16

I am new to this website and asking for your help with a situation related to my personal finances.

I have a friend who recently joined WFG (World Financial Group) and they were asking for me to join them as well (to which I politely declined). But since I have seen a lot of my other friends are interested in WFG and the policies that they were selling (At least 10 of my acquaintances have gotten themselves Universal life policies from this friend of mine), I just wanted to understand how good of a decision they are making and if this is something I should also consider.

The policies that they are getting is with Industrial Alliance https://ia.ca/universal-life-insurance, and he also told me that with this UL policy that I only need to make a payment until I am certain age (I don't remember, but I believe it was 60-65) and then I will still be covered for the rest of my life.

I did my research and found out that if I were to get a term insurance it would cost me around $40-$45 CAD for a coverage of $500,000 CAD on Term 20. For which I would be paying $150-$175 with IA UL policy , but he told that I will also be investing as well.

About me: Single, 24M, New Bruinswick (Canada)

So here are my questions:

  1. If you were in my shoes which one would you get for yourself, term insurance or IA UL policy and why?
  2. In your opinion should I consider joining WFG or no (I think they are shady and unethical, but have no solid proof)?
  3. How can UL policy still cover me when I am not making any payments after 65, does the cash values decreases because of this (Is cash value deducted to pay for the insurance after 65)?
  4. In Universal life if the cash value does not go down after I turn 65, how does the insurance company still make money to cover me for the insurance?
  • I am sorry since I am not registered I cannot comment or upvote but again thanks a lot for everyone's help. It was much appreciated and I also found this resource regarding WFG for if anyone else might need it reddit.com/r/jobs/comments/34c6im/…. – Freddy Johnson Jun 9 at 23:24
  • 1
    How does this investment compare to other investments you could make instead with that same money? – Harper - Reinstate Monica Jun 10 at 15:08
  • it would cost me around $40-$45 CAD Is this per year? Per month? – Ben Crowell Jun 11 at 18:48
  • 2
    Your friend just joined an MLM. Run. – Adam Jun 11 at 21:59
37

The first question to ask yourself is do you even need life insurance? The benefit amount, 500K is fairly large, but it can also be too small for your needs. Do you have people that are dependent upon your income? Do you have a wife or children? If you don't, then you don't need life insurance.

As a single person with no children life insurance is probably not needed. If you were an executive with two children and a stay at home spouse, you would probably need more and a policy on the spouse.

Secondly if you do need life insurance always buy term for the period that is needed. For example, if you had a child today, a 20 year policy would be about right. If you were married, and you and your spouse bought a home and needed both incomes to afford the payment, then a 25 year policy would be right for that. (From what I recall most mortgages in Canada are for 25 years.)

Universal life is a kind of Whole life and are a terrible deal. There are high surrender charges if you need to take money out, and the fees are well hidden and astronomical. You would be far better off, if you need life insurance, to buy the term policy and invest the $100 per month in a taxable investment account. Just buy low cost index mutual funds and you will be on a good path to building wealth.

There is almost no case where Universal life makes sense.

| improve this answer | |
  • 3
    There is something to be said for locking in term rates early if the OP plans to have children. – chrylis -cautiouslyoptimistic- Jun 9 at 16:36
  • 3
    These policies make perfect sense to your friend. He/she gets a nice commission for ever one that he/she sells! It is no concern to him/her whether you get any benefit from buying one. – alephzero Jun 9 at 23:48
  • 1
    Extremely critical: were you or one of your parents born in the United States? If yes, then your only option is TERM LIFE. This is because the US' tyrannical tax code (which Canada agreed to enforce under FATCA) imposes severe costs and taxes on universal life insurance (among many other things). If you have no US ties then you are free to choose – CodyBugstein Jun 10 at 2:39
  • 1
    @jpaugh Yes you could. You could lump them, or build a ladder. As we age our life insurance needs first increase then dwindle. If you have multiple policies you can pick and choose which policies to drop. – Pete B. Jun 10 at 10:16
  • 2
    In summary: these situations are complex and depend on the circumstances of each case, objectives of the insured, jurisdiction, etc., so an answer as simplistic as this, whilst applicable to many, can actually be quite bad advice for others. The best advice is to speak to someone who is actually qualified to give an answer tailored to the investor rather than relying on generic advice from the internet. – JBentley Jun 12 at 13:32
25

Pete has a good answer already, but I will add 2 separate thoughts for you to consider:

First, go ahead and google "World Financial Group". Google will autocomplete this to "- scam?" This is the first step in determining legitimacy of the company. Note that it is a multi-level-marketing company, which is a happier term for a pyramid scheme. The problem is that this means even if the product is legitimate, sales tactics will be quite aggressive. You have seen this already with your friend pushing a product on you that doesn't make sense.

Ultimately MLM's make money because they can access the guilt associated with selling to friends and family. That wrenching in your gut that you feel about not wanting to say no, but not wanting to buy the product either, is the whole point of that setup. Whether you want to convince your friend of this or not is up to you - for your sake, I would say steer clear!

The second point is that if you are considering life insurance (from a more reputable company), the younger and healthier you are, the cheaper it is. So it may not make perfect sense to get a policy if you have no one dependant on your income, but it may make sense, anyway. This is something you could ask as a separate question here, or seek out resources elsewhere (but not from untrained MLM 'salespeople'!)

Edit As a side note, while the pushing of a 'whole life' type policy already had my ears perked for a scam, I'll say that I knew this was suspect because World Financial Group tried to recruit me when I was in university. There was something incredibly uncanny about the atmosphere the office I did my 'interview' in, and it only took 5 minutes for them to assure me to 'not bother looking us up online because we are so good at what we do that everyone is jealous of us and loves to spread nasty lies'. By this point they had checked off half a dozen red flags in my head [I was too naive then to walk away after just one], and so I left. To think, if I was approached by a better recruiter 15 years ago, I might have posted a very different answer to this question!

| improve this answer | |
  • 2
    Great additional answer. Reading the OP I initially thought it was a MLM as well. When you'll be paying for something for years it is always a good idea to learn more about who you will be paying! – Nosjack Jun 9 at 16:25
  • "I was too naive then to walk away after just one." On the plus side, you got extra experience noticing red flags. How many other scams might you have avoided as a result of this "extended" exposure? :-) – jpaugh Jun 9 at 18:12
  • 2
    It should be pointed out that if you go to an MLM for physical products, you merely have to determine whether the price is worth their quality, for that particular organization. For something like life insurance, consider the possibility that even if the company could pay out now, that that could change if the organization implodes or gets shut down as an illegal pyramid scheme sometime in the next 25 years. Whether and the extent to which your insurance would be protected/honored, appears to depend on the locality. – HammerN'Songs Jun 9 at 23:28
  • @HammerN'Songs I believe in this case they are not the actual insurer, just the broker, and therefore payouts would not be at issue, just pricing. I also don't mean to imply they are doing anything illegal. – Grade 'Eh' Bacon Jun 10 at 3:07
5

Confidence

OK, so you are 24. You know investing exists... you know you "ought to" do it, i.e. it beats the 1% the bank pays. But you don't know a darn thing about it or how to do it. What you do "know" is that investing is an extremely complex and byzantine world... with lots of dangers. You don't feel confident to try it on your own.

You and most people!

Well, along come these people. They are all about confidence. And they give you the confidence to finally roll up your sleeves and start into investing.

And your friend is all about confidence, "look at me, I put my money into it (and I'm nervous as heck), you should help prop up my confidence by investing your money too!" And the others in the program are doing everything they can to prop up both of your confidence, and there's an awful lot of talk. Oh my!

In fact, pretty much the whole game is about confidence. It's a confidence game. Also called a con game.

They've really got you in a spot. If you say "Hey friend, I think this is a bad investment/scam", you're going to hurt your friend's feelings. And that's not something you do to a friend, right? And if you fail to invest, you're kind of saying the same thing.

And yeah, this kind of thing does hurt people's feelings enough to end friendships. It's almost like you're in a bind: lose your money or lose your friend.

Insidious, isn't it?

Run screaming. It's all a lie. Real investing is simple.

I wouldn't say it's "easy to learn", but following Suze Orman or Dave Ramsey, plus reading John Bogle's book Common Sense on Mutual Funds will get you through a lot of it.

The short, short version is you're blending several things:

  • Cash in bank
  • Bonds
  • Domestic stocks bought in index funds (see Bogle)
  • Foreign stocks bought in index funds.

How much of which depends on your investing goals. For instance a retirement fund is all about growth, which comes with volatility (risk of sharp upward/downward moves) but you don't care becuase you're in it for the long term. The blending is all about balancing max growth vs risk of a sharp downturn.

And really that's it... that'll get you the investment growth most people are after.

You don't need clubs or confidence games to get there.

Speaking of that... when MLM meets investing

An MLM (Multi-Level Marketing) scheme is where you have to sign up people for your "downline". Whenever you pull someone in, you get a sales commission as does the person who recruited you (and the person who recruited that person).

That chain can't go on forever. MLM schemes require an exponentially growing number of people to add to the downline. If the starter recruits 10 people, OK. They recruit 10 people each that's 100. They recruit 10 people each that's 1000... they need 10,000, they in turn need to recruit 100,000, then a million, 10 million, 100 million, a billion, 10 billion, etc.

So in the real world, MLMs peter out at about the 5th-8th level. They simply run out of suckers who are willing to overpay for something on the hopes of getting a sales commission from a downline they hope their friends will build. The only way to make money in an MLM is to be at/near the top. It's a zero sum game; the few at the top do quite well off the mass of hopefuls at the bottom, who are disappointed.

When an MLM happens in products, like Mary Kay or Amway, the damage is limited: the people at the bottom of the pyramid are stuck with a bunch of overpriced soap.

However, when an MLM happens in investing, we get a whole new monster. The core invested amount is not treated as "in trust" like a bank. The promise is usually that your money is invested in some sure-fire business that makes huge dividends and somehow Wall Street just missed this opportunity. (right.) And the people at the top of the pyramid brag on their big returns.

But really, there is no business. It is a lie. The founder is simply giving your money to those at the top of the pyramid so they can brag about their huge returns.

This is called a "Ponzi Scheme", after Charles Ponzi who first worked the scheme. The scheme worked as long as they kept recruiting exponentially larger numbers of people, but when they ran out of suckers, the house of cards collapsed. And the people who lost were the ones in the bottom 2 or 3 tiers. Those who profited got prison.

And this game still happens - it tore through a civic organization I'm in, and cost a bunch of people their retirement.

Just like in other MLMs, the people at the bottom just get overpriced soap - but in your case you lose it all.

| improve this answer | |
  • Ponzi schemes predate Charles Ponzi by a lot. His scheme just got so much press that his name stuck to the concept. – user2357112 supports Monica Jun 11 at 2:58
2

The best you're going to get from this website is a recommendation you sit down with a proper financial planner. I'm not one, this isn't financial advice. It's advice to sit down with a proper financial planner.

I'm 58 and I currently have a total of about $500K US in life insurance. Some of that is insurance I pay for, and some is employer-provided as a fringe benefit.

For someone in my situation, that's entirely too much insurance as I have no minor dependents. Additionally, I have a positive net-worth and a reasonably decent estate.

What you'll want to discuss with your financial adviser is the same kinds of things I did, 35 years ago when I got my first life insurance as an adult -- if you died tomorrow, who needs how much money, and how fast?

In my present situation the most pressing needs will be paying for my funeral and liquidating my estate -- cleaning out all my possessions, making sure the right people get everything, fixing up my house so it can be sold, etc. Based on having buried both parents, that amount is around $50K. From personal experience, that money must be available very immediately so that a funeral home can be paid, and various people can be flown places for burial arrangements. I believe that's an accurate estimate.

My personal life insurance is excessive, and I know I should reduce the size of that policy. Most likely I will meet with my insurance agent and discuss something much smaller. Because one never knows what inflation holds in store, I plan on a $100K term policy. At some point in time I will self-insure those expenses with "pay on death" directive for some liquid -- mostly cash -- account. Right now I'm young enough that I keep my cash busy doing things for me. When I'm older, I'll stop doing that.

What I hope you get from this answer is an understanding that we really can't answer your question. If I were in your situation, I might consider a Universal Life Insurance policy. I had a small Whole Life policy, which was purchased when I was a child, and it was eventually too little insurance, so I got my current Term Life policy. Combined with the average amount of employer-provided insurance, it was the correct amount. As I've since explained, it's no longer the correct amount, and in another 10-15 years, I won't need life insurance, I'll just need to make sure whoever buries me has ready access to about $20K, and whoever is stuck cleaning up after me has about $30K -- both adjusted for inflation.

These things will change for you, as they've changed for me. The best you can do is contact a qualified financial planner and share your life plans with them. If you have questions about their advice, come back and ask.

| improve this answer | |
  • And you can help your estate a lot by setting up a trust. It's pretty seamless for the heir(s), just happens. – Harper - Reinstate Monica Jun 10 at 15:11
  • My understanding is that nothing is faster, in terms of getting money, than a life insurance policy. My mother's paid in days. – Julie in Austin Jun 11 at 16:03
  • Well, a trust is instantaneous. It's already in the trust. What the trust does is avoid the delay of will-readings (and probate, obviously) for all the assets. – Harper - Reinstate Monica Jun 11 at 16:25
  • @Harper-ReinstateMonica Actually with a trust, the money is not "in the trust", it's with the trustees. Whereas you want it in the hands of the beneficiaries. Any delay depends on how quickly the trustees act. Life insurance can be superior (and by the way, many life insurance policies are themselves set up as trusts anyway) because beneficiaries may be willing to act on the basis of the existence of the policy alone, on the assumption that the money will follow later. I know a funeral director who does exactly that, but would not for a bespoke trust because of the reduced legal certainty. – JBentley Jun 12 at 13:41
  • @Harper-ReinstateMonica Another consideration is that depending on circumstances, nature of the trust, and jurisdiction, a trust can have very different tax rules to a life insurance policy. For example a discretionary trust in the UK can attract some pretty high taxes at creation, periodically (every 10 years), and on any transfers out of the trust. That may not compare favourably to inheritance tax... again, depending on circumstances. – JBentley Jun 12 at 13:47

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.