How are my whole life policies THIS bad?

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mbasherp
Posts: 67
Joined: Mon Jun 26, 2017 8:48 am

How are my whole life policies THIS bad?

Post by mbasherp » Tue Mar 13, 2018 12:14 pm

In the course of righting the life insurance ship, I've reviewed the whole life policies that were purchased for me years ago by my parents. I'm now covered by adequate level term life coverage into my 50's, with conversion options available at that time if I need.

In reviewing my two whole life policies, I expected them to be bad and to have no second thoughts about canceling them. I've asked for in force illustrations but surprisingly they seem to have trouble getting that together. At this point, I'm trying to understand just how these numbers shake out:

Policy #1: $10k whole life paid up at 100, annual premium 89.60
34 years of premium paid in ($3046.40), cash value =$1,866.60

Policy #2: $25k whole life paid up at 100, annual premium 279.75
10 years of premium paid in ($2797.50), cash value =$1215.80

I've been reading a lot about this topic, and I see the examples that others list with their own policies. Somehow, my policy #1 after 34 years seems to be the worst performing whole life policy I can find anywhere. Policy #2 seems like it's (barely) a better performer. I know the prevailing wisdom around here, but does anyone have an idea of how the numbers can be THIS bad?

When I got term coverage (with a different provider than these listed), the agent cautioned me against getting rid of all my existing whole life coverage, insisting that it was a bad idea and saying she doesn't stand to make money off me keeping them, but that it would be inadvisable. I just don't understand how this is the case. If there was even a small reason to keep one of these, I would consider it.

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djpeteski
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Re: How are my whole life policies THIS bad?

Post by djpeteski » Tue Mar 13, 2018 12:26 pm

Well for one there are typically to components to the charges of life insurance. They are policy administration, and the cost of insurance (typically expressed in costs per thousand). Where these two policies lose is the policy administration fee. They probably charge $48 per year or so per policy no matter the size. This makes up a large chuck of the premiums paid, for small policies. It is almost like a fixed rate front end load.

At least a lot was not invested in these things, and you are no longer subjecting yourself to the horrible returns. Good work there. Good work on having your replacement insurance in place first.

123
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Joined: Fri Oct 12, 2012 3:55 pm

Re: How are my whole life policies THIS bad?

Post by 123 » Tue Mar 13, 2018 12:41 pm

While I'm not a fan of whole life policies I have to add that the cash values of those policies look particularly dismal.

Two things to think about. One is that sometimes the "cash value" of the policy is sometimes quoted in the policy at a certain amount "per $1,000" of (or sometimes another value) face value. If that's the case perhaps your current cash values is higher than you initially believed.

Another issue is the use of policy dividends, if you policy provides them. In some cases there are "policy dividends" declared by a life insurance company based on their experience with a particular line or group of policies. Often the policy provides that any policy dividends be used to purchase additional "paid up additions" of life insurance. These are like small additional policies that are automatically added onto the base policy. The consequence of "paid up additions", if your policy provides them, is that the amount of insurance that is paid off upon your passing will be greater than the face value of the policy, sometimes significantly. I don't know of any benefit these "paid up additions" provide directly to you, they just let the insurance company automatically sell more insurance, but your beneficiary may be more grateful for them.

Just a couple of things to think about, there are what seems to be a lot of "smoke and mirrors" surrounding whole life insurance.
The closest helping hand is at the end of your own arm.

3funder
Posts: 574
Joined: Sun Oct 15, 2017 9:35 pm

Re: How are my whole life policies THIS bad?

Post by 3funder » Tue Mar 13, 2018 6:31 pm

Whole life insurance sucks. The cash value element is stupid because the return on your money going forward is not likely to be beyond 3% per year. Just invest your money (the difference between paying for whole vs. term premiums) in index funds.

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White Coat Investor
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Re: How are my whole life policies THIS bad?

Post by White Coat Investor » Wed Mar 14, 2018 2:07 pm

mbasherp wrote:
Tue Mar 13, 2018 12:14 pm
In the course of righting the life insurance ship, I've reviewed the whole life policies that were purchased for me years ago by my parents. I'm now covered by adequate level term life coverage into my 50's, with conversion options available at that time if I need.

In reviewing my two whole life policies, I expected them to be bad and to have no second thoughts about canceling them. I've asked for in force illustrations but surprisingly they seem to have trouble getting that together. At this point, I'm trying to understand just how these numbers shake out:

Policy #1: $10k whole life paid up at 100, annual premium 89.60
34 years of premium paid in ($3046.40), cash value =$1,866.60

Policy #2: $25k whole life paid up at 100, annual premium 279.75
10 years of premium paid in ($2797.50), cash value =$1215.80

I've been reading a lot about this topic, and I see the examples that others list with their own policies. Somehow, my policy #1 after 34 years seems to be the worst performing whole life policy I can find anywhere. Policy #2 seems like it's (barely) a better performer. I know the prevailing wisdom around here, but does anyone have an idea of how the numbers can be THIS bad?

When I got term coverage (with a different provider than these listed), the agent cautioned me against getting rid of all my existing whole life coverage, insisting that it was a bad idea and saying she doesn't stand to make money off me keeping them, but that it would be inadvisable. I just don't understand how this is the case. If there was even a small reason to keep one of these, I would consider it.
I keep a list of other "bad" policies on a forum thread. Yours is bad, but it might not be the worst. I plan to add yours to the list!

A few reasons why yours is bad:

# 1 It's small so the policy fees eat up an inordinate amount of the return
# 2 It wasn't bought as an investment, it was sold to the typical purchaser.
# 3 It's a paid up at 100 policy rather than a 7 pay or 10 pay.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

mbasherp
Posts: 67
Joined: Mon Jun 26, 2017 8:48 am

Re: How are my whole life policies THIS bad?

Post by mbasherp » Wed Mar 14, 2018 3:56 pm

White Coat Investor wrote:
Wed Mar 14, 2018 2:07 pm

I keep a list of other "bad" policies on a forum thread. Yours is bad, but it might not be the worst. I plan to add yours to the list!
I'm honored! :sharebeer

Honestly, your posts on this topic (here and on your site) were invaluable as I began to wrap my head around the convoluted world of "insurance." Thank you!

Glockenspiel
Posts: 368
Joined: Thu Feb 08, 2018 1:20 pm

Re: How are my whole life policies THIS bad?

Post by Glockenspiel » Wed Mar 14, 2018 4:05 pm

I would cancel them and cash out. I also had a small $10k whole life policy that my parents purchased for me when I was a baby. They turned it over to me to pay the premiums instead and I looked at the cost, the benefit, and decided to just cash it out because it didn't make any sense how it could cost so much for such a small benefit.

inbox788
Posts: 5153
Joined: Thu Mar 15, 2012 5:24 pm

Re: How are my whole life policies THIS bad?

Post by inbox788 » Thu Mar 15, 2018 2:40 am

Awful! You're paying twice as much and getting half of what I'm getting. I have a 100k similar to your 34 year with $500/year premiums and about 20k+ in cash value, and I thought it was bad. I figured I was getting about 1-2% return, so for the time being, I'm keeping it, and it's a constant reminder of not to repeat the stupid move in the future.

Get the inforce illustration to confirm, but cash it out is most likely the best course.

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