Why would a financial advisor say to cash out 500K policy and take $115K surrender amount. The policy holder is 78 and is dying.
Total Comments: 9
Posted: Mon Dec 12, 2011 07:01 am Post Subject:
One possibility is that the policy holder cares more about spending money on himself than leaving it behind. People buy life insurance because they financially care what happens when they die. They often cancel life insurance because they no longer care about what happens when they die or the money isn't needed or it isn't affordable.
Posted: Mon Dec 12, 2011 10:08 am Post Subject:
No issues with spending. Hardly can leave the house.
We're talking the most unselfish guy in the world.
It's a life survivorship policy so no death benefit paid until wife dies. They are both actually 80 yrs old.
I believe agent said market is so bad that the earnings can't make the
premiums. They could afford to chip in on the payment.
Posted: Mon Dec 12, 2011 10:51 am Post Subject:
Most likely, you don't know the whole story. From the information you posted, there is no reason a person would want to cash surrender the policy. There can be many reasons for it. I am not going to make speculation because there are too (one) many agents in this forum who will jump on anyone who does. I just know that unless you know the whole story, you are not in a position to speculate.
Posted: Mon Dec 12, 2011 12:30 pm Post Subject:
I just know that unless you know the whole story, you are not in a position to speculate.
This is an accurate statement, but from what the OP has posted, I think he has a pretty good idea of the situation, especially when he asks:
Why would a financial advisor say to cash out 500K policy and take $115K surrender amount.
The FA would probably say this because he could care less what happens to 80-year old Dad as long as he (the FA) collects his commission on a $115,000 transaction -- the hell with the family's survivors' needs (the OP indicated that the policy is a Survivorship (2nd to Die) policy).
Unless the FA is suggesting an annuity via 1035 Exchange, there is probably a significant tax liability in a surrender this large. Exposing an 80-year old policyowner to a tax liability of any amount is a sacrilege -- if large enough, it could cause Social Security money to be taxed, too.
But what the heck? The FA would get a much bigger commission for an annuity transaction than for the sale of mutual funds, stocks, or bonds. And Dad would have up to 15 years of new surrender penalties -- to age 95 -- if he needed access to the money.
[ The NAIC Model Annuity Suitability Act takes effect in all states (as each state has adopted them) on 1-1-2012. If an annuity is in the proposal, the FA may also be trying to beat that deadline, too. ]
I think we can all be pretty sure the FA's recommendation would not be to put the money into an FDIC-insured CD.
agent said market is so bad that the earnings can't make the
premiums
Forget what the agent/FA "says". An in-force illustration from the insurance company would reveal the actual condition of the policy, and how long the policy could sustain itself with the available cash value at the "Guaranteed" cost of insurance and interest crediting rate. TaxFreeIncome could have said this, but chose not to.
Although I could be wrong, because of Dad's age and policy cash value, I doubt that the policy in question is connected to the market, even in the tangential way as EIUL does. Using a VUL policy for estate tax purposes . . . that would generally be regarded as a mistake. But, yes, general interest rates, as depressed as they are, have brought most traditional UL policies "to their knees" in the form of minimum current interest crediting rates at most insurance companies. Hence the increase in popularity of EIUL.
In CA we also have Financial Elder Abuse laws that intend to stop these kinds of abuses, too. Like any law, it can't watch every scoundrel at every moment. But once the abuse has been found out after the fact, we have a very good record of prosecution and conviction here -- and many times restitution is possible.
Too bad our state prisons are so overcrowded that we don't necessarily have accommodations available for them with Bubba as their new spouse for the next 2, 3, or 5 years.
Posted: Thu Dec 15, 2011 03:24 am Post Subject:
Max,
Stop making assumptions and accusations when you don't know the full story. The OP said this:
"I believe agent said market is so bad that the earnings can't make the
premiums. They could afford to chip in on the payment."
Sounds to me like the policy is crashing and there is no secondary guarantee. If the policy doesn't pay until the second death and the wife is not also dying, they may have to make the choice of cashing out $115k while it's still there, or potentially losing that $115k within a few years as the policy crashes, leaving them with no cash and no death benefit unless they pump a lot of extra money into the policy. Since we don't know the cost of continuing the policy on a guaranteed basis, you shouldn't be throwing the FA/agent under the bus. Once again, you have no clue what you're talking about but continue to accuse others of wrongdoing. Ridiculous.
Posted: Thu Dec 15, 2011 09:28 am Post Subject: Cashout
Thank you for the discussion so far. It has helped us confirm that our gut feeling at least warrants that we keep asking questions.
We don't have all the facts but we have many. We don't know if the policy is crashing but do believe that they could handle the pemium of 25K annually without altering their simple lifestyle. They are depression era after all.
They are 13 years and 285K into this policy. We don't know what the tax implications would be. Are they getting their own money back or will they be taxed on earnings? We don't know.
We know for sure that they have all the faith in the world in this guy. They would be crushed if they knew something went wrong. We don't know how to even ask about it without giving some indication that it may have been a mistake.
If we go ask the FA he could reveal to them the inquiry and the family looks like greedy brats. They are not. Most of them don't know this existed. Or they start thinking they goofed and are crushed to have let that happen.
We don't need anything from this. We can just let it go. Or can we?
(more in next reply)
Posted: Thu Dec 15, 2011 09:44 am Post Subject: Cashout
Th'ere was a routine annual review scheduled awhile back. The daughter who has POA was invited by the folks. She needs to begin to learn of their affairs to help when needed. The day before the meeting, the FA called them and said he had to go over something with them. He came and they did the cashout.
Why didn't he just do it at the schduled meeting? That raised a flag. The POA daughter attended the scheduled meeting and there was no discussion of the transaction. They talked about putting money in a MM account but it wasn't clear until later what they were talking about. After the meeting the Mom lamented(in tears) that their dream was gone. That being to leave the children a generous inheritance. All 10 of them. The POA daughter didn't know what to ask or how much to push. It's hard to pry into the folk's business. This was always the reason to have this policy, to preserve that legacy. Why else would anyone buy UL especially at that age. Then why would you cash it. We need some more facts for sure to verify that there is not some financial planning stuff that we just don't know about or understand.
This may just end right here because there may be no issue or if there is, it would be horrible for them to find out. Thanks for your help.
Posted: Thu Dec 15, 2011 10:37 pm Post Subject:
Randge, there is just way too much missing information. Just so that you know, there is nothing that you have posted that would allow one to make the assumption that the advisor has done something wrong.
You need much more information.
Posted: Thu Dec 15, 2011 11:55 pm Post Subject: Done Deal
We have, through this process decided that there is nothing to be gained by pursuing this further. We don't have all the facts. It probably was handled just as it should be.
If it was in fact bad advice, that chicken should come home to roost on it's own.
We want to let the folks be at peace and that will be a good result.
There is no harm either way to anyone else.
Thanks for all your help. Keep up the great work for those who need advice or just an outlet to work things through.
Peace to all!
Posted: Mon Dec 12, 2011 07:01 am Post Subject:
One possibility is that the policy holder cares more about spending money on himself than leaving it behind. People buy life insurance because they financially care what happens when they die. They often cancel life insurance because they no longer care about what happens when they die or the money isn't needed or it isn't affordable.
Posted: Mon Dec 12, 2011 10:08 am Post Subject:
No issues with spending. Hardly can leave the house.
We're talking the most unselfish guy in the world.
It's a life survivorship policy so no death benefit paid until wife dies. They are both actually 80 yrs old.
I believe agent said market is so bad that the earnings can't make the
premiums. They could afford to chip in on the payment.
Posted: Mon Dec 12, 2011 10:51 am Post Subject:
Most likely, you don't know the whole story. From the information you posted, there is no reason a person would want to cash surrender the policy. There can be many reasons for it. I am not going to make speculation because there are too (one) many agents in this forum who will jump on anyone who does. I just know that unless you know the whole story, you are not in a position to speculate.
Posted: Mon Dec 12, 2011 12:30 pm Post Subject:
I just know that unless you know the whole story, you are not in a position to speculate.
This is an accurate statement, but from what the OP has posted, I think he has a pretty good idea of the situation, especially when he asks:
Why would a financial advisor say to cash out 500K policy and take $115K surrender amount.
The FA would probably say this because he could care less what happens to 80-year old Dad as long as he (the FA) collects his commission on a $115,000 transaction -- the hell with the family's survivors' needs (the OP indicated that the policy is a Survivorship (2nd to Die) policy).
Unless the FA is suggesting an annuity via 1035 Exchange, there is probably a significant tax liability in a surrender this large. Exposing an 80-year old policyowner to a tax liability of any amount is a sacrilege -- if large enough, it could cause Social Security money to be taxed, too.
But what the heck? The FA would get a much bigger commission for an annuity transaction than for the sale of mutual funds, stocks, or bonds. And Dad would have up to 15 years of new surrender penalties -- to age 95 -- if he needed access to the money.
[ The NAIC Model Annuity Suitability Act takes effect in all states (as each state has adopted them) on 1-1-2012. If an annuity is in the proposal, the FA may also be trying to beat that deadline, too. ]
I think we can all be pretty sure the FA's recommendation would not be to put the money into an FDIC-insured CD.
agent said market is so bad that the earnings can't make the
premiums
Forget what the agent/FA "says". An in-force illustration from the insurance company would reveal the actual condition of the policy, and how long the policy could sustain itself with the available cash value at the "Guaranteed" cost of insurance and interest crediting rate. TaxFreeIncome could have said this, but chose not to.
Although I could be wrong, because of Dad's age and policy cash value, I doubt that the policy in question is connected to the market, even in the tangential way as EIUL does. Using a VUL policy for estate tax purposes . . . that would generally be regarded as a mistake. But, yes, general interest rates, as depressed as they are, have brought most traditional UL policies "to their knees" in the form of minimum current interest crediting rates at most insurance companies. Hence the increase in popularity of EIUL.
In CA we also have Financial Elder Abuse laws that intend to stop these kinds of abuses, too. Like any law, it can't watch every scoundrel at every moment. But once the abuse has been found out after the fact, we have a very good record of prosecution and conviction here -- and many times restitution is possible.
Too bad our state prisons are so overcrowded that we don't necessarily have accommodations available for them with Bubba as their new spouse for the next 2, 3, or 5 years.
Posted: Thu Dec 15, 2011 03:24 am Post Subject:
Max,
Stop making assumptions and accusations when you don't know the full story. The OP said this:
"I believe agent said market is so bad that the earnings can't make the
premiums. They could afford to chip in on the payment."
Sounds to me like the policy is crashing and there is no secondary guarantee. If the policy doesn't pay until the second death and the wife is not also dying, they may have to make the choice of cashing out $115k while it's still there, or potentially losing that $115k within a few years as the policy crashes, leaving them with no cash and no death benefit unless they pump a lot of extra money into the policy. Since we don't know the cost of continuing the policy on a guaranteed basis, you shouldn't be throwing the FA/agent under the bus. Once again, you have no clue what you're talking about but continue to accuse others of wrongdoing. Ridiculous.
Posted: Thu Dec 15, 2011 09:28 am Post Subject: Cashout
Thank you for the discussion so far. It has helped us confirm that our gut feeling at least warrants that we keep asking questions.
We don't have all the facts but we have many. We don't know if the policy is crashing but do believe that they could handle the pemium of 25K annually without altering their simple lifestyle. They are depression era after all.
They are 13 years and 285K into this policy. We don't know what the tax implications would be. Are they getting their own money back or will they be taxed on earnings? We don't know.
We know for sure that they have all the faith in the world in this guy. They would be crushed if they knew something went wrong. We don't know how to even ask about it without giving some indication that it may have been a mistake.
If we go ask the FA he could reveal to them the inquiry and the family looks like greedy brats. They are not. Most of them don't know this existed. Or they start thinking they goofed and are crushed to have let that happen.
We don't need anything from this. We can just let it go. Or can we?
(more in next reply)
Posted: Thu Dec 15, 2011 09:44 am Post Subject: Cashout
Th'ere was a routine annual review scheduled awhile back. The daughter who has POA was invited by the folks. She needs to begin to learn of their affairs to help when needed. The day before the meeting, the FA called them and said he had to go over something with them. He came and they did the cashout.
Why didn't he just do it at the schduled meeting? That raised a flag. The POA daughter attended the scheduled meeting and there was no discussion of the transaction. They talked about putting money in a MM account but it wasn't clear until later what they were talking about. After the meeting the Mom lamented(in tears) that their dream was gone. That being to leave the children a generous inheritance. All 10 of them. The POA daughter didn't know what to ask or how much to push. It's hard to pry into the folk's business. This was always the reason to have this policy, to preserve that legacy. Why else would anyone buy UL especially at that age. Then why would you cash it. We need some more facts for sure to verify that there is not some financial planning stuff that we just don't know about or understand.
This may just end right here because there may be no issue or if there is, it would be horrible for them to find out. Thanks for your help.
Posted: Thu Dec 15, 2011 10:37 pm Post Subject:
Randge, there is just way too much missing information. Just so that you know, there is nothing that you have posted that would allow one to make the assumption that the advisor has done something wrong.
You need much more information.
Posted: Thu Dec 15, 2011 11:55 pm Post Subject: Done Deal
We have, through this process decided that there is nothing to be gained by pursuing this further. We don't have all the facts. It probably was handled just as it should be.
If it was in fact bad advice, that chicken should come home to roost on it's own.
We want to let the folks be at peace and that will be a good result.
There is no harm either way to anyone else.
Thanks for all your help. Keep up the great work for those who need advice or just an outlet to work things through.
Peace to all!
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