I'm 22 years old. I want to become finanacially independent from my parents. Currently I am still attending school but I'll be graduating in two weeks. I haven't found a job yet and at the moment I am not pursuing grad school. About a month ago, I went to an American Express financial advisor ne he assessed my situation and he recommends that I apply for the American Express Variable Universal Life insurance.
Basically, I have about $15,000 worth in assets and he wants me to put in $161 each month. 25% of that or $40 goes towards the $250,000 insurance policy while the remaining goes into investments that includes stocks and bonds and CDs and could possibly earn a profit of 10%-15%. He suggests this as a long term investment vessel and I should keep it for atleast 10 years.
He saids that when I'm employed, I can put as much as $350 monthly into it but there's a minimum of $161. I didn't know insurance and investments could be combined into such a plan. I still have to pass some medical exams and interview before I get "accepted" into the policy so I guess I can still cancel.
Does anyone have any opinions or advice about this type of thing? Oh, he also mentioned that I can take out my investments "tax-free".
ChampagneDan
Member
posted: May. 31, 2003 @ 5:51p
I would think very carefully before getting into this kind of insurance policy. Remember that insurance agents and brokers receive substantial commissions for selling universal and whole life policies. There are large surrender fees to ensure insurance companies never have to eat the commission when a policyholder bails. While I obviously don't have all the facts about your situation, it sounds to me like you would probably be buying insurance you don't need. You would, in other words, be throwing away the cost of insurance each month. A common agent scam is to sell people insurance policies as college or retirement savings vehicles.
Even if you were in a position where you needed life insurance, I'd seriously compare the costs of term insurance. It might be better to buy this cheaper insurance for the time period when it's necessary and then invest the rest of your money elsewhere.
I don't know where the "10-15%" return figures came from, but there's no magic to return on the money tied up in the separate account. You could obviously do equally well by buying into mutual funds on your own. I'm sure all of you savvy FatWallet-types aren't going to be fooled by an agent's colorful illustrations.
Have you already maxed out your Roth IRA? I think that's a good first move. When you start working, you'll be able to contribute to a 401(k). Also, while tax-advantaged savings is certainly important, don't forget that the taxation of long-term gains is not too bad.
At your age you are better off purchasing a term life policy and investing your money elsewhere.
Also, unless you are married or have a significant other that you would like to take care of in the event of your death, there is no reason to get life insurance.
In my opinion (I am not a financial advisor), your best bet once you are employed is to: 1. May sure you have saved up 3 months of living expenses in case you lose your job. 2. Max out your employer match on your 401K or 403B 3. Open a Roth IRA with the remaining money and invest in equities.
What you should do with the $15K right now depends on your situation and some important questions: You should build your budget and determine what you need to live on... - Rent, Utility bills, food, insurance, money for entertainmneet, gas, etc... (try to keep 3-6 months of living expenses in a savings or money market.
Now for the big questions: - Are you planning on getting married? - Are you planning on buying a house? - Are you planning on purchasing a car?
If you are planning on no major purchases for at least 12 months, look at the thread here on I and EE bonds... follow the thread on using interest free casg back credit cards with the bonds to earn a safe 5% or more.
As for that 10-12% per year, ask to see results of that type of investment over the past 3 years. I will bet that they have lost 10-12% instead of gained..
just my $0.02
---Evan
RJSachs
Senior Member
posted: May. 31, 2003 @ 7:30p
TrueKnight said:
<< Does anyone have any opinions or advice about this type of thing? >>
Let me put it bluntly; You're getting ripped off.
noless
Senior Member
posted: May. 31, 2003 @ 8:02p
He is an insurance salesman trying to sell you insurance that you don't need. He definitely does not have your best interest in mind. He is looking for a big, fat commission check. As was stated above, unless you have a dependent that would not be able to get along financially without you, you don't need life insurance. There may be some investment aspect to this policy, but it is not a very wise investment.
groundballgolfer
Member
posted: May. 31, 2003 @ 9:05p
The commission on these things are gross(the broker gets some year after year). Buy a 30 year term policy and invest the rest. With the new tax law, long term captial gains with be taxed at a much lower rate.
Don't do it. Get a term life for much cheaper and use the money you saved to invest yourself. You will be much better off that way.
unknownshopper
Senior Member<br>6K
posted: May. 31, 2003 @ 10:46p
There is a time and place for nearly every financial product, perhaps even UVL.
But pitching it to unemployed 22 year olds with little or no assets? Sheesh.
I guess everybody needs to eat. Even insurance agents such as this one. But I wouldn't feel the need to feed him.
SomeOtherChick
Senior Member
posted: May. 31, 2003 @ 11:04p
TrueKnight said:
<< Does anyone have any opinions or advice about this type of thing? Oh, he also mentioned that I can take out my investments "tax-free". >>
Yes, I have an opinion and advice for you.
- Search around the finance forum and read up on insurance, why you'd want it, and what types apply to what situation
- NEVER use a financial advisor who sells insurance or annuities. These people are pushing these products on you to make comission for themselves, not because the products will actually help you. You probably got a free consultation offer from AMEX advisors, so you took the bait. If you want good advice, you must get an independant opinion - and that applies to EVERYTHING - lawyers, doctors, accountants, financial advisors, home inspectors, the list goes on. Ask friends and associates for referral to an advisor they've used, trust, and are happy with - I've never heard of anyone who was happy with AMEX advisors, and I know a couple who used to work for them.
- take the advice given by evanm above.
- if you have huge debts that you didn't mention, consider getting term life so your heirs (parents, siblings) don't have to deal with dissolving your 15k in assets (I'm guessing its a car). Also, it's not too early to consider estate planning - get a simple will and health care proxy... and whatever else it is they recommend in the forum.
Thanks for the input everyone. Everyone seems that they are against this sort of thing. It's unfortunate that I have paid this advisor $400 for his advice already. I guess paying for his professional service was a falsed pretense that I'm actually getting helped when he was helping himself. I will contact him and tell him that I am no longer interested in this plan and to ask him to suggest another. I do think the fees are kind of high, especially 25%.
I don't think I need life insurance at this point, I just want investments at the moment. I put the $250,000 benefit for my parents. I'm currently still under the family policy too. I am single and I have no children so yeah, I still don't see a reason.
<< Have you already maxed out your Roth IRA? I >>
I haven't maxed out anything. I'm just starting off here and I'm still looking for a job but I do know to put in money into those retirement accounts asap.
from what i understand, American Express has some sort of guarantee where u can get the $400 back if u disagree or dun like the plan/advice. u might want to look into that.
waterman
Senior Member
posted: Jun. 1, 2003 @ 12:57a
I would cancel payment or protest the $400 charge.
Whole life is simply a scam. Selling life insurance to a 22 year old is just as shameful.
Your mistake was going to an insurance company for advice. Ask friends and family for a great CPA that does tax work - ask the CPA to to help you or get a referral from the CPA.
Boreal21
Senior Member - 1K
posted: Jun. 1, 2003 @ 3:04a
There's a time/place for just about everything, but at the moment it doesn't look like you've even got a need for insurance. If you do need it, or want to use it as a vehicle to grow money, VUL is the best cash value insurance available. I personally like it over 401k unless you get at least a 50% employer match. As others have said... max out Roth and if you have surplus after that... what the heck. Go for a VUL. Get some decent sub accounts and you could be a made man by 45 or 50
Oh ya. I imagine you paid the first month's premium to get the ball rolling. Just ask for it back if you decide not to do the plan. Not sure what state you're in, but in UT you have 15 days from the time the policy is in your hands to cancel and get all premiums back.
You went to an life insurance salesman, not a finamcial advisor. Life insurance salemen do't like to call themselves that since they have such a bad reputation, so they call themselves financial advisors. Most of your first year's premium will go to his commisssion...really! You could not have done a worse investment, especially for your age...try to get out quickly!
unknownshopper
Senior Member<br>6K
posted: Jun. 1, 2003 @ 9:14a
FWIW - Sometimes the commission is actually greater than the first year's premium.
Folks ... this kid's already got enough pressure graduating in the current environment without a job. Sounds like he may even have finals left to do. How 'bout we focus more on what he COULD do than blast him for what he got manipulated into?
Things to consider from the above postings:
1. Get the refund for the advisor fee ASAP. Don't ask the advisor for it, since there's a good chance he will try to run out any 'reconsideration period' before you get a chance to air your side of the story. Go up the chain. In writing.
2. Look into setting up a ROTH IRA. You're probably in the lowest tax bracket you will ever see. Tax deferred investments probably will cost you more than they will save. With a Roth, you can put in post-tax dollars and see them appreciate tax-free. The only hitch is that you will need to suppress your more base desires and keep your hands off of the money for a while for the appreciation to be tax free. Others can provide more details and links.
3. The savings bond thread by DH has some good tips. Same for threads on ING.
Good luck.
dsmking
Senior Member - 1K
posted: Jun. 1, 2003 @ 9:49a
Trueknight said << will contact him and tell him that I am no longer interested in this plan and to ask him to suggest another. >>
You still want to contact that shark?. You didn't get it from reading all these good people who spent time telling you the pros & cons?. Your first order of business is to dump that advisor. Forget your $400 bucks. Don't chase your good money on that shark. I was there before. Me and my collegues fell for it. When we realised, I was the first to get out after loosing about 500 bucks. Others wasted years and 10s of thousands before dumping these sharks. Atleast, you are smart enough to check soon. Think that $400 is down the drain. Go and borrow few books in the library, or buy a couple of them and get to know the things. After 10 years, you will remember all these guys/gals who posted here and thank.
Don't talk to some financial advisors. They are after their best interest, not yours - which means they want you to buy something so he can get a fat commision, whether your investment works out is not his business.
A excellent source of information is Bob Brinker's Money Talk radio show. Check www.bobbrinker.com for the schedules. You can learn a lot from his show. Also, read up. Get some books and read.
In any case, the best investment strategy is to get the knowledge to do it yourself, because you are the only one who is truely looking after you.
For that $400, it might be lost. But it is better to lose $400 now than to continue to pay hundreds or thousands of dollars into something you don't need and not good for you.
tooshy
Frivolous Member
posted: Jun. 1, 2003 @ 12:57p
Ditto, I don't trust financial advisors either. Even friends and family who sell insurance products are not good to buy from. They will still sell a high commission product, at least that was our experience. I think you can get far more impartial, helpful, cost-saving advice from the intelligent, experienced members in this forum (kudos to everyone's good advice above) At least do your homework via the internet before presenting friends/family with your insurance needs.
Sorry you spent $400, I'd complain and try to get this money back
spikoman
Happy Member
posted: Jun. 1, 2003 @ 1:02p
Once again, it is better to educate yourself than to trust a stranger. It is especially bad when there's conflict of interest. Having said that, I think it is okay to use an advisor but 1) don't buy anything from him/her (no conflict of interest) and 2) make sure you know the reason/logic behind the recommendations.
Education takes time and money but it is well worth it in the long run.
sliver8
Member
posted: Jun. 1, 2003 @ 2:41p
Tell my painful experience. My wife introduced her friend, a VUL agent to persuaded me to buy a VUL in 1997. He showed those rose picture such as 15% per yearly return,... cost covered by the investment return... But he never told me there is a surrender charge and most importantly, there is a 7% front charge bit you out of the money you just put, which include tax, and admin cost. So if you put $1000, only was there a $925 trunk left accountable.
The agent might tell you the term life insurance won't cover you afeter 70. Guess what cost to get $500,000 cover after 70 in a VUL, it will be around $50,000-$70,000 per year as premium. Since 1997, I put $28,000 into it, and now only left $10,000, because of the investment loss in a SP500 index fund, 7% upfront charge, $1800 yearly premimum. If I want to exit from current insurance now, it has another $6,000 surrender charge.
noless
Senior Member
posted: Jun. 1, 2003 @ 2:42p
American Express Financial Advisors 1-800-386-2042 I would call and ask them how to complain and get your money back. Don't take no for an answer. Don't worry about hurting this guys feelings. He is a shark. Also, don't feel stupid. I know many people that have been talked into this same type of thing. There were class action lawsuits not too many years ago, where companies were selling life insurance as retirement funds to teachers, nurses and the like.
riverbendgeorgia
Senior Member
posted: Jun. 1, 2003 @ 3:55p
Wow, That sucks, the original poster paid $400 to an insurance salesman to try and sell him insurance he does not need. I wish he had asked for advice before spending any money.
Okay I have left him a voicemail indicating that I wish to cancel my application. I guess I will be calling American Express to complain that this service was a waste of my time and money in a (futile) effort to get back the $400. I'd figure with a name like American Express and I figure that I'd be paying for "professional" guidance, I wouldn't be screwed over but I guess I was a fool. Thanks everyone.
Years ago, I think my dad was suckered into buying this type of life insurance. Sleazy agent. Be careful, people.
Valentino
Senior Member
posted: Aug. 21, 2003 @ 10:30p
sliver8 said:
<< Tell my painful experience. My wife introduced her friend, a VUL agent to persuaded me to buy a VUL in 1997. He showed those rose picture such as 15% per yearly return,... cost covered by the investment return... But he never told me there is a surrender charge and most importantly, there is a 7% front charge bit you out of the money you just put, which include tax, and admin cost. So if you put $1000, only was there a $925 trunk left accountable.
The agent might tell you the term life insurance won't cover you afeter 70. Guess what cost to get $500,000 cover after 70 in a VUL, it will be around $50,000-$70,000 per year as premium. Since 1997, I put $28,000 into it, and now only left $10,000, because of the investment loss in a SP500 index fund, 7% upfront charge, $1800 yearly premimum. If I want to exit from current insurance now, it has another $6,000 surrender charge. >>
Hang-in there.....I think the surrender charge disappear after 10 years. I still think that VUL is not that bad. It just so happen that we got a VUL at the wrong time (got mine in 1999). I just set it aside and dont even look at it (maybe I will 10 years later), hopefully it'll outperform the 2% bank interest rate.
Any follow up TrueKnight> Did you cancel and get the advisory fee refunded?
skeretz444
Senior Member - 1K
posted: Oct. 10, 2003 @ 11:26a
Great thread. I am in the same boat as TrueKnight -
I was offered the VUL as well but I rejected it. I will take your advice and cancel my relationship.
It cost me $750 because they charge more based on the asset class you are in. Hopefully I can recoop some of that money, but anything will be a bonus at this point.
To quote TrueKnight - "I'd figure with a name like American Express and I figure that I'd be paying for "professional" guidance, I wouldn't be screwed over but I guess I was a fool."
That is where I was coming from, but I too am a fool. I sincerely appreciate all the help and personal experiences people share in this forum. I just hope I can contribute as much as some out there.
One good thing out of all this is that I can learn from my mistakes and get out early without too much penalty. Thanks again...
whoa...you paid $750 to let an insurance salesman pitch their product to you??? I have a bridge for sale and its a great deal...,
Crazytree
Senior Member - 7K
posted: Oct. 11, 2003 @ 1:45p
maybe I'm going into the wrong line of work!
agheno
Ancient Member
posted: Oct. 11, 2003 @ 10:29p
Hmmm, I work for a company who's benefits include $250/yr reimbursement for financial health. There are two approved vendors, one which is American Express and we get a corporate rate of $250/yr. They other I don't recall at the moment, but they charge $550/yr.
I was going to go with Amex, but I think I need to do some research now.
DickOtter
Happy Member
posted: Oct. 11, 2003 @ 10:32p
agheno said:
<< I was going to go with Amex, but I think I need to do some research now. >>
Why not just make your own financial decisions? No one cares as much about your financial health as you do.
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