This one’s not really an annuity story, but probably sets the stage for a new book, “Got Life Insurance?”, “Got Whole Life?”, or something like that.
Johnny is a professional in his mid-40s who does quite well. He came to a workshop to better understand the annuities he thought he had.
When we sat down and read his contracts, it turned out to be far worse than he had feared. What he really had was Variable Universal Life insurance (“VUL”), a cash value life insurance product that allows one to risk cash value by investing in mutual fund-style sub accounts, which, like their annuities counterparts, tend to be on the hard-to-get-disclosure but very expensive side. Not that variable life does not have its place (like the last-to-die kind for estate tax planning in insurance trusts for the elderly wealthy who care), but John was definitely not it. He had been paying something like $3,000 a month ($36K a year) into what the agent told him was a “term life/annuity combination.” The reality is that he had VUL with zero cash value (because of exorbitant charges and commissions, and poor fund selection/performance) after over $100K in premiums! Just to clue you in, commissions to the field on this sort of product generally run something like 100% of the first year’s premium (maybe $36,000 in this case), which goes a long way towards explaining why cash values in pure life insurance products take so long to develop. Worse still, instead of getting the amount of insurance he needed to protect his family by buying maybe a million of cheap term for hundreds a year, he was spending thousands a month and underinsured. And the major cash flow of $3,000 per month that should-a, could-a been invested for Johnny-and-wife’s financial security and retirement, to say nothing of the kid’s college funding needs, was dancing at the edge of the life insurance bonfire, instead.
Next Steps
We suggested that Johnny apply for an appropriate amount of cheap term insurance and dump his expensive VUL, if approved, at reasonable rates for the term. The freed cash flow should then be directed at the family’s real goals. We offered to help the couple prepare a complaint if they wanted and the facts warranted; they declined, as many do, for some reason taking responsibility for being hoodwinked in areas they know nothing about and rely on those holding themselves out to be experts.
The agent probably still has whatever the $36,000 commission bought him, but Johnny and Mary would just rather forget the whole thing.
The preceding story is based on an actual situation and was shared by an investor we met in our professional practice. The names and non-material details have been changed to protect identities. The essential facts dealing with product representations and sales practices have been faithfully recorded.
This case history may amaze, amuse, and incite you. It may also inspire you to take action if you had a similar experience.
Most importantly, this case study may help you to realize that you are not alone, if you feel that you may have been subject to less-than-forthcoming annuities sales tactics. From the high number of cases we’ve seen like this, we can only infer this kind of monkey business is too common where these products are concerned.
Camarda offers free Portfolio Stress Tests which can include annuity cost/benefit analysis and rescue plans. To request one just click here – no cost or obligation.
