We Paid Into This Policy for Decades and Got Nothing | Real Numbers Every Farmer Needs to See (Ep. 361)

We don't have a policy at 87. Gone. Done. Nothing left.
So in this one, they actually do the math for us, which is fantastic.
We've paid in $82,000 for a $547,000 death benefit, and there's no death benefit.
Why do people not like these policies?
Because they don't survive.
Someone's going to come and say, my dad paid $82,000 for life insurance,
and there was no life insurance at the end of the day, and this was supposed to be our estate plan.
This money was supposed to go to the off-the-farm kid,
or this money was supposed to go to the kids that aren't taking over the business.
But we don't have any death benefit. We have nothing.
We have to watch for these things.
Hello, hello. Welcome back to the podcast.
I have not talked about this in a while, so I want to talk about it
because I've had a lot of examples, and we're going to go over them today.
So if you're not watching via the video, then you should be doing that.
And you can do that on either Spotify, or you can go to the YouTube channel,
and you can watch there, which is Mary Jo Ehrman.
Let's just take a second.
You can pause this.
You can go over to YouTube.
You can subscribe.
That would be fantastic.
And then you can come back and finish, or you could just finish it over there.
Either way, doesn't matter to me, but that would be very nice of you if you would subscribe over there.
Anywho, we are talking today about bad policies.
And I have several as examples because I've gotten a lot lately.
And here's the thing.
I'm not just beating up on universal life type policies, but I am going to show you why I don't like them.
So therefore, if you have one, then you can go to your insurance agent, or you can ask the company for an in-force illustration.
That's what we're going to go over today is in-force illustrations.
Then when you get your in-force illustration, you know what to look for because somebody has educated you.
Because here's the thing.
People aren't being educated.
People don't know what to look for.
Some of you may not want to schedule an appointment with me.
But I do want you to know if you have a good policy or not.
So unfortunately, you kind of have to be a little bit of a life insurance agent, just like you kind of have to be a little bit of a tax guy.
Because, you know, accountants don't always give you the information you're looking for.
So I'm going to share my screen.
And we're going to talk about the various policies that I'm seeing that are not good.
I will start by saying that one of my clients had an IUL that they got sold two years ago.
And I do not have that in-force illustration.
But, or I can't find it if they sent it.
And it was an absolutely horrible policy.
Like, it collapsed in no time.
And so they've put all this money into it.
There's no cash value.
There's all these surrender charges.
Just not a good situation.
So anyway, I can't, I wish I had that one to show you.
But we're going to talk about flexible premium universal life.
And then we're going to talk about variable universal life.
Because I have a lot of those to show you.
So let me share my screen.
All right.
Let's start with this one.
This is a flexible premium adjustable life.
Okay.
What that basically means is that the premium is flexible.
You can go up and down.
And I just want to say, this is actually a selling point.
That when they sell you universal life, they say, oh, that's flexible.
Whole life is not flexible.
Whole life is flexible when we set it up.
Because we're putting on the paid up additions rider.
That rider is flexible.
So when these guys say, oh, whole life isn't flexible, they don't know what they're talking
about.
So this one is interesting.
This insured was 66 at the time that this got issued.
Okay.
And the only reason that I really want to bring this one to anybody's attention is because
we have premiums going in every year.
You can see that 55, 62 a year.
And we've got some cash value for the next two years.
This insured is currently 84 years old, 85, based on this illustration.
So she is currently 85 years old.
And from what I'm being told by the child is that she is in great health.
So as you can see, cash value runs out at 87.
We don't have any more cash value.
But as you can also see, the death benefit continues to be there.
And it continues to stay level.
So in these illustrations or in these policies, what's happening here is you're legitimately
at this point paying for term insurance, right?
There's no more cash value.
It is all being eaten up by fees because every year it's going down.
The premium is not enough to cover those fees.
But they obviously have a rider on this policy that says, hey, we're going to guarantee you
death benefit even if cash value goes to zero.
Now, there are some stipulations with that rider.
So if you have that rider, you're going to want to make sure that that is going to stand
the time and you didn't pay late or there's nothing that could make that rider not pay.
But we've got a $400,000 death benefit.
So now we have to say, OK, we're paying premiums for 34 years.
You know, obviously, the way I look at it and I'm just doing this like hot off the press here,
people grabbing my calculator, 5562 times 34 years.
So we've paid in one hundred and ninety one hundred and eighty nine thousand of premium,
four hundred thousand a death benefit.
People would say, well, Mary Jo, should I keep the policy?
I would.
I would keep paying that 5562 because we don't have any options.
Right.
She's going to be 87 years old.
We're not going to be able to buy that amount of death benefit for that amount of money.
And so we've paid one hundred and eighty nine thousand for four hundred thousand dollars
of death benefit.
It's basically term insurance.
Cash value is gone.
It is what it is.
This isn't a heartbreak situation necessarily.
It's just that there's no cash value there.
It did not do what they said it was going to do.
Common.
Very, very common.
Ninety nine point nine percent of the time.
That is the case.
And so this illustration is just kind of buyer beware.
OK, look out long term.
What's going to happen?
I don't know what they ran this for as the rate of return.
But at the end of the day, we have a level death benefit and we don't have any cash value.
OK, next one we're going to look at is a VUL.
This one has a guarantee of six and a half, a gross of five point eight five.
So if you are looking at your in force illustration, sometimes some of the companies will put it right
there, which is kind of nice.
They put the gross and they then put the net.
So net means after expenses.
Right.
And so this person is thirty three.
Hey, they are paying fifteen forty nine a year and we've got a half a million dollar death
benefit.
Again, let's know the death benefit stays the same in a whole life policy that pays dividends.
That death benefit is going to grow every single year.
And it's funny how often I talk to people and they say, oh, the death benefit is growing because
they don't expect that because this is kind of what everybody sees is just a level death
benefit.
So this is max guaranteed charges.
OK, so this is what they could charge for the max amount.
If they did that, we are going to see that this policy lapses at year eighty five.
Now, will they charge that?
I don't know, but they can charge that.
Some companies will.
I've seen some companies that will charge as much as they possibly can because their rate
of return isn't doing what they expected.
So they're going to put the max charges on there so that it looks like you have to pay
more money to make up what they didn't do.
OK, so in this policy, you've got an eighty five year old that does not have a policy because
it lasts.
There is no like the other illustration we just looked at.
There was a guaranteed death benefit rider.
There is no guaranteed death benefit rider on here.
Policy lapsed.
No policy when the insured is likely to die.
OK, that's absolutely crazy.
So we can go back up here and look at current charges.
So that's a zero percent rate of return.
We don't want to look at that because that's unlikely that it's going to be zero percent.
So here is the six and a half percent rate of return with current charges, meaning these
are the current expenses.
This is a current cost of insurance.
This is a current administration fee.
This is the current charges.
If those current charges continue, then this is what the policy would look like.
OK, so this is age 33 today.
Five hundred thousand dollars of death benefit.
Current charges six and a half percent rate of return.
If we look down, we're doing good.
Right.
Cash values growing every single year.
All is good in the land.
And we're 92 still continues to grow.
But we have a death benefit that is gone right here.
This illustration says if your illustration shows positive value under guaranteed death
benefit, the blank rider is providing guaranteed life insurance protection.
And I blocked that out because that would expose the company and I'm not here to expose
companies.
But the guaranteed death benefit is gone.
So if they don't have this rider, they don't have a death benefit at that point.
I'm not sure you're going to want to ask your agent.
And this is also why you want to read your contracts.
And so we continue on and the death benefit under the illustration side continues.
And then it starts to go up.
But if we look at this, it says the at symbol next to the net base accumulated value column
indicates that the policy has become guaranteed to age 121.
So now we know, right here, we know, hey, we're going to have a policy till we're 121 years
old, which is fantastic.
This thing continues to grow.
And it looks like a decent policy on the guaranteed side, on the 6% return, right, 6.5% return
with current charges.
Here's the one thing I know.
Current charges never stay current charges.
Okay, I lied.
Current charges rarely stay current charges.
That is the problem with these policies is most companies will start to increase that.
And so we don't have guarantees.
Even though it says guarantee here, there's no guarantee on the charges.
So could we end up like the first one that I showed you where it was max charges?
So we have to look at these headings, these current charges and the max charges make a lot
of sense.
A 6.5% rate of return is a bit steep, in my opinion.
I would like to see it at 4 or 5.
Because if it can stand the test of time at a 4% rate of return with current charges, then
we should probably be okay.
Or 4% with max charges, then we should be okay.
But at 6.5% with max charges, it was not standing the test of time.
So this policy on the guaranteed side with current charges is going to be okay, according to
this, right?
But are the charges going to stay the same?
We don't know.
I'm not going to just show you all 100% bad policies.
Like, this one is not the worst I've ever seen, right?
Like, it's bad if it's max charges.
And it's bad maybe if it's a 4.5% rate of return.
But we have to go back to the agent and say, hey, I want this run at 4%, not at 6.5%.
Or I want it run at 5% so that we're maybe a 4% net.
And then with current charges.
So I can see what's happening.
That's best case scenario.
So I'm just trying to teach you guys here.
Okay, here is a variable universal life.
This one is on a 38-year-old.
This one is bad.
This one is bad.
We got a 38-year-old.
We have two sides to our columns here.
We have a gross 0% rate of return.
And then we have a 5% with a 4.35 net.
I actually like, that's a great rate of return scenario for me.
So we're going to look at the 5% gross rate.
Because a policy is not going to do 0 every year.
They illustrate that, I think, because they have to, but they don't need to.
Okay, again, let's note.
Death benefit stays level.
Nothing is changing here.
So we have this policy.
We're paying $27.11 a year.
Okay, we get down here to age 30%.
69.
0% is run out of money.
Well, duh.
It's 0%.
Like, that's not good.
But look what happens in the 5% gross column.
5% with current policy costs.
Current charges.
They've not increased the charges, right?
They haven't gone to their max charge they can go to.
And it's a 5%.
Pretty, it's a 4.5% net return.
Like, that's pretty reasonable based on market returns.
Look at what happens.
This person turns 79 and there is nothing left.
Nothing.
It's gone.
We have a million dollars.
Gone.
What?
Look at what's happening.
This is absolutely crazy.
When you get to, and I tell you guys all the time, these things start to fall apart about
70, 75.
Now, this one is a really good testament to the fact that the term is expensive after 65.
Okay?
If you were to go by term after 65, this can be pricey.
Look at what happens.
Cash value is growing, right?
Every year we went from 106 to 108 to 111 to 113.
This insured turned 65 years old and at 66, we went down to 112 and then 110 and then 108.
And this thing started to deplete quickly.
Look, it was like a thousand bucks, a thousand, $2,000.
And then it went, and here it was $2,000.
And look at what happens in his 70s.
This thing went from 97 to 91.
It depleted by $6,000.
And I'm rounding numbers.
Okay.
It depleted by $6,000 in one year.
Why?
Because it's basically a term chassis.
And you are buying term every single year at your new age.
Well, term is very expensive in your 70s.
The premium, there was no more premium.
This was a paid up at 65.
So there's no more premium due after 65.
So now all of a sudden, well, we don't have enough cash value to sustain the cost of insurance,
administration charges, all the things.
And so we don't have a policy at 79.
Like, he is very likely to live past 79 years old.
This isn't the worst variable universal life policy I've ever seen, but it is by far not the best.
Okay.
This is just not good.
If you have a policy, this is why I want your enforced illustrations.
So I can say, hey, that's a good policy.
Maybe you want to keep it.
Or no, that's a bad policy.
Maybe you don't want to keep it.
This is just so not good.
Like, absolutely crazy, but proves the point of why I don't like them.
Proves the point very, very well.
Okay.
Here we have another adjustable universal.
And this one has a non-guaranteed of 4.5% interest.
The insured is 31 years old right now.
Or no, this is year 31.
I'm sorry.
57 years old right now.
And all looks good.
This is with max charges.
This is with current charges.
So we are going to want to look at the current charge.
Well, we'll want to look at both, but we're going to look at current charges.
So if, and again, let's note death benefit stays level.
Okay.
We look at current charges.
Max charges.
This thing is done.
Right.
At age 51.
If they charge the maximum amount, which they most likely will not.
But if they do, we don't have a policy.
Okay.
So what happens if we get a 4.5% rate of return with current charges?
We don't have a policy at 87.
Gone.
Done.
Nothing left.
Nothing left.
So in this one, they actually do the math for us, which is fantastic.
We've paid in $82,000 for a $547,000 death benefit.
And there's no death benefit.
Why do people not like these policies?
Because they don't survive.
Someone's going to come and say, my dad paid $82,000 for life insurance.
And there was no life insurance at the end of the day.
And this was supposed to be our estate plan.
This money was supposed to go to the off the farm kid.
Or this money was supposed to go to the kids that aren't taking over the business.
But we don't have any death benefit.
We have nothing.
Right.
We have to watch for these things.
We have to watch for these things.
I want to share one more thing.
I want to share this policy.
This is a policy on a 90-year-old.
And you can see that we're paying $99,49 a year.
We've paid $54,000 at 99 years old.
Or at, I guess, 95 because we don't have any more premium due.
This policy, and it's kind of hard to see, but this policy is based on a 3.45 rate of return.
The person insured is 90 years old.
Okay.
We are out of money this year.
No more cash value.
But you can see the death benefit continues.
So until they are 97, we will have $340,000 of death benefit.
And from my understanding, this individual is doing well.
So if this individual lives to be 100, again, we don't have a policy.
Because you can see all the numbers are zero after 97 years or after 98 years old.
Zero.
Gone.
Done.
So once again, if this is part of an estate plan, we don't have anything.
Okay.
The thing that I've talked about a lot recently is someone has to pay for the nursing home.
Typically, the kids are going to kick in a little bit for the nursing home.
Wouldn't that be nice if they had some death benefit to recover some of those costs?
There's nothing.
Nothing.
And so, again, we need to look at what we're buying.
It truly is not just a, hey, Mary Jo hates universal life.
It has nothing to do with, oh, she's making more commission.
None of that.
As you can see, I collect these things.
I'm a bit of a goober.
When I see these bad policies, I have a whole file called bad policies.
Because it's so good to be able to use them as an example to teach you what to look for.
The gentleman that I talked about that got sold the IUL policy, that was two years ago.
Had he known me two years ago and he saw these videos and he could go to the agent and say,
well, show me what that's going to look like at 100.
Show me what that's going to look like at 121.
Because people are living that long.
Okay.
People live.
I just saw just a couple weeks ago.
Someone is 110.
People are living well past 100.
And so if underwriting and the insurance company says you're super healthy and you're super healthy at 65, you're probably likely to live to 100 years old.
They know that.
That's why they're pricing their product accordingly.
And so that's why we have policies that go to 121.
So if we're going to have a policy that withstands our lifetime, we want to make sure that we're paying into something that the numbers are not going to go to zero before we are likely to die.
And we don't know when that is.
We have no idea.
But I'm going to plan long term.
I'm going to plan to be here until I'm 100.
That is the longevity of our family.
And so if I'm here at 100, I want life insurance at 100.
I don't want to have all this money going into an insurance policy and it's gone.
I can't even surrender these policies and say, I don't like this policy.
I want to surrender it and get my money back.
There is not an option.
It has all gone to the insurance company.
So when we have gurus out there talking about how, oh, how life makes the insurance companies rich.
How is that?
How is that?
Because all these policies I've showed you, the insurance companies have taken that money.
That is gone to them and they have nothing to show as a payout.
They do not have to pay a death claim.
So insurance itself, life insurance itself is not bad.
When you buy the right product with the right company, structured correctly.
It is bad when we are just willy-milly out there buying life insurance and not educating ourself on it.
Because agents don't know what they don't know.
I happened to talk to a new client, a potential new client yesterday.
She'll be a new client.
It was very interesting because she works for another insurance company.
She has her life insurance license.
I actually do write a lot of insurance for other life insurance agents because the companies they work for can't do what we do.
So she works for one of those companies.
She sold herself an IUL policy.
That's just what the company was pushing.
She didn't know a whole lot about it.
I told her a few things about it.
But she didn't know a whole lot because she was not taught correctly.
And these agents, in most cases, if they're young agents, they will just go into an insurance company and they will just be like,
OK, this is what this person is telling me.
This is right.
This is what I'm going to buy.
No, it's not always right.
We need to do our due diligence.
OK, so I'm just trying to help you, educate you to do that due diligence.
I do hope that these examples, I've never done it this way before where I've showed a lot of examples and talked about it.
So hopefully these examples have kind of made it a little bit more clear as to what you need to look for.
If you get an enforced illustration, if you're buying a life insurance policy, of course, if you get one from us, you just know it's correct from the get go.
But if you're buying one, what to look for long term to make sure that it's going to be there.
A lot of cases, mom and dad might have a life insurance policy as part of their estate plan.
Make sure they get an enforced illustration.
You look at that and you know that it's correct.
All right.
I hope that that has helped.
Please let me know if you have questions, comments, concerns, whatever.
Mary Jo at withoutthebank.com.
If we meet and you have your enforced illustration, I will look at it.
I'll be able to tell you just within a few minutes if it's good or not.
I don't need a lot of time to be looking at those.
Because I see so many of them.
So have it with you.
Email it to me ahead of time.
Whatever.
I'm happy to look at those and just give you some insight of, you know, what are you looking at?
What does that mean?
What are some options?
It doesn't mean we're going to cancel these policies.
It just means that we need to know what's happening.
All right.
You guys, you let me know if you need me.
Otherwise, go get the books.
Read them.
You can go to withoutthebank.com.
You can get your Life Without the Bank book.
You can get Nelson's book.
I suggest you get both of them in a bundle.
And then schedule your appointment with us.
And I am super happy to go over any of this with you and explain it and get you set up the right way so you can be on your merry way.
All right.
You guys have a fantastic rest of your day.
Thanks for listening to the Farming Without the Bank podcast.
We hope today's episode has inspired you to take control of your finances in new ways.
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