First job out of college (part 8)

During July of 2011, I was eating some food at a picnic. I was approached by a man named Jim and we were just talking about financial planning. He was a complete stranger but I wasn’t about to just blow him off. Later, I would find out that he was part of a multi level marketing company and it was his intention to sell financial products to me and recruit me into the organization.

These sort of things happen gradually and these situations only happen when you are too afraid or resistant to say the word no. If found myself having a meeting with Jim and his superior Faye. At the time, I liked to brag about how I was doing financially and since they were stroking my ego, I decided to go along to the meeting. They started giving me financial advice and got a good picture of how I was doing financially. The first step of their plan was to sell me a financial service. All the way through, I was resistant to the idea. And then they told me what the rate of return was and I got interested.

The product they were trying to sell me was life insurance. Upon first reaction, I thought that life insurance was a complete waste of money for me because I intend to never get married or have children and life insurance only provides benefits to beneficiaries, not you. However, they went into more detail about how the life insurance holder could benefit from having a permanent life insurance policy. Unlike term life insurance, permanent life insurance is intended to insure an entire lifetime, not just a few years. For this reason, the premium for a permanent policy is typically far more expensive than term life when you are younger and far cheaper than term life when you are older. The most important thing is that some permanent life insurance policies will accrue a cash balance which can be borrowed against in the future. This idea was not foreign to me. When I was younger, I used to see several commercials on TV that advertised this feature. These commercials were aimed towards parents that either had new born babies or very young children. The commercials advertised whole life policies which are a type of permanent life insurance. Back then, these companies advertised a growth rate of five percent per year.

Faye told me that I could borrow against the cash balance (not death benefit) and I would not necessarily be required to pay back the loan. If I didn’t repay the loan, the amount would just get deducted from the cash balance. Faye told me that the money contributed to the cash balance would be indexed to stock exchanges located in America, Europe, and Japan. She told me that the money was not actually invested in the stock markets however the money was invested in various bonds. A selling feature of the product was that if the markets tanked, the money in the cash value would not be affected because there was a market bottom in the indexes. If the markets tanked, the cash balance would be guaranteed to grow by one percent. The flip side to the feature was that the cash balance had a growth ceiling of 12%. Over the last 20 years, the financial product reported an average growth of over 8% per year.