One way to stack $$$ for baby's future
A life insurance story
As I announced in the last edition, I became a father in August. Part of becoming a modern parent is following parenting accounts on Instagram (I am too old of a millennial for Tiktok), downloading baby apps (shoutout Huckleberry), and getting marketing emails from a slew of baby-centric companies.
One of these is Babylist. It is a useful site, and I particularly enjoyed their weekly emails during pregnancy detailing what developments were happening with our unborn baby:
Good fun!
There are also a TON of product ads in Babylist emails. They are usually focused on educational toys for junior or breast pumps for mommy.
But one fully sponsored email caught my eye recently with the subject line:
One way to stack $$$ for baby’s future
Here are screenshots from that email:
Hmm yes. You should be thinking about life insurance when adding a little munchkin to the family. At least I noticed the gray “sponsored” in the top left.
Yes, there is a ton of info out there and it’s easy to get lost. It’s almost like someone has an incentive to make things difficult to understand! Perhaps even this very sponsor! They hyperlink “whole life vs. term life” and want you to talk to an agent, but what does the email say about how it works?
There we go. They aren’t hiding it anymore. The pitch is for whole life insurance, not term life insurance.
This all hits home for me. I had the experience of sitting through an initial meeting with a new agent and his “mentor” from this very same sponsor company. I was 26 years old. The agent was a former colleague of mine and I took the meeting as a favor.
The “mentor” tried to sell me hard. He skipped the part about asking about my goals and where I was financially in my life. He asked me if I wanted to be rich, and I said yes. He told me if I buy this specific policy, I was guaranteed to be a multi-millionaire. It was a variable universal life insurance policy1, and all I had to do was pay $1200 a month into it and I would be set for life.2
Despite several red flags during the meeting3, I left the meeting surprised at how good I felt. For the rest of the evening, all I could think about was that guarantee. Do this and you’re guaranteed to be a multi-millionaire. This was VERY intriguing for 26-year old me, a man with no money.
It got me thinking how I could find $1200 a month to make this work. I could look for a higher paying job or try to cut expenses. That guarantee was all I could see and think and feel for one glorious night.
The next day I brought the policy illustration over to my dad to ask him about it. He said he’d take a look at it and review it with me. A few days later he said he was ready.
He sat me down and said he highlighted everything in the document that he had questions about or thought it was important to know. When I dropped it off, it was just white paper and ink. Now, the entire thing was yellow.
Turns out, almost nothing in the policy illustration was as guaranteed as the “mentor” had claimed. In fact, it was pretty clearly disclosed that nothing was guaranteed at all. Details about the investment strategy were also impossible to discern.
I drove home that night after reviewing the policy with my dad thinking about how close I actually got to buying some version of what I was being sold. It was my first experience dealing with a salesman preying on my emotions and dreams. I couldn’t believe how effective it was on me!
My dad also talked to me about “term life” insurance4. Since becoming a financial planner myself, my dad’s advice about term life insurance still holds true.
What is term insurance? It’s a product to protect against your death for a certain period of time. You accomplish that goal with term life. You don’t need to commingle investments in the same product. You can invest outside of an insurance policy with a lot more flexibility, transparency and lower cost.
Guess what, if 26-year old me invested $1200 a month into a portfolio returning 8% a year until I was 66, I’d get to multi-millionaire status:
There are a few select cases where whole life or another type of life insurance policy makes sense, but for the vast majority of the population, all you need is term.
Ironically, term insurance will not stack $$$ for your baby. There’s no cash value, only a death benefit. You only get cash value with a more complex insurance product.
I review people’s financial situations every day. After reviewing their assets and liabilities, I always ask, “Is there anything else you own that we haven’t talked about?” Sometimes they will say, “Oh yeah I have an old whole life policy I got sold 15 years ago. I wish I hadn’t gotten it, it hasn’t grown very much.” I don’t have a single client happy with a policy they got sold.
To my dismay, I received another Babylist sponsored email two weeks later with the subject line:
4 financial to-dos while baby’s still young
At least this email mentions tax credits, 529 plans, and estate planning (in addition to insurance, of course). All important topics to educate yourself on! But it’s still the same insurance company paying for space in my inbox.
So here I am, 45 days after receiving that first sponsored Babylist email. I can’t stop thinking about it. How many people are on that email list? How many sponsored emails have been sent over the years? How many people click on the “speak with an agent” button and meet with someone like the “mentor” who guarantees them a multi-millionaire life if they buy an expensive policy and they do it?
To be fair, brilliant job by the insurance company’s advertising team to buy full sponsored emails from Babylist. The new parent and parent-to-be cohort 1) absolutely needs to think about life insurance and 2) might be stressed out and/or sleep deprived (can confirm). Potentially a very susceptible demographic to the charms of well-heeled salesmen guaranteeing riches!
Final question: Why do salesmen try to sell expensive policies to those who don’t really need it? Incentives. They make bigger commissions and trails5 on the more complex products. Term life insurance does not come with these bigger payouts. It’s hard to hit your sales quota selling term. They might talk to you about 529 plans and tax credits, but those don’t pay their bills either.
If you are a new parent or about to become one, it makes sense to meet with a financial advisor, financial planner, financial consultant, or financial professional.6 Life gets more complicated and it’s good to get your finances in order. But if the person you meet with pitches a life insurance product as the solution to any and all of your problems, be careful.
You don’t want to let your baby down by making a regrettable financial decision.
If you want your personal finance questions answered in a future Mound Visits, comment below or send me an email at nick@nineinningfinance.com with your question/scenario.
Also please share this post with anyone you think might find it helpful.
Nothing in this email is intended to serve as financial advice. I don’t know your personal circumstances and would never provide financial advice through this medium. This newsletter is intended to be educational and entertaining. Please consult a financial professional and do your own research before making any changes to your portfolio.
Not technically a “whole life” policy. But it’s like a whole life insurance policy on steroids.
We looked at scenarios where I put more money into the policy. I told them my rent was $1200 a month and I barely had any extra cash to put towards anything. For some reason that number stuck and they never showed me anything at a lower premium.
My top two were 1) the “mentor” continuing to say I was 25 years old when I corrected him (multiple times!!) to say I was 26 and 2) an outright refusal to explain how the investments in the policy worked.
In my meeting with the agent and the “mentor”, term life insurance was not discussed as an option.
Trails are basically additional commissions paid out each year the policy is in effect. So the longer you pay in, the longer the salesman gets paid. It’s what pays for the Porsche lease.
There’s no regulation on what you can call yourself based on how you get paid, what products you sell or if you’re a fiduciary or not. No wonder people get tricked!