One "Safe" Investment You May Want To Avoid

Sadly, another athlete has fallen victim to purchasing one of the most abused products sold to professional athletes, Whole Life Insurance.

According to Courthouse News article, “Pro Pitcher Says Insurer Suckered Him,” former MLB Pitcher, Kevin Correia claims in Superior Court that he was defrauded by his former financial advisor and insurance agents when they sold him a Whole Life Insurance Policy.

Correia, a 12-year journeyman, claims the insurance company “takes advantage of professional athletes by selling excessive whole life insurance policies that require the payment of exorbitant premiums that the athlete is unlikely to be able to pay over time. As a result, the policy either lapses or the athlete is forced to surrender the policy for only a fraction of the premiums paid.”

Have you been pitched by an insurance agent or financial advisor selling life insurance and annuities describing the products they’re selling as safe or secure?

No doubt you’ve heard those descriptive words quite often — Insurance agents like to use the words safe and secure — especially in materials depicting fixed policies and rider guarantees.

Be careful when anyone touting an insurance or annuity product — or any other financial product, for that matter — glibly uses terms like safe and secure. While there are various degrees of safety, no financial product is entirely risk-free; even U.S. Treasuries subject the holder to tax risk and inflation risk.

Many insurance brokers may push whole life policies because they provide them with the juiciest of commissions.

You need to be able to recognize when you are hearing a sales pitch from someone and realize they have a conflict of interest because of that – which doesn’t necessarily make what they’re saying bad but you must recognized they are biased, they’re not objective.

Your only response at the end of the pitch should be to do nothing. DO NOT say yes. Seek a second opinion. Before signing papers, get a second opinion from someone who doesn’t earn commissions by selling these products — namely an independent, objective, fee-based wealth manager.

Here are a few questions you should request in writing from the person selling you the policy:

What are the fees associated with this policy?

Specifically,

• What commission will you earn? Is this a one-time fee or is it paid annually?

• What are the administrative costs?

• What is the cost of the insurance?

I challenge you to find an example of a whole life illustration that lays out these costs for you. They just aren’t transparent, which makes it impossible to understand what you’re truly paying for. And these costs can change over time, again without you knowing, and those changes can affect the return you receive.

How can you trust someone who can’t or won’t tell you what you are paying?

What are the guarantees associated with this policy?

You need to pay careful attention to the life insurance illustration. While life insurance illustrations frequently provide several projections on how your policy could pay out down the road, the numbers that really count are the “guaranteed” figures, which show how much you’ll make regardless of fluctuations in the market or fiscal problems the insurance provider may encounter in years to come.

What Happens if I Can’t Pay the Premium?

If you run into financial trouble, knowing your options is invaluable. If you’re going to borrow against the cash value, you’ll want to ask what the loan rate is, and those are usually anywhere between 5 (percent) and 8%.” You should understand how borrowing against a cash value policy could affect your future returns and death benefit.

Is Whole life insurance a scam? No. Is it sold to people who do not have a need for it? Absolutely… and unfortunately it’s done everyday.

Whole life insurance is a useful product in a limited number of cases.

There are certain instances where whole life can be useful. If you have a genuine need for a permanent death benefit, such as having a disabled child, it can serve a valuable purpose. If you have a large amount of money, have already maxed out all of your tax-deferred savings, and you can afford to front-load your policy with large payments in the first several years.

But the majority of athletes to whom whole life is sold do not fit these criteria, especially the last point.

Do you have a whole life insurance policy that you would like reviewed? Click here to tell us about your situation and we’ll see if we can help.