Advisor Today > > July 2001 The Lighter Side of Life: With a Friend Like That!

The Lighter Side of Life: With a Friend Like That ...

Taking bad advice makes for unhappy endings.
Penny Righthand, CLU, ChFC

Last year about this time, I got a call from a 56-year-old client who had a 10-year-old $100,000 whole life insurance policy. It was costing her less than $200 a month.

"I want to drop that policy," she said. "Just send me a check."

"Why do you want to drop it?" I asked.

"My friend, John, says it's a terrible investment. He says I can do much better with the money I'm putting in there every month. He's making a lot of money in the stock market. And I've known him for a long time and I trust him."

"Why don't you come in with him and let's talk about it?" I suggested, warmly, wishing I could wring the man's neck.

"Thanks," she said, "but I'm really busy and I just want to get the cash. How much cash is there, by the way?"

"$7,000," I told her and suggested there were lots of ways she could keep the insurance policy and use the cash if she wanted to. I cautioned her that it was a mistake to drop this policy now. It had reached a point where it could practically pay for itself but I could not move her. Her friend had convinced her to dump it and get term insurance.

I told my client I needed a letter from her, with her signature, saying she wanted to surrender this policy. She sent it. We saved it, along with a copy of the check that went out to her, the letter the company sent with the check, and a copy of the term illustrations she wanted to look at to decide what to replace it with.

Last week she called. "How much life insurance do I have?" she asked my secretary, Karen, who reminded her she had surrendered her whole life insurance last year and had never bought anything else.

"I don't believe I would have just dropped that without getting something else," she insisted. "And I never got a check."

Karen, ever the diplomat, gave her the dates of everything that had transpired, faxed her copies of everything, and suggested she talk to me.

Yesterday she came in with her friend, John, to buy some term insurance. It turns out she found the deposit in her checking account, and her daughter reminded her she had spent it to prepay her rent on her house. It was long gone. I suppose it would have been gone even if she had actually invested it in the stock market, but once again, whole life, that terrible investment, outperformed spending the money.

She wanted term insurance. So I showed her term insurance-5-year, 10-year, 20-year and 30-year term insurance. "I want to make sure I leave something for my daughter whenever I die," she explained.

"When are you planning on dying?" I asked the obvious question to help us decide which plan to buy.

She laughed. "My aunt lived until she was 104," she said. "I'm planning on being around until then."

I showed her the premiums as she got into her 70s and 80s. I drew the mortality curve and showed her how term costs tracked the curve. I explained how most people drop term insurance before they die because they can't afford to pay the premiums as they get older. Unless they're lucky and die of a heart attack when they get their new premium bill!

I was aware of John sitting there smugly, leaning back in his chair, the great expert, who had helped her do great things with her money. I wasn't feeling hostile. I just wanted him to cringe. As I explained these things to my client, John commented, first, that "the return on your investment of whole life insurance is terrible."

"It's way better than the return on spending it." Guess who couldn't keep her mouth shut? "The cash value return is like that of the muni bond portion of your portfolio," I added, trying to smooth out any ruffled feathers. "Only it has a death benefit from day one that's there forever."

Then John had the nerve to tell us he owned a lot of "that stuff." How do you sue your client's friend for giving her bad financial advice?

So we looked at whole life again. We started all over. The cost was 30 percent higher than the cost of her old policy because of her new age. But she could pay for it during the remainder of her high-income-earning years, and not have to come up with huge, unexpected premium costs when she's living on a more limited income in retirement. And she would at least have some cash value to use if she chooses.

But, as John pointed out to her, "you can't change your mind again once you get into this."
My lips were sealed.

Penny Righthand, CLU, ChFC, represents New York Life in the San Francisco Bay area. Her address: 70 Washington St., Suite 220, Oakland, CA 94607. Email: prighthand@ft.newyorklife.com.

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