# Life Insurance and Investment Vehicle Combo



## hova (May 7, 2015)

Hey Everyone, 

I was pitched life insurance from a financial advisor at Sun Life today. One of the products they sell is the Sun Life Par policy. For about 170 dollars a month, over a 20 year term, sun life is "guaranteeing" 6.5 to 7.5 % annual return. It is also providing life insurance for 100K, should something happen to me. I have guaranteeing in quotations as there is no way to guarantee investments, but this 7 % has been there average return over 100 years. Now I am sure Sun Life has some black magic between combining the life insurance and the investments that allows them to pay me 7% a year. 

About me

I am 22 years old, live at home. No plans to get married, or to buy a house anytime soon. (Do I even need life insurance?) 
Approximately 8000 in savings
TSFA maxed out at ~32,0000 (all in US stocks)
I have one year left before I received my degree in Bachelor of Engineering. 

If people have any opinion on this type of policy, or life insurance in general, there thoughts would be greatly appreciated.


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## 0xCC (Jan 5, 2012)

Run, Forrest, run!

Other members can probably provide better insight than I can but that is my gut reaction to being sold life insurance tied to an investment product by an insurance sales person.

Also, at this point it doesn't see like you really need life insurance. When you do need life insurance, buy life insurance and when you want to invest, buy investments. To get an idea of what is going on with the insurance "product" you are being pitched ask the same financial advisor how much a $100k 10 (or 20) year term life policy would cost you. My guess is it would be hovering around the high double digits a year (yes, a year, not a month) for a 22 year old assuming no health issues.

What do you earn that 7% return on? My guess is that it isn't on the full $170/month...


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## Beaver101 (Nov 14, 2011)

hova said:


> Hey Everyone,
> 
> I was pitched life insurance from a *financial advisor at Sun Life *today. ...
> 
> ...


 ... that financial advisor wouldn't happen to be your relative, would he/she? In this case, ask him/her if he/she would buy that "$170/month par policy" (with proof) rip-off for himself/herself. Bet not and so to OxCC's post ...+1 ... *Run, Forrest, run*! :biggrin: 

When you're working, you can get inexpensive group insurance relative (% or multiples) to your salary, paid by your employer too. Some "financial" advisor, not even qualified as an insurance saleperson.


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## Cal (Jun 17, 2009)

I don't understand why you would need life insurance as described in your current situation.


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## Afp (Mar 19, 2013)

hova said:


> Hey Everyone,
> 
> Approximately 8000 in savings
> TSFA maxed out at ~32,0000 (all in US stocks)
> ...


hova,

You are doing very well for someone at your age. When I was 22, I got nothing. Regarding to life insurance, you don't need one for now. When you do, go for term. That's it. Don't let these sale persons make money off you.


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## My Own Advisor (Sep 24, 2012)

Life insurance is to transfer risk of a catastrophic financial loss to someone else (i.e., an insurance company).

Unless you have lots of debt and liabilities we don't know about I don't know why you'd need this product.


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## fraser (May 15, 2010)

I would run from this.

I like it simple. When I needed life insurance I bought term. Easy to understsand, simple to shop for. Same with investments.

My thoughts are when banks or life insurance companies bundle these together the main purpose is to camouflage the admin costs ind their profit.


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## GPM (Jan 23, 2015)

My Own Advisor said:


> Life insurance is to transfer risk of a catastrophic financial loss to someone else (i.e., an insurance company).
> 
> Unless you have lots of debt and liabilities we don't know about I don't know why you'd need this product.


Too True. But also:
1. Any investments inside a permanent UNIVERSAL LIFE policy will include at least a percentage increase
in the management expense ratio. This doesn't justify the tax savings. As my accountant 
diplomatically put it " it's hard to say if you come out ahead". He can't give investment advice so
it really meant don't buy it. They sell it as retiremement vehicle often. However, no tax break on way 
in and taxed on way out. Money does grow tax free inside. Like a TFSA or RRSP without the benefits. 
You can take loans in retirement against the cash value, but who wants loans then? You can build up
cash value to pass on to future heirs tax free, but why not use the insurance companies money by 
more instead of saving your own?
2. Any returns on a permanent WHOLE LIFE policy are grossly exaggerated, and the money is hard to 
take out. 
3. The agent makes loads more money on these than term, which is why they love to sell them.
4. I got trapped in one when I was young (universal life), by choice and ignorance. The only upside is 
buying young, my premiums are very low compared to buying now. I am maybe making a 5% return 
on the premium to policy payout if I die at 85. I won't see the benefit, only the kids. I invested until I 
realized the cost and pulled the money out.
5. I had large debt to cover opening my own business so,I required insurance.
6. I guess as a young professional you will make/save a lot of money, so if you take on a family, you have 
permanent insurance for as cheap as you can get to cover disaster and taxes at death.
7. Insurance is all the same. Permanent insurance is just term for life. This causes the extra expense. 
It's a guaranteed payout. Ok if you have large tax liabilities later in life or want to pass money to heirs.
8. In general, unless:
A) You are very rich, it's your money not your heirs, so at 65, no insurance is needed. 
B) If you have no debt no insurance is needed. 
C) If you have no dependants no insurance is needed.


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## uptoolate (Oct 9, 2011)

Run Forrest Run!! 

Love that! +1

Also MOA, even if he has lots of debts and liabilities... why the heck does he need life insurance? Unless someone else has co-signed for all those debts and liabilities, I would say let the bank eat it! I'm sure they're got it covered!


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## My Own Advisor (Sep 24, 2012)

@uptoolate, fair enough (re: co-signed or has dependents).

As soon as our mortgage is done, our term life insurance will be close to being over (10-year term) and I don't intend to buy any more life insurance. I/we will self-insure since we have no debt or liabilities.


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## hova (May 7, 2015)

Thanks guys for your advice and your nice words. As many of you indicated I do not need life insurance at this stage in my life. I didn't think I did either, but I was actually approached by a friend, who recently started a financial advisor position, so I guess he was trying to build a client base. When I do get life insurance, I will get term insurance, and just pay the price of the insurance. If something sounds too good to be true, it probably is.


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## slacker (Mar 8, 2010)

First rule of fight club: Never ever mix up insurance with investment.

Second rule of fight club: Never buy a complicated financial product, when a simpler one will do

If you need insurance to cover your family, by the most basic and easy to understand term insurance.

If you need to save and invest for retirement, by stock/mutual-fund/ETF.


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## CalgaryPotato (Mar 7, 2015)

I got suckered into universal life when I was 19 and just got my first job by my parents friend. As I started to understand my own finances I began to take a look at it, and on top of the MER there seemed to be a fee buried into the product itself on top of the insurance & the MER.

They make the numbers intentionally convoluted, when I finally sat the family friend down and told him I was cancelling and explained why, he couldn't even explain the numbers.


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## 0xCC (Jan 5, 2012)

Third rule of fight club: Don't buy a financial product when you don't understand clearly how the provider of that product makes a profit on it (including how the person selling it to you gets paid).

My parents got sold a universal life policy and asked me about it before they bought it. This was before I really knew what a universal life policy was and i couldn't figure out how the insurance company made money on it and I tried to get my parents to make sure they got a straight answer to that question. They never did, they bought into it anyway and 8-10 years after they bought into it they cashed out of it probably taking out around as much as they put in. So they lost 8-10 years worth of gains on that "investment".

And I just looked up Forrest Gump, that movie was released a year after hova was born if my calculations are correct (hova born in 1993, Forrest Gump released in 1994). I feel old now.


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## uptoolate (Oct 9, 2011)

Fourth rule: Don't buy 'investment' products (and I use the term loosely) from your friends and family. The insurance industry is notorious for using this tactic but is not unique to them. People in financial services want (need) to be your 'friend' - look up the term in the dictionary and see if it applies to the vast majority advisor-client relationships. Forget friendship, give me fiduciary any day.


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## Beaver101 (Nov 14, 2011)

^ +1 ... I don't know why but the words pyramid/ponzi keeps ringing in my head on this one. :biggrin:


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## RBull (Jan 20, 2013)

hova, good reasoning and choice. 

You're on the way to making sound financial decisions already.


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## My Own Advisor (Sep 24, 2012)

hova said:


> Thanks guys for your advice and your nice words. As many of you indicated I do not need life insurance at this stage in my life. I didn't think I did either, but I was actually approached by a friend, who recently started a financial advisor position, so I guess he was trying to build a client base. When I do get life insurance, I will get term insurance, and just pay the price of the insurance. If something sounds too good to be true, it probably is.


+1 

Insurance is an expense.

Always consider insurance as a risk-based product. If you have little risk, or better stated can afford the risk, you don't need insurance unless mandated by law (i.e., car insurance, home insurance).

I like the third rule of fight club:
Don't buy a financial product when you don't understand clearly how the provider of that product makes a profit on it (including how the person selling it to you gets paid).


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## OnlyMyOpinion (Sep 1, 2013)

My Own Advisor said:


> ...As soon as our mortgage is done, our term life insurance will be close to being over (10-year term) and I don't intend to buy any more life insurance. I/we will self-insure since we have no debt or liabilities.


Don't mean to take this thread astray, but wondering if anyone has looked at benefit/cost of keeping term insurance past that point to cover the tax liability on your estate (since the life insur payout is tax free)? We just paid up another year of term insurance and intend to look into this before premium is due next year. Obviously it depends on the amount that liability is expected to be, and the cost of premiums, insurance amount, etc.


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## My Own Advisor (Sep 24, 2012)

@OnlyMy,

You're doing term on a per year basis now? 

I haven't looked into it personally, re: keeping term insurance past that point to cover the tax liability on your estate but wouldn't you have to know when you're going to die (morbid thought I know!) to determine the true cost/benefit?

I suppose you could estimate....

I questionned on my site whether life insurance makes sense for seniors...

"What seniors are good candidates for life insurance?

Even if there will be no substantial financial loss or outstanding liabilities experienced upon death, some seniors may still want to leave a death benefit to their beneficiaries. Life insurance can also be a good way to leave some money to a beloved charity. Besides, as a society we’re living longer. Insurance companies in recent years have adjusted for this need; many insurance companies will now issue coverage up to age 85. A senior running their business may have a higher net worth and may wish to offset the tax liabilities associated with their business using life insurance. Here are other situations when life insurance for seniors may make sense:

Couples or individuals who remain in their peak earning years, with no intention to retire.
Couples who will experience a catastrophic income loss if a spouse dies.
Couples or individuals with large estates."

http://www.myownadvisor.ca/life-insurance-seniors-make-sense/

For us, I don't see the need for life insurance once we have no debt obligations but my tune could always change.


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## OnlyMyOpinion (Sep 1, 2013)

MOA - thanks for the comments and link. With life insurance, the only way beneficiaries win is when you lose isn't it (and the sooner the better). A quick 'back of the envelope' indicates that to maintain my $300k of level term life from age 60 to age 85 would cost $253k in premiums (they bump up every 5yrs). The purchasing power of $300k in 25 yrs is likely to be about $185k. If the premiums were invested instead, their value after 25yrs would be about $288k (using 2% to approximate an after tax ror). After 85 the term life drops to a paid up $30k  Seems a no brainer once you are not the sole breadwinner or would not be leaving behind debts (large uninsured mortgage, etc.).


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## Rusty O'Toole (Feb 1, 2012)

One thing everyone seems to have missed, and that most people never notice-

When you buy a life insurance policy and a pension plan in one product, you can only collect one.

In other words, if you die you get the insurance but not the pension. If you live you get the pension but the insurance money was wasted.

Heads I win - tails you lose for the insurance company.

This should mean you get a BIG discount, like half price, when you buy both together. But you don`t.

Price a term insurance policy and a whole life. Take the term insurance and put the difference in an investment account. Invest the money in a no load fund or ETF that mimics a stock market average.

If you die your heirs will get the insurance AND the investment. If you don`t die you keep the investment. And it will probably out perform theirs anyway.


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## GPM (Jan 23, 2015)

OnlyMyOpinion said:


> Don't mean to take this thread astray, but wondering if anyone has looked at benefit/cost of keeping term insurance past that point to cover the tax liability on your estate (since the life insur payout is tax free)? We just paid up another year of term insurance and intend to look into this before premium is due next year. Obviously it depends on the amount that liability is expected to be, and the cost of premiums, insurance amount, etc.


Term insurance gets very expensive as you age and so does term 100 (permanent with no investments). I also got sucked into universal life, but am keeping it to cover estate taxes and leave an inheritance. However, mine were purchased at ~25 and 35, before I knew better. It's actually relatively cheap now due to inflation. I keep it in my holding company, so it's paid with tax advantaged dollars, but the payout is tax free. The benefit comes out through a capital account(?). "The extra cost" on the investments, including index funds in the policy is usually 1%. Highway robbery but pays the company well. It's like a tacked on mer. Also, the investment portion of your premium is premium which your agent gets a cut of. Great sales commission and great ongoing commission if you maximize the premium. We just use ours as a term 100. We also may use it to insure an annuity. One policy is $500,000 for 148/mo. A lot cheaper than if we buy at 65. This ones returning 5% on the premium. However, overall I regret buying them. I like the whole self insured thing. You can gift money instead before you die if you have bucket loads.


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## OnlyMyOpinion (Sep 1, 2013)

GMP - good point. I noticed the big bump in premiums from the 66-70yr to 71-75yr brackets, so redid my back of envelope, keeping coverage only from age 60-70yrs. It looks like an individual might want to maintain the term coverage to age 70 - in case lightening strikes. After age 70, it's cost/benefit drops rapidly: 
To maintain my $300k level term from age 60 to age 70 would cost $20k in premiums (they bump up every 5yrs). The purchasing power of $300k in 10 yrs is likely to be about $253k. If the premiums were invested instead, their value after 10yrs would be about $22k (using 2% to approximate an after tax ror).


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## LifeInsuranceCanada.com (Aug 20, 2012)

My Own Advisor said:


> @OnlyMy,
> 
> I haven't looked into it personally, re: keeping term insurance past that point to cover the tax liability on your estate but wouldn't you have to know when you're going to die (morbid thought I know!) to determine the true cost/benefit?
> .


You don't need to know when you're going to die. You can either look at rates of returns based on your dying at different ages and decide if it's reasonable, or you can do mortality weighted rates of return. Either way if you're looking to cover tax liability on your estate I would expect you're going to find the permanent life insurance option attractive. The insurance companies can make a profit and still get you a cheque upon your death cheaper than you can do the same thing.

Two easy reasons why this stuff makes sense; first if you want the cheapest way to pay liabilities on death then that's frequently life insurance and secondly if you don't want to have to liquidate certain assets on death (family cottage, business) to pay tax liabilities then the answer is also frequently life insurance.

But that's predicated on have a tax liability on death. 



> For us, I don't see the need for life insurance once we have no debt obligations but my tune could always change.


For you, maybe not. But always assess it financially instead of emotionally (you'll see examples of that right in this thread). Put numbers to it. If you didn't spreadsheet it, you're acting from ignorance.

Here's an example. I'm self employed. This, there's a risk that my business doesn't go as planned. I could end up old, still working, and not have enough saved for retirement - or worse, not enough saved after I die to look after my wife through her many happy years after I'm in the dirt. These risks are of concern to me personally. The solution? Permanent life insurance. It ensures that if I end up having to work into my later years and still die before I can get enough money saved to look after my wife in her advanced years, well, the insurance company will fix the problem. I could have ignored my concerns and told her that upon my death she should go marry someone young and handsome like yourself .

I believe she's looking forward to both (the insurance, and the better-looking spouse).


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## My Own Advisor (Sep 24, 2012)

Great points. 

I think it really depends on your assets (cottage, self-employed business, etc.) and what you might be forced to liquidate in terms of a catastrophic loss.

If you have already saved enough for retirement, meaning, you have "enough money" then I personally don't see life insurance as a major need unless this is part of your estate plan.

Just my take!


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