First of all this is about a policy that my mom has purchased last year at age 46. It is a custom whole life insurance policy from New York Life. It's a $1,000,000 policy that is paid off in full after 15 years. Meaning there are no more payments at all on her part after 15 years. This approximates to a total ~440k that she pays in installments of ~$29,000 a year. Below is an imgur link to the document that show how much she can potentially get. If it goes as projected she can get up to as much as $1.7 million death benefit and she can borrow agains the cash value if she decides that the death benefit is no longer needed for her kids (which would be deducted from the death benefit when it's paid out).
Now here's the question. I may be doing something wrong and would like nothing more that for someone to tell me this is awful or something but it seems to me like she pays ~440k and is guaranteed to get $1 mil after she passes (not taking into account any dividends paid and the growth of the death benefit) as a worst case scenario. Where as if I go put these same numbers into a compound interest calculator (say on nerdwallet), so ~29k yearly contribution for 15 years then it would take an average ~12% return to get a $1 mil and even bigger return to get as much as estimated $1.7 mil payout from the insurance policy. But let's forget about that since it's a maybe.
So why and how is this policy not better than investing? What did I do wrong? What makes this whole life insurance policy a "scam" as many have said?
FYI: I really just don't understand why this is bad so I'm genuinely asking for help understanding (not trying to make anyone upset or anything)
EDIT: Thanks to everyone who replied. It seems that the major flaw in my thinking was that I was comparing the potential gains from index funds to the death benefit payout whereas I should have been comparing them to the surrender/cash value. Also upon further listening to everyones thoughts I realize that while technically my mom ( or rather me as her beneficiary) will get the minimum 1 mil payout upon death. The "scam" is that she could gain far more from investing in index funds. Also cash value is not paid out and the death benefit listed on the attached image is not guaranteed as this is the non-guaranteed ledger that I'm looking at so even the death benefit could be less than shown.
Submitted February 18, 2023 at 10:22PM by miserymyoldfriend https://ift.tt/p82qy0d
