Whole Life Insurance for College Students? LOL.

by JT McGee

Northwestern Mutual scams college students with sales jobs called internships“What do you think of Northwestern Mutual?”

This question, which landed in my inbox from a good friend, was sure to be the kickoff for a great conversation.

Over a few quick text messages I knew immediately what was going on. I asked him for some context, knowing full well what was soon to follow. He responded:

“Life insurance, whole life”

And there it was. It clicked. My friend was being conned by someone who hadn’t the slightest clue of what he was selling. Northwestern Mutual is the king of college “internships” in which they turn college students into underpaid robo-dialiers to sell insurance to people who have zero idea of what whole life insurance really is.

Now, look. I’m willing to admit that this blog is chock full of finance snobbery. I know. It’s bad, and I’ll try not to do it.

But come on. Northwestern Mutual will give an “internship” to anyone with a pulse, which pretty much means they have legions of interns who are 100% sales and 0% finance. These are kids are so caught up in the concept of working in “finance” that they turn into literal drug dealers.

How do I know? Because I was pitched, just like any other college student. Of course, being the finance snob I pretend to be on this blog, I snubbed my nose at the idea of becoming a telemarketer and calling it an internship. The poor HR person that worked the booth at the job fair wasn’t prepared for my endless questions about licensing either.

The Pitch

Let’s get back on topic. I sat down with my friend and listened to his interpretation of the phone call and the meeting that was set up.

He repeated buzzwords like “compound interest,” “growth,” “retirement,” while championing whole life insurance as the investment of the century.

A fast-talking “mentor” who sat in on the meeting made this out to be the investment of a lifetime. Then I looked over the paperwork—and an investment of a lifetime this was (obviously) not.

According to the sheets, his whole-life policy would zero-out only in year 20, at which point he would have put in nearly $70,000 and have slightly less than $70,000 in cash value. This cash value could be accessed only with a credit line, which is common for tax avoidance. Loans are not income—cha-ching! But a loan against this policy would cost 8% per year. ROFL.

Part II

My buddy told me that he had another meeting in the future. After our fair share of beer we concluded that I’d tag along for the next meeting. And I can’t wait.

This is going to be the time of my life. I almost feel bad for it, because I am the last person that you’d ever want to pitch an extremely expensive investment product to, and I have very few reservations about giving this intern and his mentor a reminder on fiduciary duty.

It really peeves me to encounter things like this. Not only does it prey on people who cannot make sense of what is being pitched to them, it does it in the worst way possible. It gives financial planning a bad name, and it’s the reason why financial planners are quickly joining the ranks of lawyers and used car salesman. I really, really hope this isn’t standard practice. However, it is playing well into my goal of opening a wealth management office in the future. 😀

In the coming weeks, expect a post on this meeting. I’m stoked; it’s going to be a blast.

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{ 13 comments… read them below or add one }

Jeff Reed July 4, 2011 at 09:50

Go for the throat JT.
I believe Life Insurance should be used to replace income that would be lost if the “breadwinner” dies before accumulating enough assets to take care of his or her family. It should not be considered an investment. A college student should focus on saving and investing (after paying off college debt). The yield-to-broker was probably never discussed but the life agent knows the $ on the line even if the telemarketers don’t and it is considerable with WL.

I hope you ask really tough questions about licensing. I hold several insurance and security licenses. I take my fiduciary responsibility seriously and I believe the majority of folks in the industry do too (call me naive). If a college student truly has an “insurable interest” (married, kids etc.) then make NWM quote a level term policy. You can quickly show what the impact will be by investing the difference over the next 15-20 years.

Good luck.

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JT McGee July 6, 2011 at 10:14

Yeah, the commission schedule, from what I understand, is like 120% of the contract in the first year. Gross.

I’ll be sure to get as good of an overview as I can before I go too crazy. I really have a problem with people who would sell a whole life policy to a college student. That’s like selling a Maserati to a minimum wage worker, when you know they really just need a good beater. I don’t like it.

He has zero insurable interest. Zero. Which means this policy is a pure investment product, and a poor one at that.

Thanks for your comment!

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Little House July 5, 2011 at 08:17

Was your friend trying to sell this as an investment product? It seems to be the “big” thing right now. My husband just landed a client who needs an HTML email and web page (Mr. LH is a graphic/web designer) and this particular client is selling life insurance policies as an investment – to be cashed out at retirement as a loan. Mr. LH looked into it after this client pitched his spiel and it’s totally bogus. The client tried to explain how it’s a way to get around paying taxes in retirement. Though it borders on illegal in some states. Also, the only way this works is to keep paying on the policy which becomes increasingly expensive the older one gets. Doesn’t add up in the end.

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JT McGee July 6, 2011 at 08:35

No, my friend is the person on the buying end of the sales pitch.

Yeah, LH, whole life is all about using the loans for tax avoidance, which is one of the few benefits that the “middle class” can get from whole life policies. They’re best for people who fear divorce, make $354859234580325342 a year, and need more post-tax savings, if possible.

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Brad July 5, 2011 at 10:39

I’m definitely looking forward to the follow up to this story.

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JT McGee July 6, 2011 at 08:34

No one is looking forward to it more than I am. 😉

Thanks for your comment, Brad. I see that you’re a relatively new subscriber here.

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Jonathan Harms July 6, 2011 at 09:39

JT, Hilarious, just like your Papa Murphy’s post, this one hit very close to home for me.

Just after college when I was looking for my first job, I waited tables. But I also did freelance work in the Nashville music business. On of my co-working waiters was in his last semester at Mid-Tenn State and got an internship at NWM. He wasted no time in asking me for all my contacts. I told him “NO way.”

A couple years later, another friend of mine got an internship with NWM and attempted to sell me on a whole life policy. My answer was “NO way.”

However, his pitch was very good and I thought that since I didn’t need life insurance now, I may in the future and I figured I would buy it from NWM, but now I am not so sure.

I anticipate your posting.

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JT McGee July 6, 2011 at 10:12

Ahh, you just reminded me of another point, the new salesperson (intern, whatever) asked my buddy for contacts to keep the lead generation going. He declined, obviously.

NWM’s whole life and permanent life policies are very different from some others. There are some unique calculations in the backend that make dividends look great, for example, but they’re really no better than any other. I’ll have to touch on this in the next post, or maybe a third followup.

Thanks for commenting!

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Ginger July 6, 2011 at 16:23

Oh, this is hilarious. I think you should tape it for posterity. I would love hear the intern and mentor get shell shocked.

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Squirrelers July 6, 2011 at 16:27

That should be interesting. I’m looking forward to hearing about how it goes, and what transpires.

I once got a cold call from a totally different company altogether, where the guy asked if I had an interest in whole life insurance. I said no thanks. He told me that it’s a tremendous investment opportunity I should learn more about. I said no thanks, once again. He then asked me if I had anyone managing my portfolio, to which I responded “No, I do it myself”. He then came back with reasons as to why it’s better to have a professional do it for you, and I responded with a polite line such as “I’m sorry, I appreciate your interest but I’m sticking with what I’m currently doing.”

The guy’s response was a chuckle, and then “Oooo kay…(more chuckling)…..good with THAT!” Then, I heard a click, and dial tone. Basically, he hung up me!

Ok, maybe more rude than unscrupulous, but it goes to show that there’s no shortage of characters out there that have no real interest in their prospects/so-called potential customers. As you might have seen from my recent post, I’m on a customer advocacy kick this week 🙂

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mt July 18, 2011 at 01:44

I’m a 21 year old student, single, no children. I might note that I’m surprised at the differences in value between the two. As I’m applying for more student loans I’m questioning if there is any reason for me to not surrender the policies for money given my single status. I figure the less debt the better and I can buy term life when the time is appropriate. Is there something I’m missing out on or is this a pretty good idea?

Thanks

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Ed September 6, 2011 at 20:44

I agree to Jeff Reed. A college student should focus on saving and investing (after paying off college debt). The yield-to-broker was probably never discussed but the life agent knows the $ on the line even if the telemarketers don’t and it is considerable with WL. Thanks for contributing some idea Life Insurance for College Students.

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Blake February 13, 2016 at 16:29

I like how it’s almost five years later and JT still hasn’t posted how the second meeting with Northwestern went. I’m assuming it didn’t go as planned

I have never seen so much misinformation in one article before. People who write articles as if they’re fact without first getting their facts straight are dragging the internet through the mud. I wish I could get that 5 minutes back…..

What an idiot LOL.

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