Got suckered into universal life insurance

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BigChubbyCakes
Posts: 16
Joined: Wed Jan 30, 2019 7:07 pm

Got suckered into universal life insurance

Post by BigChubbyCakes » Wed Jan 30, 2019 7:39 pm

When I was 25, I bought into an index universal life insurance at the insistence of a relative that it was the utmost necessary thing in life :oops: . I know NOW after actually reading about investments that it was probably not the smartest thing to do. Long story short, I want out of it.. but can't convince myself to take the ~7K loss that would occur if I pull out now. Looking for advice from you smarty-pants who have been doing this much longer than I have:

Age now: 30
Face amount: 250K
Cash value: 5,341.95
Surrender value: 681.95
Monthly premium: $100
Total premiums to date: $7600

My financial situation right now: single, recent graduate, 180K AGI, currently contributing 19K to 403b with employer match 50% up to 10% of income. Considering maxing out another 19K to 457b. 50K in CD, another 80K in checking/savings. I do pay almost 2K/mo in student loans so that's my biggest expense. Hoping to buy a home in the next few years (average 600K/home in Southern CA). No kids for me, now or ever, so not trying to set up anybody for the future or anything.

I guess my question is... do I stop contributing to this universal life insurance and take a loss? Keep it in case I die unexpectedly so my family could pay back my student loans/mortgage (I also have life insurance through my employer for 2x my salary) ? Other tricks to make the best out of this situation? I wish they taught all this in school :|

Silk McCue
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Re: Got suckered into universal life insurance

Post by Silk McCue » Wed Jan 30, 2019 8:01 pm

Buy level term to meet your current/anticipated “need”. Then cash out this dog. Been there, a long time ago, done that. Don’t sweat the mistake. You don’t know what you don’t know until you do.

Cheers

yeahman
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Re: Got suckered into universal life insurance

Post by yeahman » Wed Jan 30, 2019 9:19 pm

I didn't run the numbers but I'd be surprised if it's worth keeping. If you haven't already, at the very least, reduce your payments to the bare minimum to maintain the policy. Also maybe look into converting it to another policy.

xerxes101
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Re: Got suckered into universal life insurance

Post by xerxes101 » Wed Jan 30, 2019 9:29 pm

Bump up your insurance from work to the amount of student loan + anticipated mortgage and you are good to go. Cash out this universal insurance and write off your loss as the price you had to pay to learn about how not to invest your money in the future.

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Nate79
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Re: Got suckered into universal life insurance

Post by Nate79 » Wed Jan 30, 2019 9:32 pm

I'm sorry you were scammed into this product, which is one of the more toxic products scammed on unsuspecting consumers. Best to cancel and move on. If you need term insurance get that in place first but if you are single and no dependants then you might not even have a need for life insurance (which makes it even more shameful that a salesman sold this product to you)

Jags4186
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Re: Got suckered into universal life insurance

Post by Jags4186 » Wed Jan 30, 2019 9:33 pm

Everything you’ve paid so far is sunk cost. Forget about it. If you have an insurance need go get term then drop. If not just drop it.

Darth Poppy
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Re: Got suckered into universal life insurance

Post by Darth Poppy » Wed Jan 30, 2019 10:33 pm

If you were to die, in most all cases your student loan balance would forgiven.

02nz
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Re: Got suckered into universal life insurance

Post by 02nz » Wed Jan 30, 2019 11:27 pm

1. Don't mix investments and insurance. Insurance companies have terrible investment products, with lots of complexity to hide high costs.

2. When it comes to life insurance, think about the risk you're trying to mitigate. If you die, and there are no dependents, then there's no risk to mitigate. Only those who have people depending on their incomes (or who do things that would have to be paid for if they passed away, e.g. childcare) should have life insurance.

Valuethinker
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Re: Got suckered into universal life insurance

Post by Valuethinker » Thu Jan 31, 2019 4:35 am

https://en.wikipedia.org/wiki/Sunk_cost

not a particularly good wikipedia entry but a place to start.

2 things "Sunk Cost Fallacy" & "myopic loss aversion".

https://en.wikipedia.org/wiki/Loss_aversion (article looks more digestible)

The former says that you have to just write off mistakes, it's not the money you did spend, it is the future money.

The latter says we (humans) suffer twice as much pain from realizing a loss, as we do taking pleasure from a gain. Thus, it's hard, behaviourally, to cut our losses - but it's normally the best thing.

As per advice here, new term insurance is dead cheap. Insure to your need for the next 20 years with guaranteed level term. Inflation will eat away at that buying power, but your assets will also grow over time. Or buy 2 policies of term 20 and 30 years, so that you can lapse one as your assets grow (but keep the other at a guaranteed rate) -- no bad thing.

EXCEPTION - 1. don't cancel this insurance policy until you have reached the qualifying period of insurance for the new policies (e.g. nightmare scenario of getting cancer etc. during that time period or dying in an accident that could be construed as suicide; qualifying period varies by US state, I believe) 2. if you have a preexisting, life shortening, medical condition you may not be able to get affordable term life insurance.

Employer-related insurance is nice, but also inferior protection. If you leave your job or are laid off you lose it, and by that time term life could be far more expensive, or unobtainable, due to age or health related issues.

If this is the worst financial mistake you make in your life, you will have paid a very cheap price. There's lots more horrible mistakes out there.

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Stinky
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Re: Got suckered into universal life insurance

Post by Stinky » Thu Jan 31, 2019 5:17 am

All the comments so far are excellent. Get term insurance now, but only if you have a true insurance need. Then just drop this dog.

You have a sunk cost loss. Nothing you can do about the loss except move on. Most everyone has incurred a loss of some type when they were young, so you're not unique.

Congratulations to OP for wondering if you were making a mistake by keeping the policy, and by asking the Boglehead community for their thoughts. The community's response is pretty much unanimous.
It's a GREAT day to be alive - Travis Tritt

dekecarver
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Re: Got suckered into universal life insurance

Post by dekecarver » Thu Jan 31, 2019 5:50 am

Cash it out, take the small loss, chock it up to experience and buy term if you need it. Does your employer offer life insurance?

You aren't the first to blaze this trail. Now if someone ask, you can share your experience and hopefully that helps them in their decision making.

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dogagility
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Re: Got suckered into universal life insurance

Post by dogagility » Thu Jan 31, 2019 6:18 am

Why does a single person without any dependents need life insurance? What am I missing here?
Taking "risk" since 1995.

ivk5
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Re: Got suckered into universal life insurance

Post by ivk5 » Thu Jan 31, 2019 6:39 am

dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
+1 nothing in the info provided points to a need for life insurance.

OP: don’t throw good money after bad. Cash out policy unless, as noted, there are exceptional health issues that make you now uninsurable.

Re-consider level premium term if/when one or more people in your life depend on your income.

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neurosphere
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Re: Got suckered into universal life insurance

Post by neurosphere » Thu Jan 31, 2019 7:03 am

If it makes you feel any better, my employer provides me (at their expense) a very crappy expensive universal life policy. But the cost to them counts as taxable income to me. My income TAX on this policy is more than what I could pay for a comparable policy elsewhere.

Somehow, an entire hospital system got scammed into thinking this was the right thing to do for their employees.

passiveTiger
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Re: Got suckered into universal life insurance

Post by passiveTiger » Thu Jan 31, 2019 8:01 am

dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
+1

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jakehefty17
Posts: 167
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Location: New York

Re: Got suckered into universal life insurance

Post by jakehefty17 » Thu Jan 31, 2019 8:07 am

dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
+1

Agree with cutting the loss and the previous advice, but same question came to my mind. Do you really need life insurance?
"The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence." -Charles Bukowski

NotWhoYouThink
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Re: Got suckered into universal life insurance

Post by NotWhoYouThink » Thu Jan 31, 2019 8:45 am

When I was 25, I bought into an index universal life insurance at the insistence of a relative that it was the utmost necessary thing in life :oops: .
Too bad you posted after the holidays. But you can fix this problem now by cashing out your UIL plan, and talk to your family next time you get together about what a terrible purchase this was. If your relative has talked other people into buying these plans your family has wasted a lot of money, and you can help get them back on the right path.

They might not listen, but it's worth a try.

drdrgolf
Posts: 38
Joined: Mon Aug 25, 2008 7:17 am

Re: Got suckered into universal life insurance

Post by drdrgolf » Thu Jan 31, 2019 9:12 am

Did the same thing many years ago. I suggest, as I did, cut your loss now. Think of the 7K as the cost of a PG finance course. Probably cheap by today's standard. I go back to $50/semester. Good luck

Dom
Dominic

beacher500
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Re: Got suckered into universal life insurance

Post by beacher500 » Thu Jan 31, 2019 9:15 am

Just look at the expense like auto insurance. Get rid of it and be happy you never needed it.

John Laurens
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Re: Got suckered into universal life insurance

Post by John Laurens » Thu Jan 31, 2019 9:20 am

You do not need life insurance of any kind besides the free work LI.

Regards,
John

JEC
Posts: 53
Joined: Fri May 29, 2015 2:09 pm

Re: Got suckered into universal life insurance

Post by JEC » Thu Jan 31, 2019 9:22 am

Silk McCue wrote:
Wed Jan 30, 2019 8:01 pm
Buy level term to meet your current/anticipated “need”. Then cash out this dog. Been there, a long time ago, done that. Don’t sweat the mistake. You don’t know what you don’t know until you do.

Cheers
+1

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Wiggums
Posts: 1900
Joined: Thu Jan 31, 2019 8:02 am

Re: Got suckered into universal life insurance

Post by Wiggums » Thu Jan 31, 2019 9:30 am

I agree with getting rid of the insurance. I totally understand why you would be hesitant because of the 7k already spent, but this is a case, you should be happy that it’s not more :moneybag .

Topic Author
BigChubbyCakes
Posts: 16
Joined: Wed Jan 30, 2019 7:07 pm

Re: Got suckered into universal life insurance

Post by BigChubbyCakes » Thu Jan 31, 2019 10:12 pm

Valuethinker wrote:
Thu Jan 31, 2019 4:35 am
https://en.wikipedia.org/wiki/Sunk_cost

not a particularly good wikipedia entry but a place to start.

2 things "Sunk Cost Fallacy" & "myopic loss aversion".

https://en.wikipedia.org/wiki/Loss_aversion (article looks more digestible)

The former says that you have to just write off mistakes, it's not the money you did spend, it is the future money.

The latter says we (humans) suffer twice as much pain from realizing a loss, as we do taking pleasure from a gain. Thus, it's hard, behaviourally, to cut our losses - but it's normally the best thing.

As per advice here, new term insurance is dead cheap. Insure to your need for the next 20 years with guaranteed level term. Inflation will eat away at that buying power, but your assets will also grow over time. Or buy 2 policies of term 20 and 30 years, so that you can lapse one as your assets grow (but keep the other at a guaranteed rate) -- no bad thing.

EXCEPTION - 1. don't cancel this insurance policy until you have reached the qualifying period of insurance for the new policies (e.g. nightmare scenario of getting cancer etc. during that time period or dying in an accident that could be construed as suicide; qualifying period varies by US state, I believe) 2. if you have a preexisting, life shortening, medical condition you may not be able to get affordable term life insurance.

Employer-related insurance is nice, but also inferior protection. If you leave your job or are laid off you lose it, and by that time term life could be far more expensive, or unobtainable, due to age or health related issues.

If this is the worst financial mistake you make in your life, you will have paid a very cheap price. There's lots more horrible mistakes out there.
Thanks for this! I was a psych major so this echoed everyone's sentiment in a scientific way that really worked for me.

And thanks to the boglehead community for your input! This confirmed what I suspected to be true... just cut my losses and move on. This was quite an expensive lesson lol

Topic Author
BigChubbyCakes
Posts: 16
Joined: Wed Jan 30, 2019 7:07 pm

Re: Got suckered into universal life insurance

Post by BigChubbyCakes » Thu Jan 31, 2019 10:19 pm

dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
Well.. I don't plan to be single forever :( . Marriage is in the works. I just didn't want to drop dead and have the bank come after my husband to repay my student loans (refinanced for a much lower rate, but are now private loans that do not discharge upon death) and mortgage. It'd be a neat trick if he really pisses me off one day, though :D

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dogagility
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Re: Got suckered into universal life insurance

Post by dogagility » Fri Feb 01, 2019 5:39 am

BigChubbyCakes wrote:
Thu Jan 31, 2019 10:19 pm
dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
Well.. I don't plan to be single forever :( . Marriage is in the works. I just didn't want to drop dead and have the bank come after my husband to repay my student loans (refinanced for a much lower rate, but are now private loans that do not discharge upon death) and mortgage. It'd be a neat trick if he really pisses me off one day, though :D
:happy
I'm not an expert on the law in play for this situation. However, it seems you should wait to purchase life insurance until you have a true need. Perhaps your future husband will have more financial resources than you, and in that case, you won't need to insure against your death.

It just seems to me that if you purchased insurance now, you might be paying for a product without any real utility.
Taking "risk" since 1995.

ivk5
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Re: Got suckered into universal life insurance

Post by ivk5 » Fri Feb 01, 2019 5:55 am

BigChubbyCakes wrote:
Thu Jan 31, 2019 10:19 pm
dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
Well.. I don't plan to be single forever :( . Marriage is in the works. I just didn't want to drop dead and have the bank come after my husband to repay my student loans (refinanced for a much lower rate, but are now private loans that do not discharge upon death) and mortgage. It'd be a neat trick if he really pisses me off one day, though :D
Again, think you may be overthinking this. Unless you have a serious health condition that makes you no longer insurable, re-evaluate your entire financial picture, including insurance needs, if/when you get married. There will certainly be other factors that weigh into insurance needs at that time (including overall picture of joint assets/liabilities). You may conclude at that time that you either don't need coverage at all, or that you need a policy for a larger amount and/or longer duration to cover other needs as well (especially if you are the higher earner, have mortgage, etc).

You can always get idea of price for level-premium term via term4sale.com. It's largely a commodity product esp if you have limited/no medical history. As a ballpark, for a 30yo Preferred Plus Non-Smoker, looks like 250k term (I chose that value for comparison because it's the face value of your UL policy) is on the order of $115/$125/$150 per year for 10/15/20 year policies if you are male, about $15/m less if female.

Instead of paying further UL premiums, put it into 457b or throw it at student loans instead. Getting balance down will reduce insurance need anyway :D

Valuethinker
Posts: 39036
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Re: Got suckered into universal life insurance

Post by Valuethinker » Fri Feb 01, 2019 7:28 am

BigChubbyCakes wrote:
Thu Jan 31, 2019 10:19 pm
dogagility wrote:
Thu Jan 31, 2019 6:18 am
Why does a single person without any dependents need life insurance? What am I missing here?
Well.. I don't plan to be single forever :( . Marriage is in the works. I just didn't want to drop dead and have the bank come after my husband to repay my student loans (refinanced for a much lower rate, but are now private loans that do not discharge upon death) and mortgage. It'd be a neat trick if he really pisses me off one day, though :D
Always separate out protection from investment. Insurance of any kind is for protection - losses that it is not feasible for you to self insure against (like disability, or life, or third party liability in a car accident, etc.) Investment comes from investing savings -- in broadly diversified low cost mutual funds and ETFs investing primarily in equities and bonds (if you are in any way a follower of John Bogle)

The insurance industry makes huge commissions out of confusing the two in the minds of customers and selling inappropriate products which are not good savings products. Conversely, for a middle class person with a mortgage and 2 kids, $1m of term life assurance may well not be excessive, and for a professional on high earnings, $2m or $3m. (there are "rules of thumb" like 10x current earnings, but that's no substitute for a proper assessment of actual need-- brass tacks, what will things cost your survivors, for how many years, what is likely inflation?).

My life insurance might pay out $1m, say, whereas my investment portfolio might only be $250k - that's not an uncommon ratio for someone in their 30s or 40s.

My understanding is that US student debts extinguish at death?

If you were married, would this also not apply?

If so, you don't need life insurance.

The reasons to buy life insurance are primarily:

- partner or offspring who would be disadvantaged by losing your income
- to extinguish a debt taken on (like a mortgage, but student loan?) that your survivors would be legally responsible for
- because you have a strong belief that you will have those needs in the future AND a good reason to think your insurability will deteriorate *

(I leave aside the desire to leave an estate. That's legit, but most estates are left by people over 65 and most life policies terminate before age 65 or 70 at the outside -- by that time, your savings should provide the estate, if any).

* usually this is some sort of family experience of your ancestors or siblings. However it's also quite likely that the insurer will learn of it or make the same estimation and adjust your insurance rating accordingly. If you had 3 relatives who died of cancer, but they all smoked, your odds may not be the same as a non smoker. Also most life insurance expires at age 65 or under, and the chances of a middle class person actually dying in that period are normally fairly low (as opposed to getting sick).

Conversely there's a much higher chance than most people realize of being disabled and not able to work under age 65 - most people have limited or no disability protection, which is a much greater risk for under 65 working professionals, than dying.

mptfan
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Re: Got suckered into universal life insurance

Post by mptfan » Fri Feb 01, 2019 7:36 am

BigChubbyCakes wrote:
Thu Jan 31, 2019 10:19 pm
I just didn't want to drop dead and have the bank come after my husband to repay my student loans (refinanced for a much lower rate, but are now private loans that do not discharge upon death) and mortgage.
I think you may be misinformed about whether your future husband would be obligated to pay your student loans, private or otherwise, after your death. I am assuming that he was not a cosigner and only you signed for the student loans. If that is true, then it does not matter if the loans are private, neither he or anyone else is obligated to pay them, either when you are alive or after you are dead.

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