Complaint Review: National Life Group - Internetmontpelier Vermont

Unfortunately, the person who sold you the policy was probably hesitant to tell you too much about the policy in fear of losing the sale. That is too bad. Cash value life insurance, when funded properly, can earn a modest amount, but this will take time. The illustration will show that most cash value plans need at least ten years for you to build cash value that even compares to your premium payments. When presented as an investment, the person was trying to make a buck, instead of presenting it as an income stream available to you in retirement. You can take loans against the cash value and never pay them back and that money is almost always tax free(unless the IRS considers it to be overly funded)!

Most insurance companies are heavily invested in corporate bonds, risk free govt bonds etc., so they can offer cash value in addition to the death benefit. Or you can "buy term and invest the rest" and end up outliving the term of the policy and have another period like 2007-2008 where peoples life savings disappeared because they were invested in the market. Cash value life insurance, in my opinion, is one of the best ways to protect you and your family and create a modest, tax free, income stream for retirement. But it's definitely not an "investment" because life insurance policies come with modest guarantees, including a death benefit. Investments in the market NEVER come with guarantees

I'll admit that cash value life insurance gets a bad rap. Now think about this: Imagine for a second that EVERYONE has a cash value policy so....When each and every person dies, the money(through a death benefit) is passed on to heirs-tax free, it also avoids probate(no lawyer fees) and it generates a tax free income, if you live. Pretty cool right?

If I was the government and I needed tax money, I sure wouldn't be promoting life insurance(that I get $0 in taxes)! I would be promoting investments, investments, investments where I will be getting about 40%(33%federal and 7% state) when these funds are distributed, which is mandatory by the way at the age of 70 1/2. Why? Because the government has to make sure they get everyone's share of their investments! That's why it gets such a bad rap.

Find a trusted agent to help you out. Good Luck!

Insurance-only salesman are not licensed to give "investment" advice.

Furthermore, "life insurance" (a product that is payable upon death) is not supposed to be used as a "retirement tool" or an "investment" during anyones lifetime. The sale of a "LIFE INSURANCE" product (as an investment that could be expected to be utilized as retirement or otherwise during one's lifetime) is in the opinion of most, at best misleading, and at worst - illegal.

The National Association of Insurance Commissioners (NAIC), prohibits the use of the terms "investment", "retirement plan", "pension", "profit, and other similar terms in the advertisement of insurance products because of the high chance of misleading consumers into thinking insurance is an investment. So obviously if the NAIC doesn't allow insurance to be advertised as an investment, then it shouldn't be marketed as one either.  (NAIC, 2000)

Since insurance-only agents are not licensed to sell investments, they are really walking on a regulatory and legal tight-rope by using the word "investment" or "retirement" during their sales-pitch. (Currin Compliance Services, 2012)

According to the NAIC: Life Insurance provides beneficiaries with a payment upon death - it's insurance, it's security, it's peace of mind. It is not profit, not a retirement nest-egg, not an investment! (NAIC, 2000)

It is the belief of most educated financial professionals that if an Insurance Salesman tries to convince a consumer that their Life Insurance policy is an "investment" to use during their lifetime or retirement, then that salesman is generally misleading the client.

Unfortunately, many insurance salesman use this tactic to dupe consumers into thinking that they can expect to "cash-out" of a life insurance policy and get a better return than they would have if they had invested in a traditional retirement account. What is usually not disclosed are the surrender charges, fees, premium payment increases, loan interest rates, and the risk of having the entire policy terminated at any time. The most obvious thing that could go wrong is that the policy accounts do not perform as well as the "Illustrations" had shown during the sales process. (Wohlner, 2013)

Illustrations are essentially the company's way of projecting what a policy value might be worth in the future. However, most insurance companies do not use conservative estimates, and therefore, the illustrations are not an accurate reflection of what will happen, rather, a reflection of what the company wishes you to hope will happen.

If there is any "guarantee" in the illustration - it is usually between 2-3% annually (which is less than a US Treasury Bond - which is considered a risk-free investment, and has full liquidity and favorable taxation). There is just no-way (in my opinion, or the opinion of any other educated, certified, financial analysts or professionals that I have ever met) that Life Insurance can ever be considered, or should ever be considered an investment.

In the end of the day, these Insurance Salesman are trying to just 'make the sale'. Insurance-Only salesman are not licensed to talk "investments" with clients, and they certainly aren't licensed to sell investments either. So, they do their best to muddy the waters and convince their clients that Life Insurance is 'better' than all these other investment products that they are not eligeble to sell to that client.

If a salesman tries to convince you, a family member of yours, or a friend that they could expect to see benefit from a "Life Insurance" policy during their lifetime, and/or if the salesman begins comparing the "returns" of a Life Insurance policy with the returns of 401k's or IRA's, then this is (by most ethical standards) a clear case of misrepresenting life insurance as an investment and in the opinion of most ethical financial professionals and academics - should be reported to your State Insurance Agency immediately.

References:

Wohlner, R., Is Life Insurance A Retirement Investment? US News - Money. (June 12, 2013). Retrieved from: http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2013/06/12/is-life-insurance-a-retirement-investment

Currin, C., NAIC Sends Mixed Message About Insurance As An Investment. (January 6, 2012). Retrieved from: http://www.currincompliance.com/life-insurance-law-blog/2012/1/6/naic-sends-mixed-message-on-life-insurance-as-investment.html

National Association of Insurance Commissioners (NAIC), Model Regulation 570 - Advertisements of Life Insurance and Annuities. (2000). Retrieved from: http://www.naic.org/store/free/MDL-570.pdf

You should know that life ins. is a long term investment. Your ins. money is mostly invested in long term (safe) investments that will not mature quickly. Cashing out early is like planting an apple seed and expecting apples in the same summer. My wife's policy won't be worth what she put in to it for another 7 years and she's been with it for about the same amount of time as you. Canceling your life ins. was a bad idea.