Is Insurance Really That Philanthropic?

Q: We recently attended a fancy free meal put on by Imperial Finance and Training. They had assembled a group of seniors, all of whom had a net worth of at least $1,000,000. They gave us a great meal as they tried to sell us on buying into a Universal Life insurance... program that goes like this example:

They will pay the premium for a 72 year old non-smoker on a $3,000,000 policy where they claim the payments are $105,000 per year. At the end of five years they will sell the policy on the open market for $800,000, subtract their investment plus interest and give the balance to the 72 year old. So, this is presented as a no risk opportunity to us seniors. I don’t know what the catch is, but I can’t believe the Insurance is that philanthropic.

Have you heard of this scheme?

A: Yes, and there is a problem of intent here. I remember hearing something about insurers cancelling these policies if they find out they were purchased with the intent to sell them.

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Is an Annuity Protected from Medicaid?

Q: I was told, by a senior financial advisor that an annuity is a way of safe guarding your money so Medicaid can not touch it and count it as an asset if you take it out five years before needing to go into a care home. He said it used to be 3 years, but Medicaid change the duration to 5 years.

A: I'm not sure I would want to trust an insurance agent on this one. Think about it... The government isn't going to allow people to put their money into an annuity where they can still have access to it and then allow them to receive Mediciad.

This tactic was being used before the recent change in legislation. My understanding is that a contract that is annuitized won't affect Medicaid eligibilty, but that's because the monthly payment must get used before Medicaid pays anything.

If in doubt, call the Medicaid office and ask them.

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Update to Your Article on Equity Indexed Annuities?

I just read your article on Equity Indexed Annuities.

I have encountered an EIA salesman, who makes a very powerful presentation as to the merits of EIAs.

My question is: Is there an update to your article, pro or con?

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Considering Equity Indexed Annuities

We are considering an EIA and we are retired, no longer earning an income. We have Social Security and savings.

We’re working with a financial advisor who is strongly pushing EIA for us. Now, I’m reading some of the warnings, before we jump into this.

Your article says that there are "much better ways to earn a decent market return at low risk and you don’t have to give up control of your money to do it." So, OK give use some of those alternatives and options.

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Question About Closed-End Funds

Q: What specific closed-end funds would you be buying now ?

A: Sorry, that’s information that is reserved for my clients. I’d be happy to talk with you about how I might allocate your account if I were managing it.

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Searching for No-Load Indexed Universal Life

Q: I just read your article about indexed universal life insurance. Do you know where I can find no load indexed universal life insurance?

A: Try a Google search. Two companies that I am aware of are Amertas Direct and TIAA-CREF.

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Your Article on Annuities

Q: I regret that I didn't check SeniorJournal.com first before I signed all the papers for the Equity Indexed Annuity. The reason I suspect that I was a target of such schemes is because the sales agent never asked me to read all the papers just asked me to sign them.

After I read your article on... the senior journal, then I realized the EIA offered by "Sun Life Insurance Co." must pay all the sales agents a very high commission, otherwise the sales agent wouldn't want to put my money into this company's EIA without even consulting with me at all.

Although, I signed all the papers that I never read. The good thing is I didn't transfer my money to the sales agent yet. I already sold my stock and the money is sitting in my bank account for now. I want to check with you about this Sun Life Insurance Company before I'll continue the next step.

(1) Does the rating of the EIA issued by this company is good or bad? (2) The sales agent belong to "Tarkenton Financial", a National Insurance Marketing Company. This company has offices in both Las Vegas, Nevada and St. George, Utah.

Is this company legitimate? If so, does this Company's financial situation stable?

Your prompt help will be appreciated very very much. Thank you again.

A: Thanks for contacting me.

I think you are asking the wrong questions because they really aren’t relevent. A good place to start is to educate yourself on the financial services industry. This Special Report will help you know if you even need an advisor:

Financial Self Defense

Let me know if I can be of further help.

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3 Year Guarantee on a 5 Year Annuity?

Q: I have a cd that has matured and my bank (National City) is suggesting that it would be best if I put my money into a no-cost annuity for 5 years. They tell me that the rate of 4.95% is guaranteed for 3 years.

Is this a farce or is this for real? They tell me that I can take out as much as 15% per year but I did not know to ask if there was a penalty. What else might I need to know?

A: Most likely the surrender penalties last for 5 years, but the rate only for 3 years. So you don’t know what the rate will be the last two years.

Would you buy a 5-year CD where you only knew the rate for 3 years? Don’t believe the no-cost, the bank receives a commission from the insurance company and thus has a conflict of interest in recommending it.

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Is My Mother's Home Exempt as an Asset for Medicaid?

The question I have is in regards to my mother. She owns her home in Oregon free and clear. If she has to go into a rest home, will her home become an asset of value for medicaid, or is it exempt. If it is not exempt, what would be the best scenario to maintain this asset?

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Investment Alternatives to Permanent Life Insurance

Q: I just happened upon your article concerning the fallacies of Permanent Life Insurance. My insurance agent is a "trusted" colleague, yet I am dismayed by your opinions.

My agent is convincing my husband and I to buy $200,000 dollars worth of Universal Variable Life Insurance EACH. We are 28 and 30 years old. I am a public school teacher. My husband... is a free-lance translator. We have no real-estate. We have $25,000 earning 6% interest in a credit union. We also have 10,000 earning 4% interest in a money-market. We also have $20,000 invested through Fidelity in Verizon stock and various mutual funds. We have no credit card debt and only minimal car and student loan debt.

I was swayed by the fact that our retirement withdrawals would be tax-free. If I die, I realize that the death benefits will be reduced, but I am thinking of this account as a retirement savings account more than a life insurance policy.

If I invest in a 403(b) through my school, I will pay taxes on my withdrawals, and I think my tax bracket will be greater at retirement age. Maybe the best option for us is an IRA in which I pay the taxes on the deposits??

A: A Roth IRA would result in tax free withdrawals. A 401(k) does have the benefit of tax deferral, the ability to roll it to an IRA and then for your children to stretch the taxes over their lifetime.

The bottom line, in my opinion, is that insurance is not an efficient investment vehicle.

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I Got Suckered

Q: Is there a way to get out of an index annuity successfully? I'm one of the "suckers" who was tired of losing money and listened to the sales pitch of how you can't lose. I feel very, very stupid and very sad. I was never told before I signed all the various papers that there were incredibly huge surrender charges.

If I had been told specifically that it would cost almost 25% to use my own money I NEVER would have done this. Because I thought there was no way out, I haven't pursued doing so. After learning that my hard earned money saved from all the years I taught was making hardly anything, I've decided that I need to do something. Can you give me any encouragement? Should I hire an insurance lawyer?

A: It might be worth your while to have an attorney write letters to the EIA company on your behalf.

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Thinking About a Life Insurance Policy for My Son

I have been thinking of purchasing a life insurance policy for my 18 yr old son. Here is why. I'm 52 yrs old. My family has a large number of people that have had colon cancer. A local Cancer research group identified a Gene that causes this high rate of cancer in our family. I happen to have this Gene. I recently... tried to get a new life policy and was put into a high risk class because of my family history and had to deny the high premiums and keep a very poor policy that I already had.

I'm afraid that my son may have difficulty getting a good rate on any kind of policy when he is 30 or 40 years old. So I was thinking of purchasing him a 50K policy now while he is in good health and so far I don't have cancer so his rating should be pretty good.

I looked at two policies.

A Variable Whole Life policy from Nortwestern Mutual and a VUL from Allstate (Lincoln Benefit).

The agent from Northwestern said the VUL policies are very bad. He said the illustrations look good up front, but it doesn't reflect actual insurance costs when you get older. When you get older the cost of insurance will actually be higher and the policy will 'fall apart' because of higher expenses that weren't reflected accurately in the illustration. He claims the Variable Whole life policy correctly reflects these costs in the illustration. Yes, he admits more of the premium is taken out up front to cover the insurance but he points out that in this policy you aren't buying one year term insurance like you do in a VUL and the costs of insurance down the road is not as much as the VUL. Hope that makes sense.

The Allstate agent says the Variable Whole life policy is laden with heavy fees and to stay away from them. That is why Allstate and others developed the VUL. Lower fees and more money in the side fund etc. He also points out that you can borrow money in their VUL for about 1/3 of a percent...almost zero percent in retirment years where the Variable Whole life policy has a 1.5% load fee which further eats away at loans that are taken in retirement years.

I feel I should do something to secure at least a little insurance for my son while he is young and in good health.

Any comments would be greatly appreciated.

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Should We Take Surrender Penalty Fees?

Q: I read your article...

What if we already paid $8,000 into a variable life policy (each policy). If we get out now, our surrender charge would be $4,000 (each policy). Do you advise this?

A: Once you're in one of these it's a matter of finding the best way to manage it. You need to look at the penalty versus what you would earn on other investments. If your penalty is 25%, and you only earn 3% more somewhere else, it will take over 8 years to make up what you lost.

You can look into whether you should put any more money into it. You might also be able to reduce the death benefit so that less comes out for the cost of insurance.

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Losing Insurance Due to Insufficient Funds

Q: I recently reviewed my universal life policy and found that by 2024 I will have no insurance left, due to poor return on their investments and their charges to manage my policy. This is after paying on this policy for 20 years.

Even though I was a smoker when I took it out in 1988, and still smoke now, the difference in premiums for a new policy, whether term or whole life, is more than I can justify. Do you have any suggestions?

I am 57 years old, and have no health problems. Or would I be better off... taking the cash value and putting it in a cd? Until recently, I thought when the company said that my policy would be in effect until 2024, that I would not have to pay on it anymore, and not that it would be lapsed due to insufficent funds.

Thanks for the information in your article.

A: Unfortunately, your situation is not unique. Few realize that the projections used when selling these policies are hypothetical and that the policy will work quite differently if the projections aren't reached.

You have to determine whether you still have a need for insurance. If you do, you need to see how much you will have to pay each year to keep the current one in force--using very conservative interest rate projections. Compare that to the cost of other policies and decided.

If you don't need the insurance, then you can surrender it and use the cash value. Based on how much you've paid it, all/portion of it may be taxable.

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Zack's Wealth Management FOLIOfn

Q: Perhaps this question is unfair. I have recently allowed Zacks Wealth Management to invest some of my money with their partner broker-dealer FOLIOfn. If you don't mind responding, what is your opinion of those companies? I look forward to receiving your weekly articles. Thanks.

A: I think I have looked at Zack's research before... but don't have the familiarity to be able to comment on them specifically. They are the ones deciding what to buy and when, Foliofn is just the vehicle they are using to facilitate the process.

The main issue is whether you agree with their management philosophy and whether or not they have been successful. They can have great performance and still be the wrong advisor for you. It's about matching your views/philosophy, etc. with an advisor that of your advisor.

Here's a Special Report that talks about my approach and philosophy. I offer this in an effort to try to give you an idea of what I mean by strategy and philosophy.

Financial Self Defense

Let me know if I can be of further help.

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Forced to Accept Surrender Value on Universal Life

I have read your article on Universal Life and have a question. The policy I own has matured. They want me to accept around $1200 as the net surrender value. I only have 15 days to do this or they will cancel the policy and send me a check for this amount. They failed to inform me that the policy had matured in January 2007. I just received a letter regarding this early this month, October 2007.

They claim I have other options but I do not want to surrender the policy as they are asking me to. Am I still guaranteed the death benefit?

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What About Formulaic Funds?

Q: I do invest in Vanguard index funds with an allocation recommended by their planning area (50/50 with diversification of funds).

I recently heard about passive or so called formulaic funds. I can only... make portfolio changes at specified times. Passive funds are touted as being even lower fees than index funds.

Any comments?

A: Instead of looking at individual investments, it might be better to first step back and decide on the overall strategy and philosophy that you have in your approach to investing. That can then guide you in your individual decisions.

Here's a Special Report that explains my philosophy and strategy. It might help you better understand what I am referring to.

Financial Self Defense

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Escalating Premiums on Universal Life

I originally (52 years ago) bought a $10,000 whole life policy from the then Mutual Benefit Life. Eventually, because of bad investments in commercial real estate, it went into receivership. Anchor took it over.

Prior to that, a representative for Mutual Benefit convinced me that I should let him change my policy into one that would give me a higher face value, and let the cash value help pay the premiums. For six or eight years I had no premiums to pay. Then, in 1996, a monthly premium of $20 some dollars, later $48. Now... for 2008, the premium will be $127, and it goes out of sight for the next five years.

A representative on phone, told me the policy I have is a Universal Life policy, and it was a mistake to have gotten that. I can't change it with them for a whole life, but he suggested that I could with a different company.

The face value is $22,500, and the cash value is about $10,800. What are my options? Can I cash in the policy and get the cash value. If so, I will put it in a CD, or whatever to cover my burial expenses. Or, if I can, exchange it for a different kind of insurance with modest premiums. I would be interested in that. I only need about $10-15,000 to cover funeral expenses. I am 78 years old, a widower, and in relatively good health. Your suggestions wil be much appreciated.

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Thanks for the Information on Annuities

Q: Thank you for your wonderful reports, I'm so angry right now I could spit nails in regards to the Allianz situation.

My mother who is nearly 80 years old put a bunch of her money into Allianz and my husband put the money from his only 401k into Allianz also, back in 2005 (I think). Mom has received information on a class action suit, but Allianz told my husband his account was different and not part of that lawsuit.

I so appreciate your reports and website. I am trying hard to learn about all of this in a short time. I need to help my mom out somehow so she doesn't lose everything, and try to figure out how to help my husband as well. He is approaching retirement, and the financial advisor, who sold them the Allianz products, I will never trust again and will get no more of our business.

I'm off to read more! And again, thank you so much for your whole attitude and writing in such a way that I can understand most of it!


A: You are welcome.

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