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!