Hi all,
So back when I knew nothing about anything finance, I brought a Global Index Universal Life insurance policy from my brother, who is an insurance broker. Every month for the past 10 years I been paying $165 for a mere coverage of $275K.
What are my options here? What information should I even be looking at to help me make the best choice? Help please!
Posted May 5, 2023, 2:25 PM UTC
Call them and get the total picture on cancelling it or cashing it out.
Most likely the majority of those premiums went in your brother’s pocket and the garbage disposal.
That’s a tiny policy. Commissions were probably $2,178. IUL has other factors contributing to high COI for sure.
Make sure that you can get at least the same amount of coverage on a term life policy prior to cancelling the current policy. Chalk up the money lost as a learning experience and move on.
If OP needs term coverage. That should be based on their assets, dependents, etc.
Probably but first, do you need life insurance? If you die, who gets the money and do they need it. Life insurance covers the people, usually a partner or kids that depend on your pay check. If nobody is depending on your income, maybe you don't need it. If it turns out you do have a need for insurance, buy term, it's cheaper. Often universal life or whole life insurance is sold as a "savings plan". The pitch is "you get the insurance plus you get a savings plan for later in life." Sounds good but they are almost always a horrible rate of return. Term insurance is a better deal, you are getting the insurance without the "savings". One last caution, good insurance rates are based on your health. If you have any health challenges, you might want to get the term insurance before you drop you existing policy.
This was not necessarily a bad deal. You have built up cash value and the cash value may have earned well in the market. Since you bought at 29, you have been building up decent cash value. The premiums are flat and the cost of insurance in your 30s is low so a good bit of your premiums were going toward future premiums, aka cash value. I would call and see what your settlement options are. You can probably take the cash value, have it converted to reduced paid up (a permanent life policy at a lower benefit amount), or have it convert to an extended term policy (full face amount for a shorter period of time). Any of these three options have you not paying anymore premium. If you have a copy of your policy there should be a settlement page which will explain your options. If you do not have it, call and ask for a copy. You will be looking at what the options are buying a 29 and paying for 10 years. A customer service rep could also explain it to you if you call. (Former valuation actuary.)
Call the insurance company and ask them to provide you with a guaranteed policy illustration with zero future premium payments. This will show you how this policy will perform on a guaranteed basis; guaranteed being if you moved the allocation from the global index to the guaranteed fixed rate option (most accounts should have this). Also ask what the current cash value is and what the basis is to determine the estimated taxable amount you would be hit with if you surrendered the policy.
Then ask yourself, do you need this insurance?
If you decide you don’t need the policy and the tax hit minimal (your decision on what is minimal) you could surrender and cash out the policy. If the tax hit is too big, you could explore tax deferred annuity options that don’t have the expensive bells and whistles; fidelity had (its been years) a relatively cheap, vanilla annuity option that was perfect to continue to defer taxable amounts from expensive life insurance/annuity policies.
If you need insurance, explore term policies and get one in place before surrendering, just in case you are somehow ineligible to obtain a new insurance policy.
Ouch. Why couldn't your brother just outright ask you for 10-20k. Why he had to fleece you like that.
Not even close. The commission would have been based off of first year premium which was $1980. The brother would have received a percentage of that. Most times between 50-100% of FYP. might collect a small trail as well but depends on the carrier and I’ve never sold Global Index.
How old are you? I am 37 and pay $88 a month for 20 years at a million. I’m working with TransAmerica to get a new one at $77 for 30 also at a million. You’re def overpaying.
It sounds like you're talking about a term policy. OP bought a Universal Life policy. These are different products with the main difference being that a UL policy is a permanent policy that could last until OP's death. Term is always going to be cheaper.
You also can't just compare cost of policies; they're dependent on the health rating you receive and can drastically change the cost.
I'm 39 now. I purchased when I was 29. So yah, super overpaying.
Horrible deal. Your brother took you as a sucker
Can't believe his own brother did this. Salesmen really have no morals.
You're not necessarily overpaying. The person you responded to is referring to term insurance; you have a UL policy which is permanent insurance (also, it's not whole life like others are saying).
UL has features like an investment component, cash value, flexible premiums, potentially accelerated death benefit riders (you could access the death benefit while still alive to use for chronic, critical, or terminal illness; not all policies have all of these), and the ability to keep the policy until death (unlike a term policy).
I'd venture a guess that your brother sold it to you as an investment and said it would grow without losses and you could use the cash in the policy down the road as income. He may have showed you an illustration that made it look really good in like 30 years with lots of cash value. It's not gonna happen like that and even if it does, at worst you'd probably do just as well investing in something else; at best you'd outperform the insurance by a mile.
That said, you'd do better investing somewhere else because the insurance is just that- insurance. So you're getting something in addition to just investments, which comes with a cost. Problem is insurance and investments don't mix well.
$165/mo x 10 yrs= $19,800. Let's say you pay that for 60 more years and die. You'll have paid in $138,600 and when you die someone will get $275K. From a pure insurance standpoint you'll pay about 50 cents on the dollar. I'm sure your beneficiary would love to have the tax free money. But is there a point to it?
Your options now-
Keep it, but only for the insurance and potentially using the accelerated riders. For this you'd want to call the insurance company (don't have to involve your brother) and ask them to run you some in-force illustrations. You can ask them to run an illustration showing the minimum premium necessary to keep the policy in force until a certain age (you'd decide what age you'd want to go to).
Technically you could try to 1035 exchange it into another policy if possible. I doubt it would be worth it and you'd want to probably talk to a competent person about it. Maybe a fee-only financial advisor to get their take on any options.
Dump it, take the cash value if there is any, and cut your losses. Think of it this way- you just paid for some expensive term coverage for 10 years. Now you can take those premiums and invest them into something better.
At your age I'd probably do #3. There could be some circumstances where it would make sense to keep it and you may want to talk to an advisor more in-depth to make that decision. If you don't want to do that, I'd dump it.
Yours is term life. His is whole life. His is still (almost definitely) a terrible deal, but the two products aren’t anywhere near the same thing. His is an overpriced investment vehicle. Yours is pure protection of your dependents.
Find out how long the policy is projected to remain in force if you don't make any further payments. Find out the current cash value and the tax status. Are you currently insurable? Has your rating deteriorated in the past 10 years.
All this information should inform your ultimate decision.
So… I’d actually just let the insurance sit. Here’s the deal:
Lenders consider it an asset and extra security for loans. Maybe see if they can roll it over to whole life or adjustable comp life, nothing else. If they can’t, it’s better to keep it.
Worst case scenario, can’t get sued for your policy. If you file for bankruptcy, the cash in that policy and MAYBE your primary residence are all you have left.
$165 really shouldn’t be putting a dent in your finances so not a big deal.
You can actually take loans against it, and the loan pays itself when you die.
Most of this doesn’t apply to term life, term is more conventionally life insurance that your family benefits from if you die or you take a Viatical settlement because your current living situation is terminal/temporary.
Again, $165/mo isn’t going to make or break wealth anytime soon.
I've dealt with life insurance professionally, and universal is a complicated product without much long-term benefit. It is an adjustable premium, and later in life your premium will be paid by your savings element within the account
Would need to order an inforce illustration from the insurance company. No one can answer your question without seeing the numbers. It is probably a relatively poor investment but you can't know without seeing the performance and expenses you are being charged by the insurance company. You would also need to know what the cash value is compared to what you put in to determine the rate of return. And subtract from that rate of return the cost of a competitive term policy as if you had done two things, invested money and bought insurance because you have received the benefit of having some amount of life Insurance which is worth something. To make a long story short, the exact answer to your question is a rather complicated financial analysis.
UL policies are complex and have a lot of info around it but you didn't provide a lot of missing info, so no one here can advise you on it. Maybe understand the policy yourself better first
The only life insurance you ever need is level term as a salary replacement in case of your death if you have a family. You're usually much better investing the difference on your own.
You have a type of permanent life insurance, which is designed to actually payout unlike term but is more expensive than term obviously. It has the advantage that it can be "paid up" at some point. That said they can definitely go side ways if they do not get the expected return.
You probably get sent an annual insurance report that gives info on the health of the policy, if it has a projected lapse date may be best to salvage what cash value you can, but if it's healthy it may be worth keeping as your cost of insurance when the policy was setup 10yrs ago is less than you are now. It may also be worth exploring reducing the death benefit to either lower the monthly premium or use the existing cash value to make it a paid up policy.
I’d not hesitate to cancel it and invest the refunded money (if any) and monthly contribution to elsewhere so I can insure myself. I used to have such policies I bought when I was young and didn’t know personal finance. My excuses of cancelling them was I need lump sum money. It turned out well.
If you do decide to cancel, see if you can handle it without going through your brother. Every time I go to reconsider my whole life, he talks me back into keeping it. It's my backup plan. It does serve a purpose, but it is redundant and makes me cash poor
[removed]
Your brother is a crook
Anyways, get yourself a term insurance policy. Once that is active, cash out your IUL and invest in a separate investment account.
What is your reason for having life insurance? Do you have a family and kids whom you are the breadwinner and your death would leave them in hardship?
[deleted]
You paid the cost of insurance (essentially term Insurance) plus extra money to build cash value, which should still be in the policy and is intended to keep the policy in force until you are 100. Also, fees, such as commissions, are withdrawn. How much fees depends on the policy and company, but they are a fact of any kind of insurance policy. You can keep doing what you are doing and if the policy was sold to you honestly, then your premiums should keep it your whole life. You could also probably dump the policy and take the cash. But then you need to consider if you need life insurance, how much, and for how long. Finally, if you don't want all that permanent insurance, but want some, you can very possibly lower the amount insured by that policy, for example to $100,000. If you lower to the right amount, the cash you already have in the policy could pay all future premium payments. You will have essentially prepaid for a lifetime (of less than $275k) of insurance.
OP hopes the cash value is still there. IUL is a pit of doom.
Lol. Yes, there may be no cash at all! Depends in part on the agent who sold it to him, and how he set it up
Not really. I haven’t seen a single IFL for an IUL that was anywhere near the inflated projections in the illustration used to sell the contract. It’s a terrible product.
When I got married, my mom gave me two fully paid life insurance policies she bought for me when I was born. One was a $10K death benefit and the other was $15K. I cashed them both out about 10-years ago. The cash value for both was slightly over $5K, so I rolled all of it over to my Roth IRA. No regrets whatsoever.
80% commission...at least when I almost worked at that job.
[deleted]
[removed]
[removed]