Parent is pushing me to buy universal life insurance, bad idea, right?
December 16, 2015 9:40 PM Subscribe
My parent is carrying the cost of my $40/mo. term life insurance because he's the one who took out the policy. Now he wants me to buy universal life insurance from a "family friend." This is stupid, right? Additional snowflakes inside.
My family, and myself, frankly, have never been great with money, by which I mean I was financially abused and kept ignorant about a lot of things. I was not given an allowance, kept from getting a driver's license because car insurance was too expensive, I was not informed in advance that there would be no support for college, was claimed as a dependent during those years in college anyway, my college loan refunds were stolen from me by a parent, etc., etc.
That was a long time ago. However, my parent took out a term life insurance policy on me at some point (in my childhood? adulthood? who the hell knows) and has been paying $40/month, which admittedly is expensive. On the last visit home my parent surprised me with a visit from an insurance salesperson who is allegedly a friend of the family. They were insistent that I apply for universal life insurance and, upon approval, cancel the old term life insurance. The lowest rate available was $100/month. Some preliminary research tells me that this is only a good idea for rich people who have run out of tax shelters, which is so wildly inapplicable to my existence that I can't help but laugh. They walked me through the application and just had me answer "no" to all the health and lifestyle questions that probe for risk factors, and while I never submitted the final application I'm worried I'm going to get flagged for not telling the whole truth, such as about outdoor activities.
I'm working as a contractor right now, but I do have a vague relationship with Fidelity thanks to previous employment. Do I call them, or what? I definitely don't go ahead with this crazy, right?
My family, and myself, frankly, have never been great with money, by which I mean I was financially abused and kept ignorant about a lot of things. I was not given an allowance, kept from getting a driver's license because car insurance was too expensive, I was not informed in advance that there would be no support for college, was claimed as a dependent during those years in college anyway, my college loan refunds were stolen from me by a parent, etc., etc.
That was a long time ago. However, my parent took out a term life insurance policy on me at some point (in my childhood? adulthood? who the hell knows) and has been paying $40/month, which admittedly is expensive. On the last visit home my parent surprised me with a visit from an insurance salesperson who is allegedly a friend of the family. They were insistent that I apply for universal life insurance and, upon approval, cancel the old term life insurance. The lowest rate available was $100/month. Some preliminary research tells me that this is only a good idea for rich people who have run out of tax shelters, which is so wildly inapplicable to my existence that I can't help but laugh. They walked me through the application and just had me answer "no" to all the health and lifestyle questions that probe for risk factors, and while I never submitted the final application I'm worried I'm going to get flagged for not telling the whole truth, such as about outdoor activities.
I'm working as a contractor right now, but I do have a vague relationship with Fidelity thanks to previous employment. Do I call them, or what? I definitely don't go ahead with this crazy, right?
So, basically, they encouraged you to commit insurance fraud and you think they might nonetheless have your best interests at heart? You know the right call here.
posted by wnissen at 9:46 PM on December 16, 2015 [15 favorites]
posted by wnissen at 9:46 PM on December 16, 2015 [15 favorites]
If you have no dependents, there are far better ways to spend $100 a month. Put it in your retirement account or a rainy day fund, but unless you have a spouse and/or kids, it's not the time for life insurance.
posted by cecic at 9:48 PM on December 16, 2015 [26 favorites]
posted by cecic at 9:48 PM on December 16, 2015 [26 favorites]
So this is an at best pseudo-fraudulently acquired way for you to spend $100 a month so your parents get a bunch of money if you die. Don't do this.
posted by brainmouse at 9:50 PM on December 16, 2015 [28 favorites]
posted by brainmouse at 9:50 PM on December 16, 2015 [28 favorites]
Nope....there is no point in your taking out life insurance at this point in your life. Universal Life policies are only useful if you need an investment vehicle AND the projected return is more than you would make investing your funds elsewhere.
And...never buy insurance from a "friend", buy it from an experienced professional with whom you have no other relationship.
posted by HuronBob at 10:04 PM on December 16, 2015 [2 favorites]
And...never buy insurance from a "friend", buy it from an experienced professional with whom you have no other relationship.
posted by HuronBob at 10:04 PM on December 16, 2015 [2 favorites]
Life insurance is just that, insurance. It's supposed to replace lost income when something awful happens. That's why people famous for their bodies do seemingly odd things like insure their legs. :-)
If you're not supporting your parents, why the F are they taking out an insurance policy?
This sounds like a situation where you need to learn to be disliked -- and say "no" to sketchy shit and stuff you don't understand. In *any* situation, financial or otherwise, where you're unsure of what's going on, if you don't understand... then walk away. Just say "no". Again, just say "no"... they'll get over it.
The likelihood you are missing out on something is vanishingly small, like unicorn small. This is true of any grift like this, not just financial.
posted by smidgen at 10:38 PM on December 16, 2015 [4 favorites]
If you're not supporting your parents, why the F are they taking out an insurance policy?
This sounds like a situation where you need to learn to be disliked -- and say "no" to sketchy shit and stuff you don't understand. In *any* situation, financial or otherwise, where you're unsure of what's going on, if you don't understand... then walk away. Just say "no". Again, just say "no"... they'll get over it.
The likelihood you are missing out on something is vanishingly small, like unicorn small. This is true of any grift like this, not just financial.
posted by smidgen at 10:38 PM on December 16, 2015 [4 favorites]
Universal life isn't a great deal, but does have the advantage of locking in a low rate on the insurance portion of the product. And eventually, it will build enough value that the investment gains will pay for both the exorbitant management fees and the insurance policy (maybe with a little left over to increase the value of the investment portion), leaving you with a policy that pays for itself.
$100 month is way too much for a young person with low risk factors, though. The person I know with such a product pays less than $50 for somewhere around $250k of coverage (which would be supplemented by whatever value the associated investment account has). Well, paid. She hasn't paid them a dime in over a year and still has had some minor appreciation in value. Value which can be cashed out or borrowed against, BTW, but it took many years to build it up to anything even remotely worth thinking about. I think 5 years in the cash value was still under $1000.
She actually had a need for life insurance, though. In addition to being half owner of a house, and therefore wanting to be able to ensure her investment partner didn't get screwed if she died before the house was paid off made life insurance a useful thing for her. Add to that her desire to provide financially for the care of her many pets, and it really made sense for her. (From her perspective). Some people find $50 a month worth the peace of mind. Some don't.
All that said, if this is not something you are doing for you, don't do it! It's a waste of money if you aren't getting anything from it! BTW, the way hers is set up, a market crash could wipe out the value of the investment vehicle and force her to start making payments again to avoid a lapse in the policy.
Also, keep in mind that the underlying life insurance policy is charged at about $20 a month. It started at $17. So depending on what you need the insurance for, a term policy may well be the best way to go. In your case it sounds like life insurance is completely unnecessary.
Given that the original reason for the policy (the house) is about to go away, I suspect she'd cancel if it were still costing her money every month. Since it isn't, she'll probably keep it since the penalties involved in taking money out would eat up any possible improvement in return by moving to a direct investment in a low cost index fund.
posted by wierdo at 10:45 PM on December 16, 2015 [2 favorites]
$100 month is way too much for a young person with low risk factors, though. The person I know with such a product pays less than $50 for somewhere around $250k of coverage (which would be supplemented by whatever value the associated investment account has). Well, paid. She hasn't paid them a dime in over a year and still has had some minor appreciation in value. Value which can be cashed out or borrowed against, BTW, but it took many years to build it up to anything even remotely worth thinking about. I think 5 years in the cash value was still under $1000.
She actually had a need for life insurance, though. In addition to being half owner of a house, and therefore wanting to be able to ensure her investment partner didn't get screwed if she died before the house was paid off made life insurance a useful thing for her. Add to that her desire to provide financially for the care of her many pets, and it really made sense for her. (From her perspective). Some people find $50 a month worth the peace of mind. Some don't.
All that said, if this is not something you are doing for you, don't do it! It's a waste of money if you aren't getting anything from it! BTW, the way hers is set up, a market crash could wipe out the value of the investment vehicle and force her to start making payments again to avoid a lapse in the policy.
Also, keep in mind that the underlying life insurance policy is charged at about $20 a month. It started at $17. So depending on what you need the insurance for, a term policy may well be the best way to go. In your case it sounds like life insurance is completely unnecessary.
Given that the original reason for the policy (the house) is about to go away, I suspect she'd cancel if it were still costing her money every month. Since it isn't, she'll probably keep it since the penalties involved in taking money out would eat up any possible improvement in return by moving to a direct investment in a low cost index fund.
posted by wierdo at 10:45 PM on December 16, 2015 [2 favorites]
Nope, nope, nope. And you don't need the term policy either.
posted by Ruthless Bunny at 11:31 PM on December 16, 2015 [4 favorites]
posted by Ruthless Bunny at 11:31 PM on December 16, 2015 [4 favorites]
Universal life is a very bad investment for everyone except the salesman, who likely gets the entire first year of your payments as commission. In other words he might collect $1200 just for getting you to sign up. Then he might get 5% of each payment after the first year for as long as you continue to pay. Not bad pay for an evening of work. All of this is money that never goes into any investment that they promise you and is gone forever.
Term insurance is the only reasonable way to go, and even then only if you have a spouse or dependent children. If you die, your debts die with you. Nobody else can be forced to pay your debts (credit cards for example). Lenders can repossess your car, foreclose on your home or make claims on your estate, but if your estate has insufficient money, they can't collect deficiencies from other members of your family. So there is no reason for you to have life insurance if you don't have dependents.
posted by JackFlash at 12:03 AM on December 17, 2015 [2 favorites]
Term insurance is the only reasonable way to go, and even then only if you have a spouse or dependent children. If you die, your debts die with you. Nobody else can be forced to pay your debts (credit cards for example). Lenders can repossess your car, foreclose on your home or make claims on your estate, but if your estate has insufficient money, they can't collect deficiencies from other members of your family. So there is no reason for you to have life insurance if you don't have dependents.
posted by JackFlash at 12:03 AM on December 17, 2015 [2 favorites]
Why on earth do your parents seem so sure they're going to outlive you? That's really weird- personally, if it were me, I'd be afraid they were plotting my demise!
posted by flink at 12:10 AM on December 17, 2015 [16 favorites]
posted by flink at 12:10 AM on December 17, 2015 [16 favorites]
First, I think it's good to have term life insurance. The year my father died, UK law was changed so that creditors can go after your unsecured debt after you die. In his case they didn't because - as an advisor at my bank explained to me - it would have been a lot of bad publicity for the creditors in pursuit of relatively little money. But it is still not technically the case in the UK that your debts die with you, and I wouldn't encourage anyone to assume the law in their country will never change.
Second, if you have no debt, it's nice to leave something to your loved ones as a parting gift.
However, none of those conditions applies to your case. First, your parents took this policy out on you at their own expense... It doesn't sound like one of those policies you can cash in when a child reaches college age and use it to pay for college, like people used to do. I mean, it's term assurance. So what would their motives be for insuring your life with themselves as the beneficiaries? Shouldn't they be insuring their own lives with you as the beneficiary? This makes no sense and I don't want to be alarmist, but they sure are gung ho about you getting life insurance.
Without the ifrst policy, I'd assume they just want their salesman friend to get the commision on the policy, more than anything else. But number one, the application was fraudulent anyway (at their urging) so no, don't go through with it. Number two, $100 a month is a hell of a lot of money and it doesn't sound like good value anyway, even taking into account that by definition you won't benefit.
I suggest you refuse to go through with this, and also that you tell everyone close to you that your parents are very insistent about taking out life insurance on you, to the point where it's very odd. Just in case they take out another policy on you without your knowledge.
posted by tel3path at 2:17 AM on December 17, 2015 [1 favorite]
Second, if you have no debt, it's nice to leave something to your loved ones as a parting gift.
However, none of those conditions applies to your case. First, your parents took this policy out on you at their own expense... It doesn't sound like one of those policies you can cash in when a child reaches college age and use it to pay for college, like people used to do. I mean, it's term assurance. So what would their motives be for insuring your life with themselves as the beneficiaries? Shouldn't they be insuring their own lives with you as the beneficiary? This makes no sense and I don't want to be alarmist, but they sure are gung ho about you getting life insurance.
Without the ifrst policy, I'd assume they just want their salesman friend to get the commision on the policy, more than anything else. But number one, the application was fraudulent anyway (at their urging) so no, don't go through with it. Number two, $100 a month is a hell of a lot of money and it doesn't sound like good value anyway, even taking into account that by definition you won't benefit.
I suggest you refuse to go through with this, and also that you tell everyone close to you that your parents are very insistent about taking out life insurance on you, to the point where it's very odd. Just in case they take out another policy on you without your knowledge.
posted by tel3path at 2:17 AM on December 17, 2015 [1 favorite]
Universal Life is a ripoff.
If you need insurance, buy term. With no dependents, why have term life though.
posted by LoveHam at 4:17 AM on December 17, 2015
If you need insurance, buy term. With no dependents, why have term life though.
posted by LoveHam at 4:17 AM on December 17, 2015
Something else is off here. Since you "never submitted the application" why would you be concerned about whether the untruths will be used against you in the future?
I would be concerned that they might have submitted the application with a forged signature. It has happened.
posted by megatherium at 4:48 AM on December 17, 2015 [4 favorites]
I would be concerned that they might have submitted the application with a forged signature. It has happened.
posted by megatherium at 4:48 AM on December 17, 2015 [4 favorites]
Even if your parents' suggestion was a good idea, like "You should be saving for retirement," it wouldn't be safe for you to take financial advice from them or be in any way tied to them financially. They've proven to you several times over that they're not looking out for your best interests. I suggest that you create a kind of mental spam filter: any time your parents talk about your financial life, you think to yourself, "They've lost this privilege," and ignore the advice or refuse the request. Talk to trusted friends and/or well-recommended professionals when you want financial advice.
posted by Meg_Murry at 6:40 AM on December 17, 2015 [7 favorites]
posted by Meg_Murry at 6:40 AM on December 17, 2015 [7 favorites]
Your research was correct. Whole and universal life policies are generally only suitable for people who are trying to solve some specific estate and estate-tax planning issues that are not a fit for you. Everyone else who isn't super rich should buy term life in an amount dictated by their family obligations from an A-rated insurer and invest the rest, first in tax-advantaged retirement and college savings accounts, and secondly via a low-cost broker in moderate-risk vehicles.
posted by MattD at 8:13 AM on December 17, 2015
posted by MattD at 8:13 AM on December 17, 2015
Terrible idea to let your parents bully you into buying this policy. My parents/grandparents tried to make me do the same. At the heart of this with my family was that they wanted my confirmation that their decision to purchase a similar policy when I was a child was a good decision. It wasn't a good decision then, their "family friend" was really just an insurance salesman. It took about a year for my overly blunt refusal to buy life insurance to heal over with them.
Finding a way for them to "save face" regarding the childhood life insurance policies they have purchased, while ending this illogical practice would have been a better route for me.
Just a tiny bit of unasked for advice. If you have any other financial entanglement with your family, I would suggest finding a way to end it. Health insurance, family cell phone plans, jointly owned vacation homes.
posted by Classic Diner at 8:23 AM on December 17, 2015 [5 favorites]
Finding a way for them to "save face" regarding the childhood life insurance policies they have purchased, while ending this illogical practice would have been a better route for me.
Just a tiny bit of unasked for advice. If you have any other financial entanglement with your family, I would suggest finding a way to end it. Health insurance, family cell phone plans, jointly owned vacation homes.
posted by Classic Diner at 8:23 AM on December 17, 2015 [5 favorites]
If your parent can't objectively explain to you why this policy makes sense for your personal financial situation, then your parent has no business offering you financial advice. "This is not investment advice. Consult a certified financial planner." etc. disclaimers exist for a reason. This whole situation reeks of unwashed Bad Idea jeans.
posted by disconnect at 9:54 AM on December 17, 2015 [1 favorite]
posted by disconnect at 9:54 AM on December 17, 2015 [1 favorite]
This is a bad idea, do not do this, do not allow yourself to be pressured by anyone into doing this.
posted by prize bull octorok at 11:32 AM on December 17, 2015
posted by prize bull octorok at 11:32 AM on December 17, 2015
You could google life insurance in your area or via online quote services and be awash in competitive quotes from qualified providers before the sun goes down. Assuming you're young and in good health, $100 is a ridiculous amount of money for any level of insurance that would make sense for most people.
If you have no dependents I'd say the only thing that might make sense is to just save a few thousand dollars in the event you die to cover burial or cremation.
They sound really ignorant about life insurance, so at the risk of being patronizing -- it's a common misnomer to think that term insurance has to be kept up because it's in effect now and there is some opportunity lost if it lapses. That's an example of the sunk cost fallacy, I think. ALL life insurance is simply a premium paid so that a payout will be made IF one dies IN A CERTAIN TIME. We're all gonna go one day, but if I die tomorrow with a wife and minor children it's a different matter than if I die as a widower with grown children.
There are life insurance products where you are paying for guaranteed premiums for longer, and there are whole life products where you're paying enough so that eventually you're "paid up for life," but the cost of the insurance is reckoned about the same regardless of the trappings.
In other words, you can't buy life insurance, you can only rent it. Term life products - you don't need it any more, let it lapse.
The only minor risk you run by not having life insurance while you're young and without dependents is that if you got a health condition when you were a few years older and had dependents/obligations you'd find it harder/more expensive to buy.
But weigh that against the certainty that you're paying month after month for insurance you don't need because you have no dependents, and I'd say don't buy it at all.
Because of your past with your parents, I wouldn't buy from their "friend" or pick up the existing policy even if you needed insurance and it was a great deal.
Also, I'd be paranoid enough in this case to note the name of the company they're talking about moving you to and checking back later to ensure they didn't fraudulently take it out in your name anyway. Since they're asking you to pay for it, that seems less likely, but you never know.
My sympathy for your family situation. Mine wasn't quite this whack, but I can relate to parents expecting me to just fend for myself from the moment I was able to earn even a little bit of money (and making decisions for me even while I was paying for them).
posted by randomkeystrike at 11:50 AM on December 17, 2015 [1 favorite]
If you have no dependents I'd say the only thing that might make sense is to just save a few thousand dollars in the event you die to cover burial or cremation.
They sound really ignorant about life insurance, so at the risk of being patronizing -- it's a common misnomer to think that term insurance has to be kept up because it's in effect now and there is some opportunity lost if it lapses. That's an example of the sunk cost fallacy, I think. ALL life insurance is simply a premium paid so that a payout will be made IF one dies IN A CERTAIN TIME. We're all gonna go one day, but if I die tomorrow with a wife and minor children it's a different matter than if I die as a widower with grown children.
There are life insurance products where you are paying for guaranteed premiums for longer, and there are whole life products where you're paying enough so that eventually you're "paid up for life," but the cost of the insurance is reckoned about the same regardless of the trappings.
In other words, you can't buy life insurance, you can only rent it. Term life products - you don't need it any more, let it lapse.
The only minor risk you run by not having life insurance while you're young and without dependents is that if you got a health condition when you were a few years older and had dependents/obligations you'd find it harder/more expensive to buy.
But weigh that against the certainty that you're paying month after month for insurance you don't need because you have no dependents, and I'd say don't buy it at all.
Because of your past with your parents, I wouldn't buy from their "friend" or pick up the existing policy even if you needed insurance and it was a great deal.
Also, I'd be paranoid enough in this case to note the name of the company they're talking about moving you to and checking back later to ensure they didn't fraudulently take it out in your name anyway. Since they're asking you to pay for it, that seems less likely, but you never know.
My sympathy for your family situation. Mine wasn't quite this whack, but I can relate to parents expecting me to just fend for myself from the moment I was able to earn even a little bit of money (and making decisions for me even while I was paying for them).
posted by randomkeystrike at 11:50 AM on December 17, 2015 [1 favorite]
When I was a child, my parents bought a small policy on me. They did it so they would have enough to bury me if I died. Funeral expenses can be a reason to have a policy if you have no dependents, but term would still be the way to go.
posted by FencingGal at 6:22 PM on December 17, 2015
posted by FencingGal at 6:22 PM on December 17, 2015
If they're co-signers on your college loans, this makes sense. Answer honestly on the insurance application, but this doesn't strike me as a big deal.
posted by jpe at 6:24 PM on December 17, 2015 [1 favorite]
posted by jpe at 6:24 PM on December 17, 2015 [1 favorite]
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posted by brainmouse at 9:45 PM on December 16, 2015 [3 favorites]