no shit!! Money that you pay into something after tax SHOULD BE tax free when you withdraw. It’s the same with any fucking retirement plan.. Roth IRA’s even allow you to withdraw up to your contribution level without taxes or penalty.
The next time your insurance salesmen tries to emphasize cash value and tax free distributions ask him to run a side-by-side comparison of the insurance policy cash value vs. depositing the same monthly figure into a Roth IRA and/or 401(k).
Tell him to use exactly the same growth assumptions for both projections. Dollars to donuts he’s too stupid to run that comparison… But if he could, your IRA/401(k) would crush the insurance cash value projection every time. That’s because you’re paying SOOOO much in fees into your policy..
Speaking of which, while your salesman is running the aforementioned comparison, have him list out EVERY fee you’re paying as part of your insurance policy.
My advice is this: Don’t look at the large cash value amount and feel comfort in it being an adequate amount to retire on… Look at it and ask your agent how reasonable their growth assumptions are and how much they are skimming off the top.
H-O-L-Y S-H-I-T. Did he really just tell me to trust the plan? There’s a lot on the graphic below so I want you to focus only on the circled numbers. This is the same policy as we referenced above.
The first circled number is $90,000 if we start from the left. This is the total amount of money you paid into the policy after five years.
The second circled number, $48,967, is your cash value after five years assuming it grows at 4.25% each year, a reasonable assumption.
The final circled number, $50,987, is your cash value after five years assuming it grows at 7.28% each year, also not a crazy assumption.
What IS crazy is the fact that you would have invested $90,000 into a “retirement plan” with positive growth in the market and only a little over half of that amount to show for it.
So when your agent looks you in the eye and tells you to “trust the plan” after you ask him about this, please spit in his face.
If he tries to justify it with the death benefit, ask him to quote 10-20 year term insurance with a similar death benefit. I’ll bet my car it will cost significantly less for a full 10-20 year term than your cost on a permanent policy for the first five years.
After 10-20 years will you REALLY have something that requires that much life insurance? Is it really worth paying THAT MUCH for a permanent policy? The answer is typically NO.
I chuckle at this one. When I first moved to Manhattan I went apartment hunting with a number of real estate brokers. They described the apartments they were showing in a superbly positive light, even if there was very little to be positive about.
I had one agent who was exceptional at finding the best in clearly average or below average living conditions. I remember watching her lay on her back with her head against a window in the corner of an apartment. “You can see the top of the Empire State Building if you lay like this!” she said.
I feel the same way about lie number 4… Not angry.. Delightfully shocked by the silliness of the point…
The challenging thing about “forced savings” is the lack of flexibility. This is a detriment NOT a benefit!!! People pay for optionality in the financial world, not revel in its absence!
If a significant event makes that payment more difficult to make… You’re fucked! Insurance is supposed to insure against significant events, not make them more challenging to navigate!
Not to mention, you’re not really saving because your cost of insurance is so incredibly high as we already covered.
Needless to say, this argument is flawed in many ways.
This is the most vicious lie there is. If you’re after a death benefit, you’d better have little intention of pulling money out of this policy to live on. The truth is, most policies are not structured to withstand cash value withdrawals over an extended period of time.
Your withdrawals, along with policy maintenance fees will eventually become too great a hole to dig out of. You will need to resume policy premium payments, often even MORE than your previous monthly contribution!
The alternative? Your policy will lapse. You will have lost your death benefit after paying 10’s of thousands of dollars in insurance costs with nothing to show for it.
1) Consult an independent fee-only financial advisor. Avoid any financial services professional mentioned in this list.
2) Make sure your advisor is a CFP® Certificant.
3) Get term life insurance (more often than not).
4) Utilize retirement vehicles specifically created for tax efficiencies.
5) NEVER TRUST AN INSURANCE SALESMEN YOU DO NOT KNOW!
So much has been written about best practices in financial services. The unfortunate thing about…