Tuesday, October 13, 2009

Stupid Agent Tricks: Indexed Life

We don't generally take positions regarding the kinds of life insurance plans folks should buy. The primary reason for this is that we don't know you, or your needs or goals, so it would be presumptuous of us to try. From time to time, we'll recommend that you buy, for example, disability income or long term care coverage, or look to see if your existing life insurance plans are adequate (and adequately funded).

But that's as far as we'll go.

Unfortunately, there are folks in our industry who speak first (and loudly) before thinking. Such is the case, apparently, with agent Brian Anderson. I came across Mr Anderson's name and claim to fame via this thorough fisking by "The Irrational Investor," Allan Roth. Mr Roth is not a fan of annuities (and, presumably, other forms of cash value insurance products). He challenged insurance folks to convince him that their product would out-perform more traditional investments, and promised to invest $100,000 with them if they could rise to that challenge.

Apparently, Mr Anderson was long on hat and short on cattle:

"The first promise to go in the challenge was the claim that I could “take out the gains Tax Free for retirement income.” That went out the door because paying the full $100,000 up front disqualified it from IRS rules letting me borrow gains against the policy, as this is technically called a Modified Endowment Contract (MEC)."

Ooops! That's really very basic stuff to get so wrong, and it didn't get any better. If you're interested in why insurance and investing seldom mix, I recommend reading the whole thing.
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