Trust in Me?(Um, Maybe Not): The Dangers of Getting Information from Banks, Insurance Agents and, Yes, Charlie Rose

Article excerpt

Q: I want to invest about $50,000 in the stock market for the fun of it, to watch my choices go up (or down). I watch Charlie Rose and was impressed by the Yahoo! owner and the Dell owner. Do I just call Charles Schwab and tell them what to buy for me? I'm retired with a paid-up house, a public-school pension, some real estate and a few small mutual-fund investments.

R.L., Greenwood Village, Colo.

A: Yes, you can call Charles Schwab (a brokerage firm) and open an account. But please, did your students learn algebra from Saturday-morning cartoons? Why would you think that talk shows can teach you to invest? Do yourself a favor and join the American Association of Individual Investors in Chicago (800-428-2244). For $49 a year, you'll get plenty of stock information plus access to investment seminars.

Q: I've had a $50,000 Aetna Life policy since 1983, paying $72.50 a month. I recently received a letter from my insurance agent saying that I'll have to start paying $117. Otherwise the policy will lapse when I'm 78 (I'm almost 70 now). He said I could switch to Transamerica, where I could pay premiums at about my current rate. Would it be better to cash in the policy and invest the money in mutual funds?

Doris Feliciano, Apple Valley, Calif.

A: Tens of thousands of policyholders have gotten--or will get--letters like this. You thought your insurance was permanent. Now you find that's not the case.

The type of policy you have is called "universal life." You bought it when interest rates were higher than they are today. For your premiums to stay level, rates had to stay the same. Because rates declined, you have to pay more to keep the policy in force.

Your insurance agent should have alerted you to this problem long ago. If you'd handled it earlier, your monthly premiums wouldn't have to jump so much.

The agent wouldn't talk to NEWSWEEK (not a happy camper, there). The consultant who looked at the policies for us wants to be anonymous. But the points he made will be useful not only to you but to everyone else facing your dilemma.

(1) Do you still need insurance? If not, you could invest the cash value (about $10,800) in something else. In your policy, the cash earns 4.5 percent, tax-free. That's better than you'd get from bank CDs, but mutual funds invested in stocks could yield more.

(2) If you still need insurance, can you manage with less? Your monthly premiums could stay at $72 or less if you lowered the policy's death benefit.

(3) Does your spouse still need insurance? If not, consider canceling your spouse's policy and retrieving its cash value. You could dump that cash into your own insurance policy to extend its life. …