# What should be done with childhood whole life insurance policy?



## RCB (Jan 11, 2014)

Just received the annual statement for my husband's childhood whole life policy. I'm wondering if we should take the cash value and invest it. It's one of those insurance/investment policies.

monthly premiums $9.xx (still paying)
current death benefit $39,xxx
age 40 - sole income earner, my age 50
current cash value $8,739
amount we've paid in premiums since we took it over $1,672

children 20 & 17 at home, both working
20 yr. term policy for $100,000 has about 8 years left
small death benefits through employer and union
home mortgage done in 2 years (roughly $20,000)
2 rental properties cash flowing just shy of a total of $2,000/mo., both have life insurance on mortgages
in third tax bracket
lots of TFSA room

Should we cash in to invest? Does anyone know the tax treatment?


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## CalgaryPotato (Mar 7, 2015)

Rip off the Band-Aid, no sense throwing more good money after bad.

Look at how pathetically little the death benefit is, and how little the cash value is.


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## RCB (Jan 11, 2014)

That's pretty much what I was thinking.


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## My Own Advisor (Sep 24, 2012)

If you cash it in...aren't there tax complications you should consider?

Not saying not to do this...just a consideration. I believe there is something about a "policy gain" when it comes to taxation of the CSV. No?


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## RCB (Jan 11, 2014)

Yes, there would be tax to be paid. The ACB is factored in, so the total amount wouldn't be taxable. I don't think I have any way to calculate the ACB, and therefore the taxable portion. I was thinking putting it into an RRSP or spousal RSP would help mitigate the tax to be paid.


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## My Own Advisor (Sep 24, 2012)

I have a similar "childhood" policy and for years, been considering the same thing RCB but haven't pulled the trigger. Yet. I would also put the money into the RRSP, use the RRSP-generated refund to offset any tax to be paid.


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## tinypotato (Jul 27, 2010)

Hello,

I generally don't like those types of products, but you're already in it so just focus on going forward.

An alternative way to look at it is:

a) You're paying into it about $120/yr ...how much does the cash value change year to year? If it's around $120 or more, the premiums are basically the same as the change in cash value
b) What is the approximate opportunity cost of investing the $8800 cash value? Say, 4% or 352 per year
c) Whats your health situation...

Just my 2 cents..

I'm stuck with a much worse policy; not much more coverage (50K), less cash value (7?), but MUCH more monthly premiums ($40). I've been thinking of ending the silliness...not sure if I should though...


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## uptoolate (Oct 9, 2011)

CalgaryPotato said:


> Rip off the Band-Aid, no sense throwing more good money after bad.
> 
> Look at how pathetically little the death benefit is, and how little the cash value is.


+1


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## kcowan (Jul 1, 2010)

I cashed in two whole life polices with London Life about 5 years ago, one on me and one on my former wife. The cash value is taxed at 100% so best to do it in a low tax year if possible (I am retired). The yearly dividends did pay for the insurance so I could have just stopped contributing. But I decided that it would be better to invest the money in my portfolio.

If I had kept them until one of us died, the proceeds of that one would have been tax free. But I felt it was too long to wait.


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## LifeInsuranceCanada.com (Aug 20, 2012)

tinypotato said:


> Hello,
> 
> I generally don't like those types of products, but you're already in it so just focus on going forward.
> .


++1

Keep the policy.

Should you purchase a policy like this today? No. But you don't have a new policy, you have a $40K permanent policy with premiums of $120/year with no medical exam that's 40 years old. That's a darn good deal. I'd take two at that price.

The $9/month should be inconsequential, but if you have to assume that you care about $40K more or less, then the proper course of action is to keep the permanent policy and reduce your term coverage by $40K. Since a term 10 at age 40 is about the same premium, what you've done is kept the coverage and premiums the same, and given yourself the free option of having permanent insurance 10 years from now for only $9/month. I mean, don't do that, but if we're going to over analyze this then that's the comparison rather than a knee-jerk 'cancel'.

The ACB will be pretty much 0, so pretty much the entire cash value will be taxable. 

If these policies aren't too old or have a high premium it used to make sense to cancel and do something else. But the last few years I'm finding that the general rule of thumb is that it's reasonable to keep these older childhood policies.

And besides, based on what you've posted, you've got bigger issues with your insurance than a $9/month premium.


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## OptsyEagle (Nov 29, 2009)

LifeInsuranceCanada.com said:


> ++1
> 
> Keep the policy.
> 
> ...


+1 ^


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## My Own Advisor (Sep 24, 2012)

Good points Glenn (LifeInsuranceCanada). You've convinced me to keep the policy, although I think I should write a post about this childhood policy as I suspect others have had a similar dilemma but might not know all the consequences of their decisions.


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## RCB (Jan 11, 2014)

LifeInsuranceCanada.com said:


> And besides, based on what you've posted, you've got bigger issues with your insurance than a $9/month premium.


How so? 

I was incorrect about the term, it still has 11 years left, and it's $125,000.


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## daledegagne (Apr 6, 2015)

LifeInsuranceCanada.com said:


> ++1
> 
> Keep the policy.


Of course the life insurance salesman would say keep the policy (sorry, maybe an unfair dig)

But he may have a point. If you may need the insurance 11 years from now, then it will be your cheapest option. If you're not going to need it in 11 years, when your term life comes to an end, then you'll want to compare the cost of $40K of term, vs. your $40K of perm. 

I'm having a hard time seeing why you would need much if any insurance 11 years from now though. 

That said, My wife has a whole life from her child hood and we've kept it. Similar to your policy but slightly less cash value. We think of it as our "emergency emergency" fund. As in - when all else is gone, then we've still got that to fall back on. It's worth $15 per month for us to sleep that much more soundly.



LifeInsuranceCanada.com said:


> And besides, based on what you've posted, you've got bigger issues with your insurance than a $9/month premium.


Life Insurance Canada - can you explain this a little more? Because I'm not sure I understand or agree.


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## LifeInsuranceCanada.com (Aug 20, 2012)

daledegagne said:


> Of course the life insurance salesman would say keep the policy (sorry, maybe an unfair dig)
> .


If you've got a disagreement with what I posted, state it in numbers or clarify that it's your opinion not backed up my numbers. Your stereotypes don't apply to me.


> Life Insurance Canada - can you explain this a little more? Because I'm not sure I understand or agree.


You're a fee based financial planner - if you think their existing insurance is fine based on what they've posted, you go ahead and state why that is.


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## CalgaryPotato (Mar 7, 2015)

LifeInsuranceCanada.com said:


> You're a fee based financial planner - if you think their existing insurance is fine based on what they've posted, you go ahead and state why that is.


Wouldn't it be hard to accurately assess their existing insurance without knowing the value of the two rental properties they own and how much insurance they are they paying on them? 

I'm not trying to argue, just trying to understand...


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## andrewf (Mar 1, 2010)

What is the purpose of child life insurance exactly? To cover funeral expenses? I find the idea of parents insuring their children rather morbid, and objectively rather pointless.


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## CalgaryPotato (Mar 7, 2015)

andrewf said:


> What is the purpose of child life insurance exactly? To cover funeral expenses? I find the idea of parents insuring their children rather morbid, and objectively rather pointless.


Well the idea behind those whole life policies at least in theory is that you start paying when the chance of death is low, so you lock in this very low rate for the rest of their lives that the can take over. Also it has the investment component. The reality behind them, is that most of them end up to be a very expensive form of life insurance and an even more expensive form of investment. 

If the idea was the cover funeral expenses you could get term life insurance on your child for a fraction of the cost. And while there are many people who are too poor to pay for the cost of their child's funeral if the unfortunate happened, I don't think those would be people who'd actually put money into life insurance every month.


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## Charlie (May 20, 2011)

Ignoring everything else....$9/mo for a $40K policy seems like a decent enough deal. Compare to your premium on the term 20 and that may be the end of your analysis even before considering increasing cash surrender, value of whole life, etc. Unless I did not need insurance, I'd keep it. You could micro analyse the expected return on your after tax cash surrender plus premium and present value of eventual payout -- but at $9/mo for a product you likely need, I wouldn't bother. I'd keep the policy and look at it again in 10 yrs or so. 

Also....I'd be wary of the mortgage insurance on the rental properties. Consider switching out to term on these. May be cheaper and your coverage won't decrease with every mortgage payment. I'm generally not a fan of mortgage insurance over term.


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## LifeInsuranceCanada.com (Aug 20, 2012)

andrewf said:


> What is the purpose of child life insurance exactly? To cover funeral expenses? I find the idea of parents insuring their children rather morbid, and objectively rather pointless.


There's a few common reasons for life insurance on children.
1) covering funeral expenses, though I think this is rare.
2) guaranteeing future insurability. What's it worth to guarantee that your child has a policy in the future? Maybe you don't care about guaranteeing that they have life insurance in the future - it's worth $0. Or maybe you care a little bit, so it's worth $9/month to you.
3) cover lost income. I've had some people suggest they would need 2 years off work if their child passed. 
4) general financial prudence.

Most of my clients don't bother with any of this. Personally, I'm big on #2 and #4, I have no interest in #1 and #3. If you check all for as 'don't care', then you don't need life insurance on children. Many, but not all, people make that determination. 



> I find the idea of parents insuring their children rather morbid, and objectively rather pointless


Morbid doesn't mean you shouldn't evaluate, consider, and plan. 

Pointless? It's no more or less pointless than term life insurance to cover lost income on the death of a wage earner. Those people assume they have an obligation to their family after they're dead, and how does that make any kind of logical sense? It doesn't - and there are people who have no such sense of obligation. The government will look after their family to some extent right? So we have to demand that their obligation is to ensure their family's lifestyle to current standards after they die instead of the minimum provided by the Canadian gov't? Clearly not - so the term folks have started with the non-universal assumption that they have an obligation to maintain their family's standard of living upon their death. People who buy life insurance on their children make different base assumptions. Neither are right or wrong.

What we have are consumer advocates using standard westernized assumptions to produce a need for life insurance - and that's perfectly valid. But from there we have people demanding that everyone arrive at the same conclusions without appreciating that they're making different assumptions - they don't even realize they're making assumptions.

That's why I'm onboard that term is almost always correct - but always? noway. It's not even always right for me personally. The vast majority of my clients have term insurance, yet I maintain all of a permanent policy on myself, a joint last to die policy on myself and my wife, and $250K of permanent life insurance on my kids.

Anyway, that's way more indepth than most people need to know or consider, it's more than most brokers even consider. Rule of thumb? Buy term, don't put insurance on your kids.


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## LifeInsuranceCanada.com (Aug 20, 2012)

CalgaryPotato said:


> Wouldn't it be hard to accurately assess their existing insurance without knowing the value of the two rental properties they own and how much insurance they are they paying on them?
> 
> I'm not trying to argue, just trying to understand...


I appear to be in a whimsical mood today, going in to far more depth than I likely should.

The real answer to your question is another question - what happens to the rental properties upon your death? If you're going to keep the properties, and the income is floating the mortgage, then why are you buying mortgage insurance? So that upon your death, your spouse has two fully paid off rental properties? So now your spouse has full rental income that they didn't have before. That's not insurance, that's a death lottery - your spouse wins the financial lottery on your death. That's not strictly speaking insurance, where you recoup a loss.

Or maybe you're going to sell them upon your death? Well, then you've freed up the capital in the rental properties. And that means you can reduce your amount of life insurance by the same amount. You don't need to buy $250K in life insurance if you're going to get $250K upon your death from the sale of rental properties.

So there's two assumptions, one means no additional life insurance and one assumption means less. 

It's helpful always to look at it this way; look for catastrophic financial loss. This is true of all insurance. It must be catastrophic, don't insure small things. It must be financial, and measurable (if you can't define a clear number, then it's not financial, it's emotional, or you're not done yet). And it must be a loss - you have to be able to say "See, a random event occured and I suffered $X loss". My house burned down so I lost the value of the house, idiot doesn't know how to navigate a roundabout so now I have to replace a $10K vehicle, I died so I lost $NN,NNN/year in income.". If you fail one of those three tests, something may not smell quite right. That's often the case when discussing mortgage life insurance.


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## daledegagne (Apr 6, 2015)

LifeInsuranceCanada.com said:


> If you've got a disagreement with what I posted, state it in numbers or clarify that it's your opinion not backed up my numbers. Your stereotypes don't apply to me.


That was my attempt to be a little funny. When you're a hammer, sometimes everything seems like it's a nail. 



LifeInsuranceCanada.com said:


> You're a fee based financial planner - if you think their existing insurance is fine based on what they've posted, you go ahead and state why that is.


I'm not the expert here. As a planner, I have a more broad picture (read: jack of all, master of none) understanding. I still refer to agents for details on many occasions. I personally didn't think I was able to make assumptions that you seemed able to make. Hence why I asked to understand better. Not to fight. More to learn and understand.



LifeInsuranceCanada.com said:


> The real answer to your question is another question - what happens to the rental properties upon your death? If you're going to keep the properties, and the income is floating the mortgage, then why are you buying mortgage insurance? So that upon your death, your spouse has two fully paid off rental properties? So now your spouse has full rental income that they didn't have before. That's not insurance, that's a death lottery - your spouse wins the financial lottery on your death. That's not strictly speaking insurance, where you recoup a loss.


I'm not sure you need to go technical on the definition. The end result is the same. Mortgage insurance triggers on death, reducing a liability and increasing the rental income. This is a perfectly legitimate way to insure against the loss of another income (in this case, employment income) due to death. Although as I may have mentioned before - Mortgage insurance tends to be expensive $ for $ compared to term. Best to figure out a cost per dollar insured.



LifeInsuranceCanada.com said:


> Or maybe you're going to sell them upon your death? Well, then you've freed up the capital in the rental properties. And that means you can reduce your amount of life insurance by the same amount. You don't need to buy $250K in life insurance if you're going to get $250K upon your death from the sale of rental properties.
> 
> So there's two assumptions, one means no additional life insurance and one assumption means less.


Depending on the values of the rental properties it may mean a reduction in life insurance to zero. That option may have been an oversight? Or did you mean to exclude it? 

As CalgaryPotato said: It's pretty hard to accurately assess their insurance needs the way you have without more information.


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## kcowan (Jul 1, 2010)

The main reason that insurance is cheap for kids is because the insurance payment is spread over so many years. The more investment options are added, the more the company takes from the payments in fees. The tax free aspects may be neutralized by these fees.


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## RCB (Jan 11, 2014)

Thank you for all replies. We are considering all of them. I'm still leaning towards taking the cash value to invest, he's still leaning towards keeping it for my sake.


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## LifeInsuranceCanada.com (Aug 20, 2012)

kcowan said:


> The more investment options are added, the more the company takes from the payments in fees. .


WTF? Where did that come from? There's no proven correlation between number of investment options and fees in children's insurance policies.. 

BMO's universal life policy has hundreds of investment options. Their investment fees are no worse than any other UL policy. They're no better, but they're no worse. That's the extreme example.

And never mind that I believe most childrens' policies are whole life policies that don't even have an investment option. Even if you pretend that the cash value in whole life is an investment, there's no choice of options - there's only one investment and it's fixed. No choice on the part of consumer and therefore no ability to have 'more fees due to more investment options'.


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## kcowan (Jul 1, 2010)

LifeInsuranceCanada.com said:


> WTF? Where did that come from? There's no proven correlation between number of investment options and fees in children's insurance policies.. .


It comes from my experience as a purchaser of whole life policies. But since I got rid of them all, I may not be current. They were called participating policies by my insurer.


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## fraser (May 15, 2010)

My parents gave me my whole life policy when I was in my early twenties. Did the math and cashed it in.

I am a huge believer in insurance..term insurance. Loaded up on when our children were with us and before we became financially independent. Not a fan of whole life.

We have been approached several time to buy these policies that combine life with investments. They were confusing and we always had trouble getting straight answers to straight questions. We have a policy. We do not invest in anything that we do not understand or do not believe in. Those combo policies were well up on the list. I can only assume that the insurance folks got much larger commissions on these and on whole life than they did with term because that is always where they tried to steer us. Call us simple if you wish but it is our money.

Now that we are in our early sixties, I believe that over the years we have saved a great deal of money by buying term insurance and by separating insurance from investments. There is little doubt in my mind that these combo policies carry lots of admin fees, are very profitable for the insurance companies, and pay the agents lots of commission. These would have come directly out of my pocket. No thanks-we pass.


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## LifeInsuranceCanada.com (Aug 20, 2012)

kcowan said:


> It comes from my experience as a purchaser of whole life policies. But since I got rid of them all, I may not be current. They were called participating policies by my insurer.


There's no way your experience with par whole life led you to have some sort of experience with multiple investment options. Par Whole life policies don't have multiple investment options. The statement you made isn't just wrong, it doesn't even make sense. 

You have 4000 posts here, and if this place is like most forums, you're actively contributing to the tone of this forum. People read this, believe it, and parrot it. Then I have to deprogram them when they call me. Honestly, half the stuff consumer 'experts' have to say on life insurance is as false and misleading as the stuff they claim the industry is doing.



> There is little doubt in my mind that these combo policies carry lots of admin fees, are very profitable for the insurance companies, and pay the agents lots of commission.


There's another example. Shouldn't you be more concerned - perhaps even completely concerned - about the product that's right for you than you are about 'my' paycheque? Every time you buy something, a TV, a car, is the overriding concern that someone might be making a dollar? Evaluate your life insurance needs based on what you need and want, don't make decisions based on how much someone makes from the sale (particularly when the commission is fixed and non-negotiable anyway).

The last stat I heard was that 80% of insurance agents fail in the first two years. You think these people failed because of all the commissions they were making? 

Really, the forum is throwing around false, misleading and misdirection statements like they're helping consumers. The life insurance industry isn't anywhere near as bad as it's being made out to be. I've been in the industry for about 30 years now, and some of these criticisms were valid 30 years ago. Today, they're the exception,not the rule. If you want to get bent on commissions and how stuff is affecting your prices, go do some research on how your mortgage broker gets paid and how they quote your rates.


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## daledegagne (Apr 6, 2015)

LifeInsuranceCanada.com said:


> There's no way your experience with par whole life led you to have some sort of experience with multiple investment options. Par Whole life policies don't have multiple investment options. The statement you made isn't just wrong, it doesn't even make sense.
> 
> You have 4000 posts here, and if this place is like most forums, you're actively contributing to the tone of this forum. People read this, believe it, and parrot it. Then I have to deprogram them when they call me. Honestly, half the stuff consumer 'experts' have to say on life insurance is as false and misleading as the stuff they claim the industry is doing.
> 
> ...


1. No on is infallible....not even you. I've reported your post for rudeness because I think it's condescending to WesternCanada. 

2. Looking back on your posts in this thread, many of them are very combative. Are you looking for a fight? Because fighting on the internet is for teenagers, not grown men.

3. One person's opinion, wrong or not, does not mean the "forum" is throwing around misleading etc. statements.

4. I would like to explain why I distrust the insurance industry. You used the analogy of the TV salesman. I can work with that analogy. 

What do you think when you walk into a store and a TV salesman says things like "let's find the right TV for you" and "I'll go to bat for you with the boss, just give me one second. I'll get you a good deal". You don't believe them right? Why? Because they're lying to you. 

Most people don't know how to evaluate what they need for insurance, and even if they did (online calcs are great) I've never met an agent that_ wouldn't _try and help them make sure they're "really covered". In which case the client crumbles because the insurance agent holds the power seat with perceived expertise and experience. 

To add to this, I've also never met an agent who would willingly provide help or information to significantly lower insurance costs. Hell I was in my 10th year (3rd agent) owning multiple rental units before I finally snagged a bit of information (from a story they were telling...they weren't trying to help me) that I could increase my deductible past $1000 to $5000. So I did that. But you know what? I figured out a year later, no help from them, that I could increase them _another_ $5000 to $10000. Now maybe you think this is stupid, but not me. I keep more than that size of emergency fundfor my properties. So it makes sense. But do you think she would offer up help saving me money? No.

Why?

Because it's _not her job_. Her job is to sell me insurance. 

For many, insurance is something they don't understand. And with the other party not actively working for them, they are right to distrust. Maybe not all agents out there will actively try and scam you...but there aren't many who really try to help you either. That's not to say they are bad people because they're not. They're just doing their job. Looking out for their company and themselves while making sure the client is happy enough to stay with them. 

Beyond that, it's not their responsibility to look out for the client. It's the client's - and part of that, is being skeptical of their agent. 

When I start being able to pay insurance agents directly - when that is the industry standard, that I pay $100, or $200 a year for an agent to find me an insurance policy, then I'll start trusting the agent more when they say "Let me help you get the right product for you". Until then, I will never, nor should I ever, trust them to do what's best for me.


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## LifeInsuranceCanada.com (Aug 20, 2012)

> 3. One person's opinion, wrong or not, does not mean the "forum" is throwing around misleading etc. statements.


That's a load of baloney. The forum IS throwing around misleading statements. I didn't object to an opinion by kcowan. I objected to something he stated as a FACT. 

So why don't you put up or shut up - go find me proof that the fees on a whole life policy are higher the more investment options there are in the policy. Or kcowan can back up the statement. Or the fee based financial planner who said my comment was because I was biased on sales - but couldn't counter with numbers. 

Until then, the forum moderators need to be more concerned about the nonsense being spewed around here by people portraying themselves as experts on life insurance than whether you think I'm condescending. *The information being dispensed by incompetents like you and kcowan is harmful to consumers*. The forum should be incensed. You call yourself a fee based planner? You're a charlatan.


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## daledegagne (Apr 6, 2015)

LifeInsuranceCanada.com said:


> That's a load of baloney. The forum IS throwing around misleading statements. I didn't object to an opinion by kcowan. I objected to something he stated as a FACT.
> 
> So why don't you put up or shut up - go find me proof that the fees on a whole life policy are higher the more investment options there are in the policy. Or kcowan can back up the statement. Or the fee based financial planner who said my comment was because I was biased on sales - but couldn't counter with numbers.
> 
> Until then, the forum moderators need to be more concerned about the nonsense being spewed around here by people portraying themselves as experts on life insurance than whether you think I'm condescending. *The information being dispensed by incompetents like you and kcowan is harmful to consumers*. The forum should be incensed. You call yourself a fee based planner? You're a charlatan.


1. You might want to read the disclaimer portion of this - http://canadianmoneyforum.com/announcement.php?f=2 which states that advice on this forum is of a general nature and people should still consult advisors. Of course you're more than welcome to email the mods directly and tell them how they should do their jobs.

2. While you're there, perhaps you should read the section about making personal attacks on people while attending this forum. 

3. I already responded to the sales based bias comment that it was meant to be humorous. 

4. Please quote the bad advice that I have given this OP in your response to this so everyone can see what bad advice I have given.

P.S. If you've been in the insurance business since 1986, that means you're at least 50 years old right? Aren't you a little beyond name calling?


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## fraser (May 15, 2010)

There are good reasons why 80 percent of the people who start in the insurance business fail within two years. 

It is a commission only business. Just about anyone who fogs a mirror and does not pick their nose can get a job selling insurance. Only the good ones remain in the business. Just like real estate or any other sales environment where the 80/20 ratio is common.

The public is becoming better informed and information is readily available on the web. People are shopping on the web for term etc. They do not necessarily need someone coming into their home at night offering to sell them whole life policies and asking the customer if he/she loves his wife/husband and children.


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## kcowan (Jul 1, 2010)

We offered a system to help with recruiting and the insurance company said no. They relied on the poor hires selling all their friends and family before quitting.


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