Life insurance as an investment?

[disneysteve]

My husband and I just went through a financial review with a "financial advisor" who turned out to be an insurance salesman. He was pressing us full force to buy a whole life policy on my husband. In order to afford this very expensive whole life policy, he suggested that we refinance our mortgage from 3 years left on it back to a 30 year mortgage AND stop contributing to our 401k.

I would not hesitate to report this guy to your state's division of banking and insurance. What he is doing is illegal. Misrepresenting insurance products as investments is not allowed. It continues to go on every day but not generally to the extreme like in this case.

Years ago when I was young and stupid (weren't we all), I bought a whole life policy. In about 2 years, when I wised up and realized what a mistake I had made, I cancelled the policy and replaced it with low cost term coverage. A couple of years later, I got a court notice that there was a class action suit against the insurance company (one of the big name companies) for misrepresenting those policies as investments, which was exactly what had happened with me. The case ended up being settled and I received a nice check reimbursing me for all I had paid in in premiums. From all I hear, though, the insurance companies haven't changed their tactics one bit since then.

[frugalgirl]

I would not hesitate to report this guy to your state's division of banking and insurance. What he is doing is illegal. Misrepresenting insurance products as investments is not allowed. It continues to go on every day but not generally to the extreme like in this case.

Well, he definitely told us we needed to have more life insurance so we knew that we were being offered life insurance. He also pointed out how getting it would benefit us. He did this by using the LEAP system (leap = lifetime economic acceleration process) to show how this is a good idea. He used the LEAP software package to analyze how much insurance we needed. Because the analysis showed that we needed to have more insurance, he used this as a way to show how whole life insurance could serve several purposes: providing the extra insurance we needed now plus providing guaranteed tax deferred cash value that we could use in our retirement. I am not familiar with the laws but I doubt he actually did anything wrong. I will check into it more though. Bottom line: I would stay away from anyone who is a LEAP advocate.

Despite the fancy LEAP software, we were smart enough to realize that we did not need any more insurance and we certainly did not want to refinance a mortgage with 2.5 years left to one with 30 years AND put all of our 401k money into a whole life insurance policy!

[disneysteve]

I am not familiar with the laws but I doubt he actually did anything wrong. I will check into it more though. Bottom line: I would stay away from anyone who is a LEAP advocate.

He may not have actually violated the law, but telling a potential client to refinance their house and stop funding their retirement to buy an insurance policy is clearly inappropriate. If it were me, I'd probably file a complaint with the insurance board. Even within the industry, they don't want bozos like that out there. That's what gives the whole field a bad reputation.

[financebanter]

Re: Life insurance as an investment?

It's really good that you are concern about your father. If you really want to help him, then support him. I will suggest you to cheer up and be positive.

[Aleta]

Many years ago, I encouraged my Mom to set aside enough for a CD. I think it was $8,000. instead of buying a policy for $10,000. which was going to cost her a lot more than what she would have earned on the money she had in a money market. She just had a 1 year CD and allowed it to renew automatically at the new rate. At the time, the rates were higher. A few years ago when her health declined, the CD was cashed and she pre-paid her funeral and plot expenses. She passed away in December of 2009 and that decision turned out to be a very good one.

Her CD in the end kept her from qualifying for certain benefits so it was better for her in the end to just make her will, and pre-pay her expenses.