Link to part 1; Financial Advisors
Life insurance is the oldest derivative in existence, dating back to the 1760’s in its modern form but even further back to about 200BC and earlier in the form of “burial clubs”. Wait, aren’t derivatives the scary powder keg under the global financial system?
WTF is a derivative?
A derivative is fundamentally a contract that agrees to pay based on the performance of an underlying asset. That asset may be another derivative contract but that’s another topic for another time. Derivatives can be difficult to value the day they’re created let alone 10 years down the line. Estimates for the value of this market range from the several hundred trillion range to quadrillion plus sums.
With that definition in mind, you are the underlying asset in a life insurance contract. Never mind the fact that life insurance companies have repeatedly committed fraud to the tunes of tens of billions of dollars in the US alone by simply refusing the insured (who often was registered as dead in their systems).
You see, Insurance companies can do shitty things like deciding to not pay the claim for really petty reasons, for instance an unregistered change of address. Or maybe the companies go bankrupt and thus void contracts, leaving the dead to bury the dead and holding the (empty) bag. Permanent life insurance is supposed to have a cash value component that would also disappear in the case of insolvency. Well, ‘Supposed to’.
Of course we can’t pin all the blame on them, every institution overestimated how much blood they could suck through the financial system and are now paying for it in spades as major pensions, banks and ect. load up on leverage (debt) to simply obtain “adequate’ returns, even if it means bankrupting minor nations every couple years and subjecting their citizens to the ravages of hyperinflation. A million dollar life policy written now might be the equivalent of a ten thousand dollar policy written 100 years ago or less, as famously said:
“We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power” – Alan Greenspan
Now consider the value of this specific derivative to you and your family. (That you probably don’t have if you’re a millennial or younger…)
Time decay is real and it’s substantially more important since your personal derivative is only valuable so long as you have dependents in need. The moment they turn 18 that life insurance is basically worthless. Inheritance does mean more in a low income, high wealth paradigm (like the current economy) but that’s another topic for another time. If you live, there are far better ways to grow your money. Life insurance is more or less buying a put option on your life. All of this is financial derived wank so I can show you the part that matters, how a modern life insurance policy gains value in real numbers. Keep in mind that the cap rates have gone down even more since I generated these illustrations and that this is the highest health rating one can get which tremendously improves the cost of the insurance itself.
I mean, did you read it? No? Exactly.
Isn’t that just wonderful? If everything plays out in financial markets exactly like the company wants you to think will happen, then you can be proud of making a whole 2,719$ on your nearly 80,000$ of insurance premium. That’s a whole uh… 3.4%, not exactly what you wanted right? One bad (or regular nowadays) year of inflation or poor stock market performance and you’ve lost all the real gains from 10 years of ‘compounding growth‘. The great joke to come out of all this is that a low health rating will let you put more money into these and achieve a slightly higher growth rate. . . theoretically. Below is the lowest “standard’ health rating you can get without harassing underwriters;
Can you imagine being sold the policy above as “in your best interest?” and you’re several months in when you finally realize you’re getting screwed and just have to leave the money you put into the policy there because of surrender charges?
Oh, I forgot about those, these are docked from your cash value and waived when above your cash value.
The shit sandwich just seems to get worse, doesn’t it? Well it gets worse somehow, remember the rates of return I talked about earlier? You have to pay to access that money, tax free granted but through loans which means… interest!
Imagine paying money to access your money! Couldn’t be me. There’s probably some suckers out there that actually had large variable policy loans that got destroyed over the past couple months due to interest rate spikes (writing this in 2022) who won’t be the last suckers to get absolutely mogged on by variable rate loans.
Less cynical rambling, let’s wrap up:
Imagine being sold one of the above policies, being convinced that it was in your best interest only to find out months later that your money will grow barely or not at all and that you cannot get a dime of it back unless you keep paying in until that 10 year mark and even that is with huge strings attached. If the loans somehow take that last dollar out of the policy, congratulations, you just added the entire cash value of that policy to this year’s taxes!
These policies are aggressively marketed as alternatives to conventional investing to younger people and “responsible adults” that have no real use or need for life insurance and are scared shitless of investing in markets that have been subject to reoccurring, violent crashes in recent memory. Warn your friends and family, because those ole life insurance salesmen will dodge saying that they sell ‘life insurance’ until the very second you meet them in person. A recent rebrand has been ‘mortgage protection’ insurance. Wouldn’t it be nice if house values were within the reach of a normal income without 30 year mortgages and layers upon layers of financial games so you didn’t need to buy insurance for every little thing?
Its all far too profitable of a beast to kill now,
but its also all fake money
earned with fake jobs/companies
for fake ‘real’ estate
covered by fake insurance.
The inflation that cycle generates is real though, and all of it is used to extract real materials and labor from ‘developing economies’ via loans and forex markets to build massive cities and suburbs in the “West”. Suburbia, is the final and most profitable realm of retail finance; a tangible CDO with all the fake-ness of the previously mentioned fake stuff. Let’s talk a little bit about suburbia and it’s life as the world’s most profitable financial product in another article, ok?
Essentially, Life insurance is a scam, and if you buy in, you’ve already lost with your dick caught in the fan setting your finances (on average) at least ten years back.
*Not Valid Financial, Legal, Life, Life insurance, or Any Advice