Expense Charges and Cost of Insurance Fees. WTH?

[MichaelBurton]

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.

And here, my friends, is why cash value policies so frequently fail: they are sold to (and bought by) people who don't have the margin or patience to sustain a policy until its virtues can be experienced.

It sounds like 1) you bit off more than you can chew, and 2) your cousin failed to drill into you how long and miserable it would be for you to own the policy before you had more value than you'd paid into it.

You probably shouldn't have bought this. But that doesn't mean you shouldn't keep it.

Whatever you do, if you keep the policy, commit and don't torture yourself (and your cousin) second-guessing yourself (and him) for the next 5 years. Accept that it's a long-haul deal. Or punt.

Also, on behalf of your cousin, I'll go ahead and tell you that, unless you hate your cousin, you should try to keep the policy through the first full year. Otherwise, he'll get "charged back" the commission (or a portion of it), which is no fun at all.

Good luck.

 

[pfg1]

I'm with SC. Sounds about right.

The question is... do you expect the company to give you $150k policy for $100/mo... and every penny you pay to also be in the cash value from day 1? Insurance isn't free.

If you are complaining now about a net loss initially, would you be mad if the company complains down the road when you have a net gain? Trust me, the long term numbers on most perm policy - the net gains will FAR surpass the initial net loss in cash output.

I believe you did a great thing purchasing insurance on your kids. Most people don't. Down the road you will be glad you did... and at some point for every $100 premium payment you make, the policy will likely grow by $200 or more. At that time you can think back about when you were upset about losing a little short term, to gain alot long term.

 

[rcduggan]

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?

couldn't have said it better myself

 

[Ksutton]

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.

Do you insure your car? Do you insure your residence ? Maybe your phone ? On any of these, do they give you money back? Do you "break even" on the payments?

You are talking about a life insurance policy with living benefits . There is a cost to insure and a full death benefit , this is not just a cash cow .

 

[Mattschmidt]

Do you insure your car? Do you insure your residence ? Maybe your phone ? On any of these, do they give you money back? Do you "break even" on the payments?

You are talking about a life insurance policy with living benefits . There is a cost to insure and a full death benefit , this is not just a cash cow .

Well said. And let's not forget, when in doubt, think "what would Ben Reder do?"

 

[LGilmore]

The funny thing is B shares, which is what her premiums would buy also have a breakpoint of about 8 years, which when most switch to A shares.

the thing is though in this case it sounds or was understood as being an investment then insurance, rather than insurance with investment characteristics.

the OP also doesn't or wasn't taught about risk. This is what trips up a lot of people they do comparison of products with out regard or thinking that risk is the same.

 

[ra2783]

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.

Lewis, this is a nice breakdown of the policy costs. Are these costs broken down like this by NLG in the illustration and/or the actual policy?

 

[Lewis_FL]

Got that out of the product guide. Probably on the illustration too.