Northwestern Mutual Whole Life Insurance (65 Life)

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sad2
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Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Sun Oct 04, 2015 10:58 am

Hello:

Policy Type: 65 Life (Whole Life Policy)
Annual Premium: $741
Current Cash Value: $39,601
Net Death Benefit: $193,090
Insured: myself (34 years of age)
Direct Beneficiaries: My parents (I have no spouse or kids)
Owner: myself
Payer: myself
Annual Premiums Due: 09/04/xx (paid through 09/04/2016)
Basic Insurance Amount: $100,000
From Dividends: $93,090
Total Death Benefit: $193,090


My parents bought a whole life policy (65 Life) in 1987 where I am the insured individual. They paid the $741 a year through 2009. They gifted the policy to me in 2009 and stated I could cash it out or continue to pay the annual premiums. I have been paying the annual premiums the past 6 years.

Reading through the recent threads of the inadvisability of this type of policy, I am thinking of cashing this policy out and putting the cash value in my taxable Vanguard account. I max out my 403(b) and Roth IRA.

Here are the cash value amounts over the past few years.

2011: $29,127 (on 09/04/2011)
2012: $31,496 (on 09/04/2012)
2013: $33,907 (on 09/04/2013)
2014: $36,410 (on 09/04/2014)
2015: $39,042 (on 09/04/2015)

I know the traditional Boglehead advice is not to purchase these types of policies, especially if one has no dependents or spouse.

What would you do if the policy has been paid for the 28 years? (1987-2015)

1. Continue paying through 2046, when I turn 65?
2. Cash out now and buy term if (when) I get married/have kids?
3. How would one calculate the Compound Annual Growth Rate (CAGR) from 09/04/2011 to 09/04/2015, taking into account the $741 I have paid those four years? Not taking the $741 into account, I get 7.60% CAGR. I'm having trouble incorporating the $741 into the calculation. Would it drop the CAGR to 5.5%? I just dropped the ending value of $39,042 by $2,964. ($741 x 4)

Thanks for any advice.

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nedsaid
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by nedsaid » Sun Oct 04, 2015 11:17 am

I am not a fan of whole life policies and advise people to avoid them. However this is an old policy and for $741 in premiums paid every year you are getting additional cash value of $2,400 a year. This is a 28 year old policy so the big commissions have already been paid. This policy was written when bond yield where much higher than today and is probably more attractive than any similar policy you could buy today. For myself, I would be inclined to keep it.
A fool and his money are good for business.

dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Sun Oct 04, 2015 11:38 am

nedsaid wrote:I am not a fan of whole life policies and advise people to avoid them. However this is an old policy and for $741 in premiums paid every year you are getting additional cash value of $2,400 a year. This is a 28 year old policy so the big commissions have already been paid. This policy was written when bond yield where much higher than today and is probably more attractive than any similar policy you could buy today. For myself, I would be inclined to keep it.
you are not including the current CSV in your "calculations" which artificially make it sound a better deal. He isnt just putting in 741 per year. He is also giving them access to 40k in order to increase the CSV. With that said it is definitely true that keeping an old WL policy is a different discussion from buying one (rare that one should buy it). I would keep it at this point but id be willing to leave some money at my eventual death. IF one does NOT want to leave any money at eventual death then its hard to want to keep these things bc all of the "advantages" will eventually go away if you dont keep it in force until death.

What i would do is continue to pay yearly, make sure dividends are set to PUA (paid up additions) and late in retirement (not early in retirement) IF i needed the money id take a loan against the policy and my heirs would get the difference between the death benefit and my loan amount/interest. The return on the death benefit id guess is a little under 6% at the moment (this is just a guess and dividends for the most part have been going down for years).

The upfront costs are sunk and gone so now you need to decide if you are willing to give money at eventual death (if you die very prematurely then this works out "better" so if your health has gone down hill then that makes keeping it a better idea) and if that sort of return looks ok to you at that point.

If you absolutely dont want to leave money at your eventual death then your main options are to surrender and pay income tax rates on the gains or 1035 exchange into a low cost annuity (not from this company) and thus defer the taxes (not eliminate them). Gains are still taxed as income. Death benefits are currently income tax free (not estate tax free if that matters). Never give up in place life insurance until you are sure you have all the life insurance you need in place (which is almost always term).

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nedsaid
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by nedsaid » Sun Oct 04, 2015 11:45 am

Okay, let's take into consideration the approximate $40,000 that the original poster has in cash value. Let's take the $741 premiums out of the $2,400 annual increase in cash value. Let's round that to $1,650. That still gives you a 4.125% annual return on the cash value. Don't know about anyone else, I would accept a 4.125% return on my money right now.

Excellent point. Thanks for bringing that up.
A fool and his money are good for business.

dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Sun Oct 04, 2015 11:56 am

thats not what i would do

what i would do is calculate it currently (it changes and at the moment is going down)

so id look at my return from 2014 to 2015 and id repeat this process every couple of years (assuming im keeping it which is what i would do but i would be ok with giving some money at my death)

in 2014 he "invested $36,410 + $741 for a total of $37,151 and in one year he got $39,042 in return. So that got him a 5.1% (not including taxes which would happen if he actually surrendered for the total amount). Likely this coming year will be fairly similar but over longer periods of time it changes a decent amount. Now if he isnt going to keep this in force until death then you are just further aggravating the problem that all gains are taxed as income and that since you are investing over a very long time period (your non premature death) that those likely lower returns (vs index stock market) compound into big numbers.

Id keep it as ive said but you need to place some significant value on having a permanent death benefit to really justify.

sad2
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Sun Oct 04, 2015 12:08 pm

Thank you both for the replies.

Dhodson, when you discuss PUA (paid up additions), is that the same thing as using the dividends to increase the cash value and coverage?

I was unable to locate the PUA verbiage in my profile settings, but I do see that my dividends are being used to increase cash value and coverage.

So it sounds like because of the sunks costs, and if I value leaving money at death to any potential heir (placing a value on a permanent death benefit), then I should just leave it in place.

Getting back to PUA, why would you recommend the PUA option? Is it because if I take the dividends out, those are taxable at Ordinary Income rates.

Finally, what about using the dividends to pay the annual premium? Now that I think about it, whether I take the dividends out or use the dividends to offset the premium, my taxable income would go up by at least $741 each year.

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White Coat Investor
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by White Coat Investor » Sun Oct 04, 2015 12:28 pm

sad2 wrote:Hello:

Policy Type: 65 Life (Whole Life Policy)
Annual Premium: $741
Current Cash Value: $39,601
Net Death Benefit: $193,090
Insured: myself (34 years of age)
Direct Beneficiaries: My parents (I have no spouse or kids)
Owner: myself
Payer: myself
Annual Premiums Due: 09/04/xx (paid through 09/04/2016)
Basic Insurance Amount: $100,000
From Dividends: $93,090
Total Death Benefit: $193,090


My parents bought a whole life policy (65 Life) in 1987 where I am the insured individual. They paid the $741 a year through 2009. They gifted the policy to me in 2009 and stated I could cash it out or continue to pay the annual premiums. I have been paying the annual premiums the past 6 years.

Reading through the recent threads of the inadvisability of this type of policy, I am thinking of cashing this policy out and putting the cash value in my taxable Vanguard account. I max out my 403(b) and Roth IRA.

Here are the cash value amounts over the past few years.

2011: $29,127 (on 09/04/2011)
2012: $31,496 (on 09/04/2012)
2013: $33,907 (on 09/04/2013)
2014: $36,410 (on 09/04/2014)
2015: $39,042 (on 09/04/2015)

I know the traditional Boglehead advice is not to purchase these types of policies, especially if one has no dependents or spouse.

What would you do if the policy has been paid for the 28 years? (1987-2015)

1. Continue paying through 2046, when I turn 65?
2. Cash out now and buy term if (when) I get married/have kids?
3. How would one calculate the Compound Annual Growth Rate (CAGR) from 09/04/2011 to 09/04/2015, taking into account the $741 I have paid those four years? Not taking the $741 into account, I get 7.60% CAGR. I'm having trouble incorporating the $741 into the calculation. Would it drop the CAGR to 5.5%? I just dropped the ending value of $39,042 by $2,964. ($741 x 4)

Thanks for any advice.
The general rule is to keep it once you've had it this long. I might still dump it though, just on principle. Of course, be sure to thank your parents for this generous gift. My parents never gave me $40K for anything.

But the way to make a logical decision is to get an "in-force illustration" from the agent/company. If the return (both guaranteed and projected) going forward from here is acceptable to you, then keep it. If not, get rid of it. If you have a need/desire for life insurance, you can incorporate that benefit into the value. The past returns are all water under the bridge. But you can't do what one poster suggested- i.e. that for your investment of $741 you're getting $2500 or whatever. You're getting that for your $741 PLUS the opportunity cost on the $39K. Apples to apples. If you do decide to dump the policy, take a look at this first:

http://whitecoatinvestor.com/how-to-dum ... fe-policy/
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Sun Oct 04, 2015 12:38 pm

sad2 wrote:Thank you both for the replies.

Dhodson, when you discuss PUA (paid up additions), is that the same thing as using the dividends to increase the cash value and coverage?

I was unable to locate the PUA verbiage in my profile settings, but I do see that my dividends are being used to increase cash value and coverage.

So it sounds like because of the sunks costs, and if I value leaving money at death to any potential heir (placing a value on a permanent death benefit), then I should just leave it in place.

Getting back to PUA, why would you recommend the PUA option? Is it because if I take the dividends out, those are taxable at Ordinary Income rates.

Finally, what about using the dividends to pay the annual premium? Now that I think about it, whether I take the dividends out or use the dividends to offset the premium, my taxable income would go up by at least $741 each year.
Yes that is likely the same thing. The reason why PUAs is that they are a much lower load for the benefits. If you like the returns of WL then the best "returns" are with the lowest loads. A long time ago and under a different tax situation, you could buy very little vanilla WL and overfund it indefinitely (now you cant do that but just up to MEC limits since the govt realized people werent using insurance as insurance but as a tax avoidance scheme. Now unfortunately you need to purchase a lot more of the bad stuff (the generic whole life)). This gave you the best return bc it reduces the commissions tremendously (which is also why agents rarely present polices that are overfunded or with maximum PUAs). If you dont have that "load" then the policy performs much better. So if you are reasonably happy with what the policy is doing then what you want is to continue forward without adding crazy costs. This also helps out with the fact that inflation erodes your benefits (doesnt eliminate this problem but helps).

By using the most PUAs, over time your policy will likely have the most death benefit and cash value for the same amount of premium. This allows you to take the most loan out late in retirement and pass the most to your heirs.

Using dividends to decrease premiums will result in the death benefit remaining about the same going forward. All gains are taxed at income rates if you surrender/lapse no matter what way you put dividends.

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mephistophles
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by mephistophles » Sun Oct 04, 2015 12:59 pm

I strongly recommend you keep the policy. If you don't want to pay future premiums, they can
be paid out of dividends. Put simply, based on the age of this policy and the company you
cannot do better in other fixed income investments with similar risk/reward features. Use it
as an emergency fund, and consider it as part of your fixed income/bond allocation.
ole meph, four decade insurance sales and management

sad2
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Sun Oct 04, 2015 1:11 pm

Thanks for the replies. The WCI site is a wonderful resource. I have not spent much time there but every article leads to more links and more useful reading.

sad2
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Sun Oct 04, 2015 1:20 pm

Here's the in-force illustration I received a few years ago.

July 17, 2011
Current Insurance Amount: $171,822
Cash Value: $28,000

Assuming 6% Dividend Rate
At Age 65
Insurance Amount: $465,643
Cash Value: $280,788

At Age 77
Insurance Amount: $684,000
Cash Value: $522,212

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White Coat Investor
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by White Coat Investor » Sun Oct 04, 2015 1:23 pm

sad2 wrote:Here's the in-force illustration I received a few years ago.

July 17, 2011
Current Insurance Amount: $171,822
Cash Value: $28,000

Assuming 6% Dividend Rate
At Age 65
Insurance Amount: $465,643
Cash Value: $280,788

At Age 77
Insurance Amount: $684,000
Cash Value: $522,212
So is that an acceptable use of your money to you? (Be sure to also look at the guaranteed table, which will be significantly lower, as a worst case scenario.)
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Sun Oct 04, 2015 3:47 pm

although that isnt actually the worst case scenario. Guarantees are only as good as the company making them. I dont think that will happen but one needs to understand what guarantee means when talking about these products.

afan
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by afan » Sun Oct 04, 2015 3:59 pm

Agree that a guarantee is only as good as the company making it. But NWML is about as strong an insurance company as you can find. It is extremely unlikely to go under.

I would hesitate over an illustration with that 6% rate. Is it guaranteed? You want an illustration of the guaranteed rates.

Before considering cashing it in, find out how much of the cash value would be taxable. With an old policy, you may have to share a lot of that with Uncle Sam.

Not sure a 1035 exchange really makes sense. If you were buying something now, I doubt an annuity would be the top of your list.

But you did not indicate how likely it is that you will need insurance in the future. Is there a spouse or kids in the future? If so, then you might have a reason to have some insurance, and as others have noted, the big costs have been paid.
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dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Sun Oct 04, 2015 4:27 pm

Might want to look what happened in Japan with their similar strong companies after sustained low interest rates. Nobody has magic. If their assumptions don't hold then trouble will occur. Might want to also realize they no longer provide the highest dividends.

As I've mentioned several times, I'd keep the policy.

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nedsaid
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by nedsaid » Sun Oct 04, 2015 9:04 pm

My understanding is that you can do a 1035 exchange into an annuity, essentially rolling over your cash value. I don't think you can find a fixed annuity product that will pay you 4% a year. It looks like your best option for now is to keep the policy, that is what I would do.
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mephistophles
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by mephistophles » Sun Oct 04, 2015 9:35 pm

sad2 wrote:Here's the in-force illustration I received a few years ago.

July 17, 2011
Current Insurance Amount: $171,822
Cash Value: $28,000

Assuming 6% Dividend Rate
At Age 65
Insurance Amount: $465,643
Cash Value: $280,788

At Age 77
Insurance Amount: $684,000
Cash Value: $522,212
Keep your policy. If you will take a look at the history of NWM's dividend payment you will find it among the very strongest in the industry. Any worst case scenario in which they would pay zero dividends (just the guaranteed cash value) would be so bad that even government and other bonds would be essentially worthless. That type of scenario would make it impossible to do any realistic investing and financial planning in any economy in this world. And, quite frankly, four plus decades in the insurance industry and as a personal investor, leads me to think that your money--in your decades old policy--is safer than it would be in any alternative investment.

You simply cannot match the value in your policy with any other fixed income investment.
ole meph

johnra
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by johnra » Mon Oct 05, 2015 1:41 am

Save your policy!--it is like gold. Insurance takes a lot of criticism in this Boglehead's group, most of it for the high cost of insurance during the early years, and now the payoff is for you and you would be foolish to sell now that you are well along. I like my NML whole life holdings--it is a nice part of my portfolio. NML is a premier company. Here is what the policy now provides:

1) Cash value is secure and non-fluctuating.
2) Cash value earns ~4% tax free (dividend)
3) No further out of pocket expenses if you don't want--the annual dividend can pay the annual premium and the excess can go to you in the form of cash, increase cash value, or more insurance. I pay my premiums out of pocket and have the dividends increase cash value and purchase paid up additions--I like the extra savings, 4% interest and insurance.
4) I plan to take dividends as fixed income when I retire--but for now I am increasing cash value to enhance this.
5) Cash value can be borrowed for whatever you want, whenever you want. The loan is set ~6%, but really it only costs about 2% since the principle that is borrowed will continue to earn interest. You don't really ever have to pay back the loan since the company will just deduct what is owed from the death benefit.
6) You can take back the cash value of paid up additions at any time, without a loan, and still keep the rest of the policy intact, although doing this will reduce the overall death benefit.
7) And, of course, fundamentally this is $200K worth of insurance, so someone will get a bunch of money when you die. You have nothing to pay for this now (you already paid it off) and now in addition you can use it as a savings vehicle.

Your insurance now after 25+ years is a stable and versatile investment for your $40K and now is the payback for all the earlier costs. If you never need it, someone will get $200K when you die. As commented by others, this should be counted as part of your bond allocation (actually, it is much better).

dhodson
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Mon Oct 05, 2015 7:53 am

As I've mentioned several times I would keep this but I want to point out:

It is only tax free if kept in force until death. One needs to look at an in force illustration to see the actual guaranteed increase in CSV. Right now the CSV is increasing (illustrated) at around 5%. I bet if you look at the illustration, the guaranteed is less than 4%. This is why one always needs to look at the actual illustration and not the wording of guaranteed 4% since its meaningless without understanding the other costs.

One has to be careful about loans. They cost what they cost period which is likely around 7% for a fixed from this company last time I looked. This company is a direct recognition company for loans as well. If you take them out to early and dividends fall then it can crash the policy. Just look at all the posts here about people who used WL to pay for college and now have collapsing polices with additional tax consequences. Best to take out loans later to reduce risk of this.

Selling PUAs isn't a great deal. Of course there is no tax on something that is sold for what it cost. That's the same for all investments since there are no gains.

While I think one should keep one of these. One has to want a death benefit. Although the policy has been in force a long time, its an easier decision to keep if one were older. Frequently we get posts from someone who is in their 60s with an old WL, that's even easier to make an argument to keep. Since the OP is much younger, if he didn't want a death benefit, he might invest more aggressively and over the multiple decades that would make a big difference.

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by afan » Mon Oct 05, 2015 8:48 am

From NWML
Nearly 80 percent of the company's 3.7 million traditional permanent life policies are expected to use their 2015 dividend to purchase additional insurance
https://www.northwesternmutual.com/news ... vidend2015
They have very high retention so there are a lot of people who have held policies for many years. It seems that most of them go for PUA.

The link also describes the results NWML has posted. They remain an extremely strong company and it is hard to imagine you have non federal investment options that have a lower risk of failure. But dhodson raises a good point about whether a low risk low expected return investment is appropriate at all for someone who does not need a death benefit. Are there any good investments into which one could roll via 1035? Stock based variable annuities tend to be terrible due to fees and limits on the amount of appreciation credited. There at least used to be universal life policies with low death benefits into which one could put a lot of money, up to MEC, and get a decent bond-like return. But I suspect any such new policy would pay a very low rate.

Keep it, use it for your emergency fund and consider it a part of your bond portfolio? Invest more aggressively outside of the policy since you have this cushion if you need it? Stop paying premiums and let the dividends keep the policy in force until it lapses?

dhodson, if the policy lapses what are the tax consequences?
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Mon Oct 05, 2015 8:57 am

All gains immediately taxed as income.

Most people lapse/surrender their policies.

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Mon Oct 05, 2015 9:00 am

Now I probably wouldn't 1035 in this case IF I didn't want to keep it.

That just defers the tax so it's sort of kicking the can down the road.

I like that better in an older person but IF done go with a low cost VA like through vanguard

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by Steelersfan » Mon Oct 05, 2015 2:17 pm

nedsaid wrote:Okay, let's take into consideration the approximate $40,000 that the original poster has in cash value. Let's take the $741 premiums out of the $2,400 annual increase in cash value. Let's round that to $1,650. That still gives you a 4.125% annual return on the cash value. Don't know about anyone else, I would accept a 4.125% return on my money right now.

Excellent point. Thanks for bringing that up.
I have a similar policy, a little older and a little smaller, but that's just about the calculation I have done on my NML policy.

I've decided to keep it.

If I ever need it as part of my fixed income allocation (unlikely) I'm getting a better guaranteed return than I can get elsewhere.

If I never need it, my beneficiaries are going to get a nice chunk of change.

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by Kelly » Mon Oct 05, 2015 2:26 pm

James Hunt is a retired life actuary who evaluates policies for the consumer federation of america. He charges $100 to work out the internal rate of return of the policy and tell you whether it's worth keeping. I would guess it's returning about 4% so you could treat it as part of your bond allocation. Here's the website http://www.evaluatelifeinsurance.org/

You'll need to get an inforce illustration from the insurer first. Old NW policies that I've seen usually have high IRRs.

Kelly

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by johnra » Mon Oct 05, 2015 2:27 pm

dhodson wrote:While I think one should keep one of these. One has to want a death benefit.
If sad2 has any bond portion in his/her portfolio, this life insurance policy is competitive with, probably superior to it, even without the death benefit, which of course is what underlies it in the first place. At this point in time in this policy, what fixed income investment can match it? It yields 4, maybe 5%, there is zero interest rate risk, and it can be borrowed upon.
Last edited by johnra on Mon Oct 05, 2015 3:03 pm, edited 3 times in total.

Kelly
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by Kelly » Mon Oct 05, 2015 2:34 pm

johnra wrote: 5) Cash value can be borrowed for whatever you want, whenever you want. The loan is set ~6%, but really it only costs about 2% since the principle that is borrowed will continue to earn interest. You don't really ever have to pay back the loan since the company will just deduct what is owed from the death benefit.
Yes, you can borrow against it, and it doesn't have to be paid back. However, if there's not enough cash value to support the premiums the policy will lapse and you (and the IRS) will get a 1099 from the insurer equal to the borrowed amount. Many people were sold policies under the pitch that it will pay tax free retirement income (since it's a "loan"). The inconvenient part about the lapse and 1099 were, of course, left out of the sales presentation.

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by dhodson » Mon Oct 05, 2015 3:09 pm

johnra wrote:
dhodson wrote:While I think one should keep one of these. One has to want a death benefit.
If sad2 has any bond portion in his/her portfolio, this policy is competitive with, probably superior to it, even without the death benefit, which of course is what underlies it in the first place. At this point in the life of this particular policy, even without the death benefit, what fixed income investment can match it? It yields 4, maybe 5%, there is no interest rate risk, and it can be borrowed upon.
Not exactly. One has to decide why they own bonds. I don't own bonds bc I want an inferior return compared to stocks. I own them bc I want to use them to rebalance. You can't do that with WL. Also historically these do NOT produce superior returns to bonds over the entire lifespan (which is what the insurance company is mostly investing in any way and then you have all the high fees. Have u ever noticed how many sports events NWM policy owners sponsors? So thank god people mostly surrender them to prop up the dividends). There is a lag between interest rates and dividends. This is why dividends are still falling even though the interest rate has been stable for years. When I have looked its like a 6 year lag so once interest rates improve there will be a lag before dividends go up. There wouldn't be any hurry to surrender and certainly id wait until an anniversary date in order to get the dividends but WL is not guaranteed to get bond like performance of either the CSV or the death benefit. It might but that depends on a variety of factors including investment returns (which are bonds) and lapse/surrender rates.

Again id keep it but id want to preserve the death benefit at this point. I wouldn't purchase one for it which is a totally different question.

sad2
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Fri Oct 30, 2015 7:14 pm

My interest rate for loans is 8%.

I finally received my guaranteed amounts:

Before pasting those: here is the in-force illustration, updated.

July 17, 2011
Current Insurance Amount: $171,822
Cash Value: $28,000

Assuming 6% Dividend Rate
At Age 65
Insurance Amount: $412,417
Cash Value: $254,415
Guaranteed amount: $119,115

At Age 77
Insurance Amount: $578,986
Cash Value: $448,083
Guaranteed Amount: $149,434

livesoft
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by livesoft » Fri Oct 30, 2015 7:20 pm

sad2 wrote:Assuming 6% Dividend Rate
What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by sad2 » Fri Oct 30, 2015 8:21 pm

livesoft wrote:
sad2 wrote:Assuming 6% Dividend Rate
What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
That is the assumption NM used when providing the illustration.

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by Mel Lindauer » Fri Oct 30, 2015 9:30 pm

sad2 wrote:
livesoft wrote:
sad2 wrote:Assuming 6% Dividend Rate
What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
That is the assumption NM used when providing the illustration.
The 6% number is meaningless. It's only used in an attempt to make the numbers look better so you'll keep paying for the policy). The only numbers that really matter are the GUARANTEED figures (notice how much lower they are than the fantasy "assumptions".) Ignore the assumptions because they're meaningless. They could have just as well used 10% or some other made-up fairy-tale number.
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by powermega » Sat Oct 31, 2015 10:45 am

OP, I agree with others in this thread about keeping the policy. You have to evaluate the situation looking forward, with no concern about what happened in the past. Looking forward, the policy will probably have decent performance.

I'm certain that your dividend option is to purchase paid-up additional insurance (PUA). That is the only way the death benefit on a WL policy goes up over time. Having dividends buy PUA is also the mechanism of getting something like compounded interest in a WL policy. The PUAs generate additional dividend, which is used to buy more PUAs, etc. In a WL policy only the cash value associated with the PUAs can be withdrawn. The base policy cash value cannot be withdrawn without doing a full policy surrender. It is possible to borrow against both the PUA cash value and the base cash value. I would be wary of of borrowing money from the policy because the consequences of the loan balance getting too large is devestating. The loan interest rate of 8% that you mentioned earier would likely outstrip the cash value growth in the policy. Not only that, but if market interest rates rise, the loan interest rate will go up sooner/faster than the dividend payout rates.

It appears that your dividends are larger than your premiums. One option you could do is to use your dividends to pay your premium, and use the remainder to buy PUA. That way the policy doesn't cost you anything going forward. Once in retirement, you could have your dividends pay your premium, then get paid in cash to you. After age 65, you'll have no premium and the dividends could all be paid in cash to you, providing a little income in retirement. Cash dividends will be tax free until the cumulative cash dividends start to exceed the cost basis of the policy. In other words, cash dividends (and withdrawals for that matter) come from basis first, then gain (which is taxed as ordinary income).
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by mephistophles » Sat Oct 31, 2015 4:28 pm

Mel Lindauer wrote:
sad2 wrote:
livesoft wrote:
sad2 wrote:Assuming 6% Dividend Rate
What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
That is the assumption NM used when providing the illustration.
The 6% number is meaningless. It's only used in an attempt to make the numbers look better so you'll keep paying for the policy). The only numbers that really matter are the GUARANTEED figures (notice how much lower they are than the fantasy "assumptions".) Ignore the assumptions because they're meaningless. They could have just as well used 10% or some other made-up fairy-tale number.

I don't own or sell Northwestern Mutual life insurance, but I consider them among the very best in their industry. "The dividend interest rate" is a very important number that mutual insurance companies use to calculate how they will distribute surplus in the form of dividends to policyholders. That said, most policyholders are only interested in the actual dividend paid on their policy. Northwestern has always paid dividends, and though not guaranteed, their impact on policy performance cannot be overlooked, anymore than an investor would overlook dividends and growth on their equity investments.
ole meph

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by Mel Lindauer » Sat Oct 31, 2015 7:10 pm

mephistophles wrote:
Mel Lindauer wrote:
sad2 wrote:
livesoft wrote:
sad2 wrote:Assuming 6% Dividend Rate
What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
That is the assumption NM used when providing the illustration.
The 6% number is meaningless. It's only used in an attempt to make the numbers look better so you'll keep paying for the policy). The only numbers that really matter are the GUARANTEED figures (notice how much lower they are than the fantasy "assumptions".) Ignore the assumptions because they're meaningless. They could have just as well used 10% or some other made-up fairy-tale number.

I don't own or sell Northwestern Mutual life insurance, but I consider them among the very best in their industry. "The dividend interest rate" is a very important number that mutual insurance companies use to calculate how they will distribute surplus in the form of dividends to policyholders. That said, most policyholders are only interested in the actual dividend paid on their policy. Northwestern has always paid dividends, and though not guaranteed, their impact on policy performance cannot be overlooked, anymore than an investor would overlook dividends and growth on their equity investments.
ole meph
Thanks for sharing your thoughts, ole meph. I know you've been in the business a long time and you've make valuable, unbiased contributions to lots of insurance threads.

My point is that since they're not guaranteed, an investor shouldn't use those numbers to do their life planning since they may never materialize. Rather, if they use the guaranteed numbers for their bottom line planning and stuff happens and the projections don't materialize, then they haven't dug a hole for themselves. And if some (or all) of the projections do materialize, then life will be better, and more is certainly better than less when it comes to life planning.
Best Regards - Mel | | Semper Fi

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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by afan » Sat Oct 31, 2015 8:07 pm

I think that takes it too far. Like many other aspects of financial planning, the actual returns are unknown. It is possible for stocks to have severely negative returns over decades. Does one assume a negative 5% annual return for stocks for the next 30 years? No. It is possible, but not likely. You plan on what you think is probable, taking into account the possibility that returns could be worse.


The OP has not said what the guaranteed returns are, but it would not be reasonable to decide to use estimates for those uncertain returns that do not have guarantees but only the guaranteed return for those that do. Both cases should use realistic projections of returns, and recognize the possible variation.
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Re: Northwestern Mutual Whole Life Insurance (65 Life)

Post by mephistophles » Sat Oct 31, 2015 9:58 pm

Mel Lindauer wrote:
mephistophles wrote:
Mel Lindauer wrote:
sad2 wrote:
livesoft wrote: What does 6% have to do with any of this? Maybe the dividend rate is actually 0.1%?
That is the assumption NM used when providing the illustration.
The 6% number is meaningless. It's only used in an attempt to make the numbers look better so you'll keep paying for the policy). The only numbers that really matter are the GUARANTEED figures (notice how much lower they are than the fantasy "assumptions".) Ignore the assumptions because they're meaningless. They could have just as well used 10% or some other made-up fairy-tale number.

I don't own or sell Northwestern Mutual life insurance, but I consider them among the very best in their industry. "The dividend interest rate" is a very important number that mutual insurance companies use to calculate how they will distribute surplus in the form of dividends to policyholders. That said, most policyholders are only interested in the actual dividend paid on their policy. Northwestern has always paid dividends, and though not guaranteed, their impact on policy performance cannot be overlooked, anymore than an investor would overlook dividends and growth on their equity investments.
ole meph
Thanks for sharing your thoughts, ole meph. I know you've been in the business a long time and you've make valuable, unbiased contributions to lots of insurance threads.

My point is that since they're not guaranteed, an investor shouldn't use those numbers to do their life planning since they may never materialize. Rather, if they use the guaranteed numbers for their bottom line planning and stuff happens and the projections don't materialize, then they haven't dug a hole for themselves. And if some (or all) of the projections do materialize, then life will be better, and more is certainly better than less when it comes to life planning.
Thank you Mel, and you make a good point, especially for conservative investors.

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