Questions to ask during MLM pitch?

Hi, my friend is in training to sell indexed annuities/life insurance. I knew right away that it was a MLM scheme. He did a pitch for me this week and disclosed that he already opened accounts for him, his wife, kids, and parents. He talked about how great this private account was and how you can essentially borrow money from yourself and when you’re older, it’s pretty much guaranteed tax-free income.

I agreed to attend a virtual meeting with his mentor for more information but I’m only doing it so I can ask questions that will hopefully make my friend realize that it’s a scam. I asked him earlier this week what the annual fees were and he said he had no idea since that was never discussed. He encouraged me to ask his mentor tomorrow.

I have a few questions I want to ask but am reaching out to see if ya’ll have any hard hitting questions you think I should ask.

A few questions I know the answers to but will be asking-

  • when you borrow money from your account, what are the interest rates like? When you “pay yourself back” does the interest in fact go back to you (so you truly pay yourself back)… Or to the institution? What’s the benefit of doing this rather than getting a loan from a credit union?
  • are indexed annuities growth based on index funds? If so, what are the growth limitations and how is this more beneficial than investing the money myself in an index fund?
  • what is your institutions credit rating?
  • is there a surrender charge point?
  • it’s been mentioned that payouts in the future are tax-free. Is that only based on my contributions or will I need to pay taxes on interest earned?

Anything else I’m probably missing? Thank you!


Hey @Tchurn!

Good for you for doing your homework and trying to come into this meeting prepared. I think these MLM insurance guys are looking for a lamb ready to be slaughtered… I hope you don’t get caught in the trap. The more I learn about these crap insurance schemes the worse they get. But be careful because both these people you’re meeting with have a financial incentive for you to sign up. And as the saying goes, “It is difficult to get a man to understand something when his salary depends upon his not understanding it”. So while I hope you can save yourself, don’t expect to change minds or win friends in this meeting, because you probably won’t.

That said, here are some thoughts:

  • What happens to the ‘cash value’ if I die? Ask this, because the answer is usually “poof, it disappears”. You still get the death benefit, but that massive amount of money you’ve been pouring into this thing to build a cash value disintegrates. On the flip side, if you buy term life insurance and invest the difference in premium. If you die, your beneficiary gets paid out from the life insurance, AND the entire IRA/investment (that’s all tax free too, by the way) Ask why one goes away, where in the “term and invest the rest” scenario both are paid out.
  • Are dividends reinvested? Indexed universal life insurance people like to play some tricks to make it look like their insurance product will outpace the market. It will not. But one of those tricks is to compare it to the S&P 500 returns. Their product has a floor and ceiling on returns (i.e. 0% and 12%). And if you cherry pick some years, their gimmick can look like it outpaces the S&P 500, when you look at just S&P 500 share price. But whenever they do this, they always seem to forget that owning an S&P 500 also pays dividends, which is free cash to you and can be reinvested to amplify the compound growth. In their scenario, you’re literally flushing that money down the toilet. When you include the dividends, the math looks very bad for them.
  • How much will my total premiums be the first year? What will my cash value be at the end of the first year? They hate answering this one. Expect hems and haws. Follow up and ask your friend if he knows what his current cash value is. The reality is that for many years… maybe all the years, your cash value will be WAY LESS than what you pay into it. So you put in $6,000 your first year, then your cash value is like $2,000. These two guys, and the jerks that started the MLM are busy lining their pockets with your premium dollars. Meanwhile, in a real investment your investment goes UP RIGHT AWAY. Plug those numbers into an excel sheet and the insurance product is obliterated by the index fund.
  • What do each of you make if I sign up? What do your uplines make? They also won’t want to answer this and likely won’t give a straight up answer. But at least shine a light on the fact that they should be disclosing very serious conflicts of interest.
  • What happens if the insurance company goes out of business? They’ll say it won’t happen, but point out if you buy an actual index fund, your fate is in the hands of thousands of companies, not just one.

This whole scheme is cooked up on this premise that you don’t actually ever have your own money. You just have a “cash value” inside of an insurance product. They say you never actually take it out, it just sits there until you die, then it goes to our beneficiary. (actually, as mentioned above, the cash value disappears and the policy only pays out the death benefit to your beneficiary). If you want to use the cash benefit, you take out a loan… of your own money… and pay interest on it… then pay it back. They say this avoids taxes, which is partially true. But you don’t pay income tax on any loan. You pay interest. And if that money was in a Roth IRA you could just HAVE the money 100% tax free, not borrow it. And there would be WAY WAY more money. Paying huge premiums to an insurance company for years so that one day you can “borrow” that money… your money… that you used to have in your account before you gave it to the insurance company, is ridiculous. But be prepared to have them talk in circles until it almost makes sense. It doesn’t. Simplicity favors the investor. Complex investment schemes are only cooked up to favor the company profiting from them.

These are god awful. Please don’t sign up. Be friendly. Ask tough questions. But like I said, don’t expect to make any friends. They’re not gonna be happy.

Edit: And @Tchurn please update us with how it goes after the meeting! :slight_smile:


Update time!

I was friendly but I think too blunt. I asked him a few questions, including the questions you recommended, Jeremy.

A few things that stuck out to me:

  • They prey on people’s emotions. I don’t know how else to explain it but he tries to help build up an image of your “best life” and then crushes you down when you realize you are no where close to achieving that goal. But guess what? YOU CAN ACHIEVE THESE GOALS if you just invest in their account.
  • He mentioned that by investing with him, he could guarantee we would get 5x the interest we get now with our bank. He then asked if we knew what our interest rate followed by, “you probably don’t because the banks won’t tell you.” I told him our bank interest rate is .8% and was very excited that he could guarantee us 4%. That took him off guard and said, “I don’t know what bank you have but that doesn’t sound right.” I told him about our HYSA with Ally and he brushed it off and said “yeah, ok. No need to brag.” Uhhh… ok… I mean… you asked what my interest rate was?
  • Towards the end of the presentation, I asked if he could go back to his chart of “gains.” He was happy that I asked to see this chart again and said, “I see you’re taking this seriously! Good! Hey, [insert friend name]… I’m glad you brought them in!” I asked whether the chart accounted for reinvested dividends and fees and how that compared to S&P 500. He quickly turned on me and said, “if you actually know anything about finance, you know that all accounts charge fees. I don’t know what point you’re trying to make with that question.”

After that, the mentor realized I was not having it and quickly ended the call because he had to present to another couple who was “more serious about their financial goals.” He then told our friend that he would call him back in 10 minutes. But wait… if you’re going to do another presentation… wouldn’t it last more than 10 minutes? But, I digress. He said they would contact us to schedule another meeting so I could ask him more questions but they never followed up with us. I’m glad, because I would have declined anyway - another meeting would not have been worth my time.

When we talked to our friend afterwards, he told us that the question about the reinvesting dividends was an interesting one and that he wished his mentor answered it. I thought he saw the light at the end of the tunnel…! But no, he just said, “I trust him so there must be a good mathematical reason.” I asked how long he knew this “mentor” and he said just a few months but that his mentor had already done so much for their family - including rolling over their 401k’s into the life insurance account and opening up accounts for the kids as well. SIGH. The mentor has also grilled it in our friends head that he cannot learn this stuff on his own because there is so much bad information on the Internet and that he needs a seasoned mentor to help him gain wealth.


I’m not sure there’s a lot to be gained by trying to talk someone out of it, and especially trying to convince him by peppering him with ‘gotcha’ questions seems unlikely to change his mind and more likely to sour your relationship.

I forget where I saw this initially, but a simple “I’ve done my own research and I don’t support the business model” should suffice.

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