15 Aug Commissioned salespeople? Be wary

Q. The guy who sold me term insurance is trying to sell me a life insurance policy that would be inside an IRA. Or that’s what it seems like. Is that possible, and what are the pros and cons?
— Suspicious

A. You’re right to be suspicious.

Some salespeople will try to get you to buy products that aren’t appropriate for you because they have a high commission for the salesperson.

First and foremost, you should only purchase life insurance if there is a need for it, said Dean Shah, a certified financial planner with Stonegate Wealth Management in Oakland.

When it comes to IRAs, there are restrictions on what investments can be purchased in an IRA, and life insurance is prohibited.

Shah said if the broker was in fact offering life insurance inside an IRA, you should look for insurance advice elsewhere.

But, Shah said, he thinks the broker may have been trying to sell an annuity instead of a life insurance policy.

He said annuities are products that don’t need to be inside an IRA, and in most cases, he thinks they’re inappropriate.

“They tend to have high costs and very limited investment options,” Shah said. “Agents love them since they can receive 5 to 7 percent commission the day they sell them to you.”

Annuities can be appropriate for some investors.

They have some tax advantages, so putting an annuity inside an IRA can be a waste because you don’t get extra benefits by putting a tax advantaged investment inside of a tax advantaged investment.

Shah recommends you look for a fee-only financial advisor because they can give you advice without as many conflicts.

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This post was first published in August 2017.