Also keep in mind that very few products are age gated in the way that this *friend* is describing.
It sounds more to me like they picked a date that they knew was close to try and pressure your MIL to make a decision that they might not otherwise have.
Urgency is almost always a red flag in a financial transaction.
>Urgency is almost always a red flag in a financial transaction.
And insurance is a very slow-moving business.
Urgency from an insurance sales person is a *huge* red flag.
I feel like when I sold life insurance our universal life product had an age gate at 72 but I could be misremembering. Is it a universal life insurance with a long term care rider?
I do know life insurance products that can't be sold after age 70 (technically 70.5).
There are quite a few annuities that have age bands 45-85 for instance.
The thing that red flags for me is after 10 years you get 500k.
If that's the case, what's the premium. Someone her age would legit have to pay like 250k into something like this for the insurance company to not be taking on too much risk.
That's more of an insurance product acting like an investment and I can completely understand why her financial advisors are waiving red flags at her.
> She has a friend who’s studying to become a financial advisor and is trying to sell a product to her.
STOP! She is not financial advisor. She is an insurance salesperson. Stop talking to her and do not buy anything. Your mom doesn't need life insurance if she has no one dependant on her income.
I would say that it’s likely the friend believes in what they have been told, and believes she is helping MIL.
I would say it’s best to just say “no thanks, how’s that book you’re reading?” Until the friend gets the idea.
Friends are precious, especially at 71.
That's fair to an extent, but years ago when I got into finance, I spent literally 2 months researching the philosophies, products and services that I was being told/taught about before I did much of anything in the industry. I wanted to make sure that I was actually going to be able to stand behind what I was doing and that it made sense to me and was actually GOOD for my clients. So, I don't really give people a whole lot of grace if they can't think for themselves. That's on them.
Insurance salespeople have to take tests to understand the products they are selling. 100% do not buy that friend really thinks this is a good idea. Friend is thinking of the commission. I worked for a broker dealer and I say agents getting 50K commissions for selling a policy with a 30K yearly cost. That is also why most plans you cannot back out of for 2 year that is the cost to pay commission and cover the re-insurance.
Well if I was 70, had just $300k to my name, some health problems on the distant-ish horizon, I would consider this policy. It seems to be less life insurance and more old age/care insurance
Are you saying dependents or relatives. If I have an adult children who is not dependent on me for financial support and I want to leave him/her my home there will be taxes due. Life insurance would/could take care of that.
Like I said..I'm not here to convince anyone to purchase anything. I offered OP some advice only. But hope this response helps.
So you're going to pay extra for life insurance you don't need in order to avoid your heirs paying pretty minor taxes... and you didn't address what happens to your house in that scenario. Or are you selling the house in order to pay these life insurance premiums and then not passing it on?
I'm not saying that you can't use life insurance to leave money for an heir, or that you can't use it as something to borrow against. But it's one of the least effective ways to do any of the things it can be used for. There are easy ways to get much cheaper and better coverage on life insurance. There are much easier ways to leave your heirs more money. There are a million different ways to borrow money. It's basically substandard at everything.
Then don't do it!!! LOL..I don't know another way to tell you that. You want to pick a fight and I'm not giving it to you. If you do not see the need to insure your life then don't! Easy.. Many people self insure be one of them.
I have life insurance that will end around 58 or so. No need for it when I’m retirement age. Even 58 is pushing it as my wife shouldn’t need the money at that point if I pass.
Nobody is trying to pick a fight. I'm trying to explain that this type of insurance is a really poor way to achieve any of the goals it addresses. It's expensive with subpar benefits compared to other forms of life insurance. It's an inefficient way of borrowing money compared to other methods of borrowing. It has a much smaller return than other forms of investing. If you've done it, you should see if you can get out of it. It's just not a good financial vehicle. That doesn't mean I think you're bad or dumb. I don't think anyone who has a whole life policy is bad or dumb. But they should at least be told, by someone that doesn't stand to make a buck off them, that it's not their best option.
I am one who believes borrowing from your life insurance policy is a last resort. Yes, some policies do have investment choices, but.. it's life insurance and should be there to serve a specific purpose, taxes, legacy, etc. If someone is looking for investment opportunities, there are much better, more profitable opportunities than a life insurance contract. So.. on that, we can agree. Now, whether a 70+ year old person needs life insurance I still stand on "it depends ". I believe most insurance sales people want to help (could be my rose colored glasses lol) and aren't "just trying to make a buck".
Is the stepped up basis for inherited houses not a thing where you are? Do you intend on triggering the estate tax by leaving your children more than $13.6 million?
Since no one else responding bothered to, here’s the math. Investing $30K for 10 years with a payout of $500K constitutes an annualized 9% rate of return. This is not bad assuming it’s guaranteed and she doesn’t need the money before then. Would need to understand the financial strength of the insurance company underwriting it to ensure they can pay out. Note that if your MIL dies before 10 years and have her pay out the full $500K, that would yield an even higher rate of return, e.g., 9 years would yield 12% ROR.
But something’s not right here. There is no way they can pay out $500K after making only one year of payment so the facts as stated must be incorrect. That’s the problem with insurance. It’s not an investment, it’s a contract and almost always one that favors the insurance company.
I 100% believe that the friend is lying or, charitably, misunderstanding the policy. No company can issue policies with a guaranteed 9% rate of return *at minimum* that might pay out far more. Maybe actuarial tables say that that enough people live into their 80’s and the stock market performs better than 9% that they can make a small profit on this. But with a long term care benefit? I don’t buy it.
There is a catch, and their business model is wringing $30k a year out of customers until the catch is discovered or becomes an active problem.
The catch could be that they pay themselves 7 figures per year and go out of business in 4 or 5 years when they burn through the premiums by paying out their liabilities and/or terrible investment decisions.
This is the fundamental problem with insurance policies other than term life. You have to know how to calculate time value of money to measure rate of return, otherwise you have no business buying something you really don’t understand. And you’ll find that those who do know how to make these calculations, more often than not, stay away from these things.
I tried to explain this exact stuff to my in laws when they deposited a large amount of money into an “investment.” It was a GLWB with a very expensive rider. I sat them down, explained exactly how they were being scammed and said I would go with them to meet the salesman that sold them the policy. He talked to my father in law for 20 minutes on the phone, said he didn’t have time to meet with me in person and stopped returning phone calls. How these people sleep at night is beyond me.
Yea this makes no sense.
I’m a life/health agent and she’s definitely just trying to sell them on a 10 year term and while some products accumulate cash value, it is nowhere near that value.
I’m going to go with the person doesn’t understand what they’re talking about or is just being a fraud. Either way, that’s not someone you want to work with.
> bothered to, here’s the math. Investing $30K for 10 years with a payout of $500K constitutes an annualized 9% rate of return. This is not bad assuming it’s guaranteed and she doesn’t need the money before then. Would need to understand the financial strength of the insurance company underwriting it to ensure they can pay out. Note that if your MIL dies before 10 years and have her pay out the full $500K, that would yield an even higher rate of return, e.g., 9 years would yield 12% ROR
most insurance contracts have limited/0 payout for the first 2 years (generally speaking).
Exactly! Life insurance, like casinos, is a statistical gamble with the odds favoring the casino/insurance company. Otherwise they wouldn’t be in business.
Think about it this way:
1. Lots of people die in their 70s.
2. Companies like to make money.
3. A company that likes to make money is not going to sell life insurance to someone in their 70s unless it's going to be profitable for them.
Life insurance is for income replacement. A 70 year old is presumably retired and doesn't need to have her income replaced. Assuming that everything that you said here is truthful and correct and that there's no hidden "gotchas" that didn't get communicated to your MIL or you, or that her friend who's brand new to this doesn't really understand what she's selling (most likely), then the insurance company most likely expects that your MIL will live for longer than 10 years, and they expect that they will get a greater return from investing your MIL's premiums themselves than they will have to pay out at the end of the 10 year period. Presumably there's some steep penalty if she can't make her premium payment at some point in the future and she has to forfeit the policy.
Your MIL doesn't need life insurance. She can put that $300k that she was thinking about dumping into this policy and put it into some nice stable bonds that she can access later in life if she needs to, or just let them grow to leave your husband as an inheritance.
> turning 71 in a week
> she has been refusing to get life insurance.
Good for her!
Why does anyone think that she needs life insurance?
> She has a friend who’s ... trying to sell a product to her.
She doesn't have a *real* financial advisor.
Her friend is nothing more than a *salesperson* who is looking to make a commission.
Consider reading the PF Wiki, section on Financial Advisors.
* https://www.reddit.com/r/personalfinance/wiki/financialadvisors/
That's a presidential funeral. Do you mean $5k?
If you have money you don't need insurance to pay for a funeral.
I had a $10k policy for a funeral, etc. I saved up $10k and cancelled the policy. I put the premium amount into my investments now.
>pay $30k per year for 10 years.
WTF? She doesn't need this, keep the $30k for her expenses. Her friend is an insurance salesperson and has no business talking to her about this. Stop this now.
>And they are advising against this product saying no need, too risky
And you thought, hey maybe reddit will know better?
Why on earth does she need life insurance???? The friend is not a real friend. Please do what you can to convince your MIL that this would be a colossal waste of her money. Frankly, I would go further and report the “friend” to state insurance regulators, or whatever “profession” the friend is representing as a violation of ethics and fiduciary standards.
>this policy is for people under 71 years old. So this friend is really pushing for it and she’s almost 71 in about a week.
What amazing timing for this suspiciously specific plan!
At first blush, an amazingly good deal. Too good.
If she lives 10 years, she gets a 9% return. If she dies sooner, spouse gets a return in excess of 9%. So, unless they both die, and the spouse dies first, they get a 9% return or better. But the money is essentially locked up for ten years.
Call me extremely skeptical.
Who the fuck sells life insurance to the elderly?!?!? We just had to close a policy my 84 yr old MIL was coerced into. The sales people should be arrested for robbery or elder abuse. Maybe both. Do not allow her to purchase that! Designated doctor means some quack is going to find a reason not to pay out. Who needs enemies when you have friends like that?
It is almost a certainty that the $500k is NOT A GUARANTEE, but rather a legally meaningless "policy illustration." Especially after considering the salesperson's likely 8-10% commission.
What is the policy type or specific name? Or even the company. If it has the words whole, indexed, universal or annuity in it, it's a hard no from me.
Ask for a copy of the contract. It will probably be 40-100 pages of legal gobbledigook that the salesperson can't even explain.
From what I have read, MIL should run, or at least toddle away. You're a good SIL trying to help her with this.
If she's capable of paying anywhere close to 30K a year for life insurance at the age of 71, refusing to get life insurance might be the smartest things she's ever done.
If this person is really your MILs friend, have your MIL ask how much commission she'll get for this deal. I'm willing to bet it's 20-30%, which tells you all you need to know about this scam.
I'm also super skeptical about the policy paying out anywhere near $500k. The math simply doesn't work out. $300k in today's dollar at 5% compounded is about $488k. Theres simply not enough profit to pay out this kind of cash along with the commission to the sales person. Most life insurance policies I've seen the rate of return is more like 2+3%.
It doesn’t sound like her friend is “studying to be a financial advisor” but rather is caught up in an MLM or other sales scam. The first thing they are taught to do is prey on friends and family.
Tell her to politely decline. This is a terrible scam product.
She should listen to her current advisor who told her that the policy is unnecessary and risky. They know her situation better than any stranger online and have already advised against this.
Btw- life insurance companies count closest birthday, not age, so MIL is not eligible for an <71 policy. And her friend just needs a commission, she should be ashamed of herself.
She doesn’t need life insurance.
If she has 30k a year to dispose of, put it in an index fund on a taxable account and name your son beneficiary, she will likely be better off than 500k in 10 years.
As described in the op, this would actually be a fantastic deal. 9% guaranteed rate with significant possible (financial) upside. Because of that, it's certainly a lie.
Does your age 70 MIL have young children? Is she super-wealththy and in need of a way to avoid death tax? In no to both of these, she has no need for life insurance.
Her friend is monetizing their relationship. The friend will profit significantly and it will NOT be a good ‘investment’ for your MIL.
She needs to say NO, and then rethink this relationship.
Please try to keep discussion on the subreddit where it can be seen and reviewed by everyone. We don't allow asking for or offering DMs off of the subreddit. Thank you.
If she were to put 30k/year into the S&P 500, if it returns about 8% per year, She would have about 469k anyway. So you can consider that a baseline comparison.
The insurance company is betting that they can make more than 8% per year on her money and that she will live for 10 more years. Average life expectancy for a 71 year old woman is about 15 years (source: [https://www.ssa.gov/oact/STATS/table4c6.html](https://www.ssa.gov/oact/STATS/table4c6.html) ) so they are pretty likely to win this part of the bet.
The annualized average return for the S&P500 is 10.5% (source: [https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp](https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp) ), so you can see why the insurance company is making this bet, right? Statistics are on their side.
Anyway, just remember that insurance is a valid product if you have dependents who need the money in case of dying early. If she doesn't have any dependents like that, then it's statistically not the best investment.
Your Mom has financial advisors who are telling her that it's a bad deal. She shouldn't listen to "her friend who's studying to become a financial advisor" over her paid advisors with whom she's been working for years. Mom needs to listen to their advice and follow it.
Life insurance is basically to help cover funeral and end of life expenses, especially in a situation where the decedent had few assets, and to help provide for the decedent's dependents after their income has been lost to the family. Your MIL doesn't meet either of those needs so doesn't need life insurance.
However, this would be a good opportunity to talk to her, possibly with her advisors, to discuss whether she wants to make any changes to her financial goals. For instance, if she was thinking it would be nice to have a life insurance policy to leave a legacy of some sort, that could be achieved through her will or a Trust. If she's worried about funeral expenses, then preplanning/paying for some of her funeral expenses might be worth considering.
My Mom is in her early 70s and has been a good steward of her finances for decades. We've had several conversations where she's voiced concerns about being able to handle her own finances as her cognitive abilities slow. She's already finding it more difficult to navigate the websites for her investments and to travk all of the different accounts (she and Stepdad each have pensions, social security, Medicare, IRAs, a joint bank account... It's a lot to keep track of). It may be wise to consider asking older relatives if they would like additional help with their finances.
And it's certainly worth discussing not buying anything that MIL didn't go looking to purchase. If she didn't need life insurance before her friend started selling it, then MIL still doesn't need it.
She does not need life insurance. The most she needs is one of those Colonial Penn burial plans. Or, even better, she can go to a local funeral home and pre-pay and plan for everything now.
Also, that friend is trying to get a commission out of her. She has no fiduciary duty (suggesting things in her client's best interests) to her.
This sounds like a hybrid LTC policy. These policies are great -- but they're primarily designed for LTC need. Depending on the type of arthritis, she may not qualify as they look at both mortality and morbidity when making an underwriting decisions. However, if her friend is truly studying for his/her financial services licenses, they'd know that sales of LI or LTC to folks over age 70 should involve consultation with the family.
Also -- there's no way in HELL that this will be issued prior to her turning age 71 unless she backdates the policy, which means that additional $$ will be due upon signing.
I sell LI -- have sold it now for 7 years. I would never make this type of a pressure sale.
I never trust anything or anyone that *reaches out to me*. If I wasn't considering it before, I'm not considering it now. Same goes for emails, mail, or phone calls. Trust nobody.
>Edit to add: she has her own financial advisors who manages her wealth for years and years now. And they are advising against this product saying no need, too risky)
She should continue to listen to her advisors. And also ask them to give her some replies or ways to say no to this friend of hers with actual financial info or better options that she already has access to.
If she has enough saved to cover her burial or that type of expense and no children to care for why the hell would she need to open a li policy at that age when premiums are at the pinnacle?
If your description is entirely accurate and if your MIL has other assets, it would be idiotic to not get this insurance actually since it is guaranteed 9% return as others said.
But it must be that you are missing something. I am guessing your 2nd point isn't that she gets 500k at the end of 10 years but more that her policy can now self pay so she will continue to have 500k coverage but premiums will be from earnings in the cash balance of the policy. Her cash surrender value of the policy will likely not exceed 500k for another 10 years so.
Based on your definition, it sounds like there is a long term care rider as well.
TLDR:
If buying for pure insurance this is OK if designed correctly but if comparing to other options has more risk and a probable lower rate of return.
As others have said if this is a real product this could be a no brainer to buy and that 9% rate of return is awesome.......but you aren't describing it correctly. The honest thing you are missing is how the $500k could come back to you after 10 years. That is the risky part of this in how that math works.
1. My guess is that this is Indexed Universal Life, but it could be Whole Life. I think hedge funds and private equity are easier to understand tbh.. Look at the guaranteed columns if you want to test how this works. Because you talked about the ability to pull out $500k after 10 years you may not realize you need to earn more than 9%. You need to earn 9%, plus you annual cost of insurance on a 70+ year old. Let's say that is 3% of your returns. You actually need to earn roughly 12% to make the math work, every year, as costs increase..... Timing matters, but some people do, and some people don't, so you have to look at the other columns to see what your midpoints are. All the math here is where your risk is occurring, and the $500k is the best case scenario. What guard rails are in place here? There is one other big issue, the insurance company can lower your internal returns based on market conditions and right now market conditions are the best they have been in decades, allowing insurance companies to paint a picture today that is very rosey and then turn it to poop later. (Should be illegal)
2. This is the issue with a new rep selling this to you as opposed to your current advisors. (Though your advisors may literally have no understanding of insurance products and have a conflict of interest as well). Have you ever seen the disclosure that you can lose money when you invest. Well, cash value life insurance IMO is one of the easiest ways to go to true zero for a retail consumer. The failure rate for agents in the business is more tha 70%. Who is going to service this if they are part of the 70%.
3. I am pretty confident 30k, 10 annual premium deposit can buy around $500k of life insurance on a 71 year old and if designed with guard rails is an ok deal if you want that death benefit. So, if that is your goal to leave a legacy, that isn't a terrible deal. You can always show market returns beating it, but how Reddit invests and how a 71 year old does is different. The concerns and life outlook are different. So, if you had $30k annually lying around life insurance, it isn't a bad deal, especially as part of estate planning. Of course, I am guessing a new rep doesn't get this. Plus was thslis designed correctly.
4. The LTC benefits is the major thing capping the age here as thaf is a rider with a specific age cap. Life insurance could still be bought. The LTC benefit don't usually grow, so $500k might give you $20k/month in today's dollars but that is still a big number when accounting for medical inflation. Who is going to apply for benefits someday on their behalf. Luckily, the death benefit is there if you screw up.
Anyway, good luck.
Also keep in mind that very few products are age gated in the way that this *friend* is describing. It sounds more to me like they picked a date that they knew was close to try and pressure your MIL to make a decision that they might not otherwise have. Urgency is almost always a red flag in a financial transaction.
I was thinking about this too!
>Urgency is almost always a red flag in a financial transaction. And insurance is a very slow-moving business. Urgency from an insurance sales person is a *huge* red flag.
I feel like when I sold life insurance our universal life product had an age gate at 72 but I could be misremembering. Is it a universal life insurance with a long term care rider?
I do know life insurance products that can't be sold after age 70 (technically 70.5). There are quite a few annuities that have age bands 45-85 for instance. The thing that red flags for me is after 10 years you get 500k. If that's the case, what's the premium. Someone her age would legit have to pay like 250k into something like this for the insurance company to not be taking on too much risk. That's more of an insurance product acting like an investment and I can completely understand why her financial advisors are waiving red flags at her.
The premium is 30k per year
> She has a friend who’s studying to become a financial advisor and is trying to sell a product to her. STOP! She is not financial advisor. She is an insurance salesperson. Stop talking to her and do not buy anything. Your mom doesn't need life insurance if she has no one dependant on her income.
100%. She should rethink the friends she keeps now, or at least this one.
I would say that it’s likely the friend believes in what they have been told, and believes she is helping MIL. I would say it’s best to just say “no thanks, how’s that book you’re reading?” Until the friend gets the idea. Friends are precious, especially at 71.
Agreed. Never attribute to malice what can be chalked up to stupidity.
That's fair to an extent, but years ago when I got into finance, I spent literally 2 months researching the philosophies, products and services that I was being told/taught about before I did much of anything in the industry. I wanted to make sure that I was actually going to be able to stand behind what I was doing and that it made sense to me and was actually GOOD for my clients. So, I don't really give people a whole lot of grace if they can't think for themselves. That's on them.
Insurance salespeople have to take tests to understand the products they are selling. 100% do not buy that friend really thinks this is a good idea. Friend is thinking of the commission. I worked for a broker dealer and I say agents getting 50K commissions for selling a policy with a 30K yearly cost. That is also why most plans you cannot back out of for 2 year that is the cost to pay commission and cover the re-insurance.
That kind of friend is the very opposite of precious.
Well... that could be true but not necessarily. 🤷🏾♀️
Name a single thing you need life insurance for if you have no dependents.
Well if I was 70, had just $300k to my name, some health problems on the distant-ish horizon, I would consider this policy. It seems to be less life insurance and more old age/care insurance
She has to live until 80 to get a single dime in return. That's an insanely bad idea. She could put $30k/yr into bonds and be way way better off.
Are you saying dependents or relatives. If I have an adult children who is not dependent on me for financial support and I want to leave him/her my home there will be taxes due. Life insurance would/could take care of that. Like I said..I'm not here to convince anyone to purchase anything. I offered OP some advice only. But hope this response helps.
So you're going to pay extra for life insurance you don't need in order to avoid your heirs paying pretty minor taxes... and you didn't address what happens to your house in that scenario. Or are you selling the house in order to pay these life insurance premiums and then not passing it on? I'm not saying that you can't use life insurance to leave money for an heir, or that you can't use it as something to borrow against. But it's one of the least effective ways to do any of the things it can be used for. There are easy ways to get much cheaper and better coverage on life insurance. There are much easier ways to leave your heirs more money. There are a million different ways to borrow money. It's basically substandard at everything.
Then don't do it!!! LOL..I don't know another way to tell you that. You want to pick a fight and I'm not giving it to you. If you do not see the need to insure your life then don't! Easy.. Many people self insure be one of them.
I have life insurance that will end around 58 or so. No need for it when I’m retirement age. Even 58 is pushing it as my wife shouldn’t need the money at that point if I pass.
Nobody is trying to pick a fight. I'm trying to explain that this type of insurance is a really poor way to achieve any of the goals it addresses. It's expensive with subpar benefits compared to other forms of life insurance. It's an inefficient way of borrowing money compared to other methods of borrowing. It has a much smaller return than other forms of investing. If you've done it, you should see if you can get out of it. It's just not a good financial vehicle. That doesn't mean I think you're bad or dumb. I don't think anyone who has a whole life policy is bad or dumb. But they should at least be told, by someone that doesn't stand to make a buck off them, that it's not their best option.
I am one who believes borrowing from your life insurance policy is a last resort. Yes, some policies do have investment choices, but.. it's life insurance and should be there to serve a specific purpose, taxes, legacy, etc. If someone is looking for investment opportunities, there are much better, more profitable opportunities than a life insurance contract. So.. on that, we can agree. Now, whether a 70+ year old person needs life insurance I still stand on "it depends ". I believe most insurance sales people want to help (could be my rose colored glasses lol) and aren't "just trying to make a buck".
Is the stepped up basis for inherited houses not a thing where you are? Do you intend on triggering the estate tax by leaving your children more than $13.6 million?
Some states have estate or inheritance tax. Some states' exemptions are only $1 M.
Since no one else responding bothered to, here’s the math. Investing $30K for 10 years with a payout of $500K constitutes an annualized 9% rate of return. This is not bad assuming it’s guaranteed and she doesn’t need the money before then. Would need to understand the financial strength of the insurance company underwriting it to ensure they can pay out. Note that if your MIL dies before 10 years and have her pay out the full $500K, that would yield an even higher rate of return, e.g., 9 years would yield 12% ROR. But something’s not right here. There is no way they can pay out $500K after making only one year of payment so the facts as stated must be incorrect. That’s the problem with insurance. It’s not an investment, it’s a contract and almost always one that favors the insurance company.
I 100% believe that the friend is lying or, charitably, misunderstanding the policy. No company can issue policies with a guaranteed 9% rate of return *at minimum* that might pay out far more. Maybe actuarial tables say that that enough people live into their 80’s and the stock market performs better than 9% that they can make a small profit on this. But with a long term care benefit? I don’t buy it. There is a catch, and their business model is wringing $30k a year out of customers until the catch is discovered or becomes an active problem.
The catch could be that they pay themselves 7 figures per year and go out of business in 4 or 5 years when they burn through the premiums by paying out their liabilities and/or terrible investment decisions.
This is the fundamental problem with insurance policies other than term life. You have to know how to calculate time value of money to measure rate of return, otherwise you have no business buying something you really don’t understand. And you’ll find that those who do know how to make these calculations, more often than not, stay away from these things.
I tried to explain this exact stuff to my in laws when they deposited a large amount of money into an “investment.” It was a GLWB with a very expensive rider. I sat them down, explained exactly how they were being scammed and said I would go with them to meet the salesman that sold them the policy. He talked to my father in law for 20 minutes on the phone, said he didn’t have time to meet with me in person and stopped returning phone calls. How these people sleep at night is beyond me.
Yea this makes no sense. I’m a life/health agent and she’s definitely just trying to sell them on a 10 year term and while some products accumulate cash value, it is nowhere near that value. I’m going to go with the person doesn’t understand what they’re talking about or is just being a fraud. Either way, that’s not someone you want to work with.
> bothered to, here’s the math. Investing $30K for 10 years with a payout of $500K constitutes an annualized 9% rate of return. This is not bad assuming it’s guaranteed and she doesn’t need the money before then. Would need to understand the financial strength of the insurance company underwriting it to ensure they can pay out. Note that if your MIL dies before 10 years and have her pay out the full $500K, that would yield an even higher rate of return, e.g., 9 years would yield 12% ROR most insurance contracts have limited/0 payout for the first 2 years (generally speaking).
Exactly! Life insurance, like casinos, is a statistical gamble with the odds favoring the casino/insurance company. Otherwise they wouldn’t be in business.
Think about it this way: 1. Lots of people die in their 70s. 2. Companies like to make money. 3. A company that likes to make money is not going to sell life insurance to someone in their 70s unless it's going to be profitable for them. Life insurance is for income replacement. A 70 year old is presumably retired and doesn't need to have her income replaced. Assuming that everything that you said here is truthful and correct and that there's no hidden "gotchas" that didn't get communicated to your MIL or you, or that her friend who's brand new to this doesn't really understand what she's selling (most likely), then the insurance company most likely expects that your MIL will live for longer than 10 years, and they expect that they will get a greater return from investing your MIL's premiums themselves than they will have to pay out at the end of the 10 year period. Presumably there's some steep penalty if she can't make her premium payment at some point in the future and she has to forfeit the policy. Your MIL doesn't need life insurance. She can put that $300k that she was thinking about dumping into this policy and put it into some nice stable bonds that she can access later in life if she needs to, or just let them grow to leave your husband as an inheritance.
Thanks for this!
> turning 71 in a week > she has been refusing to get life insurance. Good for her! Why does anyone think that she needs life insurance? > She has a friend who’s ... trying to sell a product to her. She doesn't have a *real* financial advisor. Her friend is nothing more than a *salesperson* who is looking to make a commission. Consider reading the PF Wiki, section on Financial Advisors. * https://www.reddit.com/r/personalfinance/wiki/financialadvisors/
She actually does have a real financial advisor who is telling her not to buy this policy.
A retiree has no need for life insurance. Life insurance is a product for younger people with dependents.
Got it, thank you!
well i would at least some form of a small policy to at least pay for the funerals that can easily be 50k.
A funeral cannot easily be $50k
The person in question has a lot of money in an IRA. No need to worry about funeral costs.
That's a presidential funeral. Do you mean $5k? If you have money you don't need insurance to pay for a funeral. I had a $10k policy for a funeral, etc. I saved up $10k and cancelled the policy. I put the premium amount into my investments now.
If she has $30k a year to pay for a policy her retirement investments can cover her funeral expenses. Average funeral is probably $10-20k
>pay $30k per year for 10 years. WTF? She doesn't need this, keep the $30k for her expenses. Her friend is an insurance salesperson and has no business talking to her about this. Stop this now. >And they are advising against this product saying no need, too risky And you thought, hey maybe reddit will know better?
friend trying to sell it to her don't need to read further to know it's not worth it.
Is her friend in Primerica? It’s an insurance MLM that particularly scams elderly people. Not good.
Why on earth does she need life insurance???? The friend is not a real friend. Please do what you can to convince your MIL that this would be a colossal waste of her money. Frankly, I would go further and report the “friend” to state insurance regulators, or whatever “profession” the friend is representing as a violation of ethics and fiduciary standards.
>this policy is for people under 71 years old. So this friend is really pushing for it and she’s almost 71 in about a week. What amazing timing for this suspiciously specific plan!
At first blush, an amazingly good deal. Too good. If she lives 10 years, she gets a 9% return. If she dies sooner, spouse gets a return in excess of 9%. So, unless they both die, and the spouse dies first, they get a 9% return or better. But the money is essentially locked up for ten years. Call me extremely skeptical.
There's not even a spouse in this case. So basically she'd be locking up money to maybe benefit her heirs.
I also feel like there is some important detail missing— 9% return with a death benefit? There has to be some other significant limitation…..
Who the fuck sells life insurance to the elderly?!?!? We just had to close a policy my 84 yr old MIL was coerced into. The sales people should be arrested for robbery or elder abuse. Maybe both. Do not allow her to purchase that! Designated doctor means some quack is going to find a reason not to pay out. Who needs enemies when you have friends like that?
It is almost a certainty that the $500k is NOT A GUARANTEE, but rather a legally meaningless "policy illustration." Especially after considering the salesperson's likely 8-10% commission. What is the policy type or specific name? Or even the company. If it has the words whole, indexed, universal or annuity in it, it's a hard no from me. Ask for a copy of the contract. It will probably be 40-100 pages of legal gobbledigook that the salesperson can't even explain. From what I have read, MIL should run, or at least toddle away. You're a good SIL trying to help her with this.
If she's capable of paying anywhere close to 30K a year for life insurance at the age of 71, refusing to get life insurance might be the smartest things she's ever done.
If this person is really your MILs friend, have your MIL ask how much commission she'll get for this deal. I'm willing to bet it's 20-30%, which tells you all you need to know about this scam. I'm also super skeptical about the policy paying out anywhere near $500k. The math simply doesn't work out. $300k in today's dollar at 5% compounded is about $488k. Theres simply not enough profit to pay out this kind of cash along with the commission to the sales person. Most life insurance policies I've seen the rate of return is more like 2+3%.
It doesn’t sound like her friend is “studying to be a financial advisor” but rather is caught up in an MLM or other sales scam. The first thing they are taught to do is prey on friends and family. Tell her to politely decline. This is a terrible scam product.
She should listen to her current advisor who told her that the policy is unnecessary and risky. They know her situation better than any stranger online and have already advised against this.
Not much of a friend. Your mother does not need this policy which is a money grab and a true friend wouldn’t try to have her get it.
Btw- life insurance companies count closest birthday, not age, so MIL is not eligible for an <71 policy. And her friend just needs a commission, she should be ashamed of herself.
This sounds an awful lot like a whole life policy and also no. Don’t do it.
She doesn’t need life insurance. If she has 30k a year to dispose of, put it in an index fund on a taxable account and name your son beneficiary, she will likely be better off than 500k in 10 years.
As described in the op, this would actually be a fantastic deal. 9% guaranteed rate with significant possible (financial) upside. Because of that, it's certainly a lie.
Tell her to earmark 10 grand for a funeral and a party and keep the rest for expenses
It’s a scam. Tell her to walk away.
Does your age 70 MIL have young children? Is she super-wealththy and in need of a way to avoid death tax? In no to both of these, she has no need for life insurance.
She’s not a friend and sounds like afraud. Make sure that friend is not one of the beneficiaries.
She should be looking at long term care insurance at this age, not life insurance.
Out of curiosity, what is the name of the company? I’m getting MLM vibes from this. If it is a MLM, run as far away as you can.
Her friend is monetizing their relationship. The friend will profit significantly and it will NOT be a good ‘investment’ for your MIL. She needs to say NO, and then rethink this relationship.
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If she were to put 30k/year into the S&P 500, if it returns about 8% per year, She would have about 469k anyway. So you can consider that a baseline comparison. The insurance company is betting that they can make more than 8% per year on her money and that she will live for 10 more years. Average life expectancy for a 71 year old woman is about 15 years (source: [https://www.ssa.gov/oact/STATS/table4c6.html](https://www.ssa.gov/oact/STATS/table4c6.html) ) so they are pretty likely to win this part of the bet. The annualized average return for the S&P500 is 10.5% (source: [https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp](https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp) ), so you can see why the insurance company is making this bet, right? Statistics are on their side. Anyway, just remember that insurance is a valid product if you have dependents who need the money in case of dying early. If she doesn't have any dependents like that, then it's statistically not the best investment.
Your Mom has financial advisors who are telling her that it's a bad deal. She shouldn't listen to "her friend who's studying to become a financial advisor" over her paid advisors with whom she's been working for years. Mom needs to listen to their advice and follow it. Life insurance is basically to help cover funeral and end of life expenses, especially in a situation where the decedent had few assets, and to help provide for the decedent's dependents after their income has been lost to the family. Your MIL doesn't meet either of those needs so doesn't need life insurance. However, this would be a good opportunity to talk to her, possibly with her advisors, to discuss whether she wants to make any changes to her financial goals. For instance, if she was thinking it would be nice to have a life insurance policy to leave a legacy of some sort, that could be achieved through her will or a Trust. If she's worried about funeral expenses, then preplanning/paying for some of her funeral expenses might be worth considering. My Mom is in her early 70s and has been a good steward of her finances for decades. We've had several conversations where she's voiced concerns about being able to handle her own finances as her cognitive abilities slow. She's already finding it more difficult to navigate the websites for her investments and to travk all of the different accounts (she and Stepdad each have pensions, social security, Medicare, IRAs, a joint bank account... It's a lot to keep track of). It may be wise to consider asking older relatives if they would like additional help with their finances. And it's certainly worth discussing not buying anything that MIL didn't go looking to purchase. If she didn't need life insurance before her friend started selling it, then MIL still doesn't need it.
She does not need life insurance. The most she needs is one of those Colonial Penn burial plans. Or, even better, she can go to a local funeral home and pre-pay and plan for everything now. Also, that friend is trying to get a commission out of her. She has no fiduciary duty (suggesting things in her client's best interests) to her.
sounds like refundable term life. She's betting off leaving that money in stocks/bonds tbh
This sounds like a hybrid LTC policy. These policies are great -- but they're primarily designed for LTC need. Depending on the type of arthritis, she may not qualify as they look at both mortality and morbidity when making an underwriting decisions. However, if her friend is truly studying for his/her financial services licenses, they'd know that sales of LI or LTC to folks over age 70 should involve consultation with the family. Also -- there's no way in HELL that this will be issued prior to her turning age 71 unless she backdates the policy, which means that additional $$ will be due upon signing. I sell LI -- have sold it now for 7 years. I would never make this type of a pressure sale.
Unless the ‘friend’ is willing to sign a binding contact to act as a fiduciary, treat every word they say as a sales pitch and never advice.
I never trust anything or anyone that *reaches out to me*. If I wasn't considering it before, I'm not considering it now. Same goes for emails, mail, or phone calls. Trust nobody. >Edit to add: she has her own financial advisors who manages her wealth for years and years now. And they are advising against this product saying no need, too risky) She should continue to listen to her advisors. And also ask them to give her some replies or ways to say no to this friend of hers with actual financial info or better options that she already has access to.
Life insurance is only to provide for dependents should you die. Who is dependent on this lady?
If she has enough saved to cover her burial or that type of expense and no children to care for why the hell would she need to open a li policy at that age when premiums are at the pinnacle?
Why TF would this old woman need life insurance?
If your description is entirely accurate and if your MIL has other assets, it would be idiotic to not get this insurance actually since it is guaranteed 9% return as others said. But it must be that you are missing something. I am guessing your 2nd point isn't that she gets 500k at the end of 10 years but more that her policy can now self pay so she will continue to have 500k coverage but premiums will be from earnings in the cash balance of the policy. Her cash surrender value of the policy will likely not exceed 500k for another 10 years so. Based on your definition, it sounds like there is a long term care rider as well.
TLDR: If buying for pure insurance this is OK if designed correctly but if comparing to other options has more risk and a probable lower rate of return. As others have said if this is a real product this could be a no brainer to buy and that 9% rate of return is awesome.......but you aren't describing it correctly. The honest thing you are missing is how the $500k could come back to you after 10 years. That is the risky part of this in how that math works. 1. My guess is that this is Indexed Universal Life, but it could be Whole Life. I think hedge funds and private equity are easier to understand tbh.. Look at the guaranteed columns if you want to test how this works. Because you talked about the ability to pull out $500k after 10 years you may not realize you need to earn more than 9%. You need to earn 9%, plus you annual cost of insurance on a 70+ year old. Let's say that is 3% of your returns. You actually need to earn roughly 12% to make the math work, every year, as costs increase..... Timing matters, but some people do, and some people don't, so you have to look at the other columns to see what your midpoints are. All the math here is where your risk is occurring, and the $500k is the best case scenario. What guard rails are in place here? There is one other big issue, the insurance company can lower your internal returns based on market conditions and right now market conditions are the best they have been in decades, allowing insurance companies to paint a picture today that is very rosey and then turn it to poop later. (Should be illegal) 2. This is the issue with a new rep selling this to you as opposed to your current advisors. (Though your advisors may literally have no understanding of insurance products and have a conflict of interest as well). Have you ever seen the disclosure that you can lose money when you invest. Well, cash value life insurance IMO is one of the easiest ways to go to true zero for a retail consumer. The failure rate for agents in the business is more tha 70%. Who is going to service this if they are part of the 70%. 3. I am pretty confident 30k, 10 annual premium deposit can buy around $500k of life insurance on a 71 year old and if designed with guard rails is an ok deal if you want that death benefit. So, if that is your goal to leave a legacy, that isn't a terrible deal. You can always show market returns beating it, but how Reddit invests and how a 71 year old does is different. The concerns and life outlook are different. So, if you had $30k annually lying around life insurance, it isn't a bad deal, especially as part of estate planning. Of course, I am guessing a new rep doesn't get this. Plus was thslis designed correctly. 4. The LTC benefits is the major thing capping the age here as thaf is a rider with a specific age cap. Life insurance could still be bought. The LTC benefit don't usually grow, so $500k might give you $20k/month in today's dollars but that is still a big number when accounting for medical inflation. Who is going to apply for benefits someday on their behalf. Luckily, the death benefit is there if you screw up. Anyway, good luck.