Expense Charges and Cost of Insurance Fees. WTH?

[Badumas]

Hello. First time posting here on this forum. I'll just come out and make this story short and sweet. Hopefully someone can chime in. I have been sold and have been paying $100 a month towards my kids' Flexlife insurance from NLC. Didn't pay no mind to it for awhile. After a year and $1,200 later, i got a statement mailed to me. After reading the summary, there was $300 some dollars in Expense Charges and $100 some dollars in Cost of Insurance, leaving a $700 some dollar net. Are these fees one time charges? Its Sunday and I can't call them. Also, my cousin is the agent that sold me this. Yea, its family. Thinking about bailing out. Something doesn't make sense here.

Your thoughts? Thanks

 

[DHK]

First year on an insurance policy... and you've paid $1,200.

Of which, you have $700 of cash value (whether it's just an account value or surrender value is not clear in your post). So you've paid a total of $500 in expenses for INSURANCE on your child.

I don't know the death benefit amounts, but insurance is not free. There are charges and expenses.

Is it a one-time charge? No. For as long as you want insurance in-force on your child, the charges will continue. If you stop paying on the policy, the expenses will continue to eat up whatever cash values you have. They may continue to increase as you age, depending on the structure of your policy.

However, if this policy is well-structured (and it might be), then you'd WANT to keep funding it over time. Life insurance wealth-building isn't a "one-year" "investment" strategy. It's a long-term wealth building strategy.


Does that help? Or is there still anything in particular that doesn't make sense?

 

[Lewis_FL]

They are not one time charges. Your monthly policy fee is $6. The cost of insurance comes out every month. The coi rate goes up every year however the total amount may decrease depending on your cash value. There is a 6% premium load for every payment. There is also 0.03% monthly fee on the CV for the first 10 years. Also a per thousand charge for the first 10 years. Don't forget about the surrender charge for the 1st 10 years too. If you bail you get 0. Every insurance policy has expenses. Nothing inherently wrong with that. You don't make $ in the first year. You might "break even" in 15 years or so. Your kid will need life insurance some day. This policy could last forever but needs to be funded for 30-40 years or more.

 

[Badumas]

Hi DHK,

Thanks for the response. Here is the breakdown after 12 months on the policy. Yes, according to the sales pitch, its a long term money growing type of policy. I believe the death payout is $150,000k. The summary reads $1,200 Gross Premiums, Expense Charges -$354, Cost of Insurance -$104, Interest Credited + $8.82, and ending Accumulated Value is $749.

So thats where we are at. I know in the back of my mind that the policy wasn't going be no cash cow in the infant stages and its first year. However, I didn't expect to lose close to 35% either. In addition, my son is on the same exact policy too. My situation is that i am the sole provider for my two teen kids. One is about to graduate HS and attend college. Every penny counts and my children has like 6 to 8 years of post secondary school. My worst fear is obviously being under the principal amount after 8 years of paying into the premiums. Hope that clears things up. I guess it will clear up once i call them tomorrow. No way the fees and charges are fixed annually.

Thanks

 

[DHK]

If the policy is structured well, you should be at a break-even point at about the 8 year mark. It could be sooner depending on the policy.

As far as paying for college using this policy, even if you had the full $1,200... it's a drop in the bucket compared to the costs of college. The advantage you have, is when you file the FAFSA, this policy doesn't count against you when applying for financial aid... nor would any withdrawals or loan proceeds from the policy.

If you open your policy up, a copy of the illustration should be inside it, so you can get an idea of how well your policy performed to the illustration. Also, you can compare your anticipated premiums versus estimated policy performance in the illustration.

I would probably focus more on what you could do with the policy AFTER they are out of college and your options at that point in time.

Here's the secret: In many policies, if you BORROW out the money, the original balance will continue to grow as though you haven't touched it.

For example: Assume that 15 years from now your policy is worth $25,000 and earning 5%. That would be $1,250 of interest earned.

If you take out a loan against your policy's cash value for $20,000 (to buy a car or whatever) and suppose your loan interest is also 5% = $1,000 loan cost.

If you don't pay the loan interest each year, then $1,250 policy gain - $1,000 loan interest = $250 net gain.

But if you DO pay the loan interest each year, then $1,250 policy gain - $1,000 loan interest + $1,000 loan interest paid out of pocket = $1,250 gain.

The money continues to grow as though you haven't touched it, and you can borrow against it again if you repay the principal loan balance AND continue to fund the policy.

It's a great long-term strategy... but yeah, it takes some time over time.

 

[scagnt83]

The policy is structured perfectly from the sounds of it. This year you paid $300 for a $150k death benefit. That is dirt cheap. In future years the Cash Value increase will be more than what you put into it. It just takes more than 1 year for that to happen.

 

[MichaelBurton]

Is this to pay for college? Or for protection?

It makes a big difference on how it should be designed and funded.

Protection:. buy term.

Cash value/college funding: overfund a blended policy.

If you want to make it more efficient, your answer might be to put more money in the plan, not less.

 

[Badumas]

The insurance is not college related and its for my kids, in the event if something happens to them and to grow. I was just amazed at the fees and 8 to 10 years just to break even. We are talking about a grand total of 2,400 per year for both of them when my budget is getting tight.

 

[jboussea]

The insurance is not college related and its for my kids, in the event if something happens to them and to grow. I was just amazed at the fees and 8 to 10 years just to break even. We are talking about a grand total of 2,400 per year for both of them when my budget is getting tight.

in your policy paperwork.. there should be an illustration ... that shows how the policy is supposed to perform over time... It spells it out for you ... It should give you an idea when you will break even in your specific policy

That 35% you're "losing" will diminish every year until you break even and then it will start taking money and once it starts ..it's guaranteed to never stop... unless you make some chances... it's a beautiful thing.. you can't say that about many investment strategies... oh and by the way.. your kids are protected if you die ..which is the reason you're paying the money in the 1st place

 

[Mattschmidt]

The insurance is not college related and its for my kids, in the event if something happens to them and to grow. I was just amazed at the fees and 8 to 10 years just to break even. We are talking about a grand total of 2,400 per year for both of them when my budget is getting tight.

You keep mentioning breaking even. Life Insurance isn't about breaking even.

God forbid, if your children were to pass away today, would you had paid more into the policy, then the death benefit you'd receive?