Northwestern Mutual (65 Life) Whole Life Insurance Question

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MidwestGuy
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Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by MidwestGuy » Tue Apr 11, 2017 3:21 pm

Hi everyone,

I'm currently 26 years old and I started a Whole Life (65 Life) Insurance policy with Northwestern Mutual in October 2015. I was sold this policy and told to view it as in investment. I was told, "it's great to get in on something like this while you're young because you'll have so much time for the money to grow."

Coming from a low-income family and being the first in my family to go to college and graduate, I've been racing to do as much as I can to invest my money (401K, paying down student loans, and this policy). I've been skeptical of this over the last year based on everything I've been reading online. Thus far I've paid $300 a month for 19 months ($5,700). Whenever I call to talk with my Northwestern Mutual contact he's always talked me into sticking with the plan for the long-term benefits. Sometimes I feel like I'm being swindled.

I'm single, 26, and don't plan on having kids anytime soon. Like I said, I was told to view this plan as a financial vehicle and that's how I've been viewing it. I'm skeptical and want to know if I need to pull out now before I lose more money or if I should stick it out and at least break even a few years down the line. The entire idea of a "non-guaranteed cash surrender value" vs. a "guaranteed cash surrender value" seems shady.

Attached is a photo (with important information erased) to give a better idea of what I've been looking at.

Would you suggest I get out of this plan ASAP or should I ride it out to see a profit? Also, if I ride it out until I'm 65 I'll have life insurance for life, which sounds pretty appealing.

Thanks in advance for the advice.

Image

NYC_Guy
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by NYC_Guy » Tue Apr 11, 2017 3:45 pm

Dump it. You are so clearly not a proper candidate for this that its sale to you should be a criminal act.

itstoomuch
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by itstoomuch » Tue Apr 11, 2017 3:58 pm

The last time I looked, Only's term LI, at age 27 is ~$600/a for ~$350K with disability and 5% inflation riders. I really need to drop the disability and possibly the inflation riders. Gotta call the agent one of these days. Only pays the the premium, I own the policy. :mrgreen:

Only is now 32, and still single.
YMMV
Last edited by itstoomuch on Tue Apr 11, 2017 4:07 pm, edited 1 time in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

MidwestGuy
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by MidwestGuy » Tue Apr 11, 2017 4:07 pm

Would it be in my best interest to at least ride this out until I can break even? I'd hate to pull out of this and end up eating a couple grand due to getting cold feet.

Theoretical
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by Theoretical » Tue Apr 11, 2017 4:09 pm

I have good and bad news for you. Good news first: there are worse policies than yours. As it goes, it's not that bad. At least it goes neutral before 10 years. Many policies take 20+ years to do that. Bad news: it's a terrible policy for your situation, and it's not a good investment, especially when that money could be going into low cost funds, in tax advantaged accounts.

If this were really structured as an investment for you, your premiums would be far higher and you'd be maxing them out first. As it is, it's creating an estate for you that you have really no need for at this time based on your OP.

I would also not double down on the policy to fix its problems, as your guy will likely recommend.

itstoomuch
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by itstoomuch » Tue Apr 11, 2017 4:14 pm

MidwestGuy wrote:Would it be in my best interest to at least ride this out until I can break even? I'd hate to pull out of this and end up eating a couple grand due to getting cold feet.
You will never, never Ever, break even.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

Theoretical
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by Theoretical » Tue Apr 11, 2017 4:17 pm

MidwestGuy wrote:Would it be in my best interest to at least ride this out until I can break even? I'd hate to pull out of this and end up eating a couple grand due to getting cold feet.
If you were one year out from it being entirely self-sustained, I'd say maybe. You've not even put a full year's IRA contribution into this beast, and you're still five years away from getting to break even.

NYC_Guy
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by NYC_Guy » Tue Apr 11, 2017 4:20 pm

MidwestGuy wrote:Would it be in my best interest to at least ride this out until I can break even? I'd hate to pull out of this and end up eating a couple grand due to getting cold feet.
That break even is over a decade away, perhaps two decades. Dump it. Don't allow the sunk cost to influence your future decision.

MidwestGuy
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by MidwestGuy » Tue Apr 11, 2017 4:35 pm

But why dump it if I can see a break even/profit situation down the road? Sure, it could take a decade or so, but wouldn't it be worthwhile to continue down this road and get all of my money back versus eating the cost?

N10sive
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by N10sive » Tue Apr 11, 2017 4:51 pm

The argument most have is this:

Say you are at the end of year two with a expected surrender value of 2724. You've paid in 6952. So you would have a loss of 4228. That is a good amount. It shows after year 9 you would break even for the estimated CSV. Guaranteed your break even point would be a lot longer.

If you take that 3476 and put it in a roth IRA you could make a lot more in interest most likely 10k more.

It is a tough pill to swallow. I am/was in the same boat although my premiums were only 1k a year so I wasn't hit as bad after a year.

You could always look at it as a savings account until you break even, BUT you are losing tons of interest and compounding in the meantime.

NYC_Guy
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by NYC_Guy » Tue Apr 11, 2017 5:10 pm

MidwestGuy wrote:But why dump it if I can see a break even/profit situation down the road? Sure, it could take a decade or so, but wouldn't it be worthwhile to continue down this road and get all of my money back versus eating the cost?
If you decide to keep it (against Boglehead advice :wink:), have your agent show you an analysis of overfunding the account (up to the MEC limit). You will hit breakeven a lot faster. But I really think you'll be better off putting $30,000 (about the required amount you'll need to put in to get to break even) in other investments, like treasuries (a comparable risk), over those years.

Theoretical
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by Theoretical » Tue Apr 11, 2017 5:12 pm

Here's the problem. You've paid $5700 - about a year's full IRA deposit so far. You have 9 full years left to go before you break even on the policy and 7 left to stop paying premiums out of pocket rather than from the policy itself. Right now you'll lose ~$3000 (premium paid less cash surrender value). You'll make that up in less than a year replacing that $300 per month in your Roth IRA and even less time if you increase your pre-tax 401k or HSA contributions to reflect it.

http://www.bankrate.com/calculators/ret ... lator.aspx

Plug the following numbers in:

6 year investment window
$2000 initial investment
$300/month investment
3% rate of return
Daily compounding.
Inflation rate 2.9%

At 25% bracket and 6% state, you have $25,321. Your cash value if you had stayed would have been $20,587 at best. This is at a treading water with inflation type situation.

As the policy is structured, the only person it's benefiting is your agent. The fact that it's sold as an investment without being overfunded to right under MEC limits tells you that this guy does not have your interests at heart. This is going to sound crazy, but you're actually not paying enough in premium for it to be a useful investment asset for you in the long-term. Such an overfunded policy would likely cost $10-11K per year, not $3700 per year, but it will get your agent less premium. That's not an argument for keeping the policy but for scrapping it.

stevew7
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by stevew7 » Wed Apr 12, 2017 10:08 am

MidwestGuy wrote:Hi everyone,
I'm currently 26 years old and I started a Whole Life (65 Life) Insurance policy with Northwestern Mutual in October 2015. I was sold this policy and told to view it as in investment. I was told, "it's great to get in on something like this while you're young because you'll have so much time for the money to grow."
I think life insurance "illustrations" can be very misleading because the illustration is not really showing the value/growth of the life insurance policy; it is really just a demonstration of the power of compounding.

Let me create a "roth ira at vanguard" illustration for you as a comparison. There are no account level fees charged by Vanguard outside of the expense of the funds you choose. According to marketwatch, the average SP500 index return from 1930 to 2009 was 9.7%, so we'll use that in my "illustration" below. We'll also assume you are in the 39.6% tax bracket, to estimate the value of your Roth IRA since it isn't subject to income taxes, unlike your life insurance policy should you surrender it.

Comparing the two, doesn't the Roth seems like a way better win (table at the bottom of this post)? At the end of year 21, your Roth IRA has an after-tax value of 321,414, while the whole life policy only has a guaranteed surrender value of 60,180, with an "estimated" surrender value of 88,175.

Now, in reality, the stock market fluctuates a LOT and tax policy is at the whim of our elected leaders, so the assumptions in my "illustration" are certainly subject to debate, just like the assumptions in the whole life illustration you were given are subject to debate. Did you ask your agent if NWL has increased their dividend rate recently? Let me give you a hint - it has kept them the same or decreased them every year since 1998. That means your illustration is going to be too optimistic if NWL decreases them again in the future.

Also, have you asked your agent what his commission was on the policy he sold you? How do you think that commission is getting paid? Hint, that's why your cash surrender value is so low at the beginning of your policy. Wouldn't you rather have those dollars working for you in the equity market?

Now, to be fair, my "illustration" does use a 9.7% average annual return and a 39.6% income tax rate. But even if you lower that to 8% return and a 30% income tax rate, your after-tax value changes to 240,699 which still kills the whole life illustration = same deal if you lower it further to 6% return and a 25% income tax rate = 180,167.

I agree with the others - be glad you have only paid in for a year and are still really young and figured this out early. The worst stories are those who have had huge policies like this for 4-5 years, are in the hole tens if not hundreds of thousands of dollars, and there is still another 4-5 years before break even.

http://www.marketwatch.com/story/8-less ... 2014-11-19
https://internal.nfp.com/webfiles/publi ... idends.pdf

Annual contribution to Roth IRA: $3400

End of Year Annual Contribution Return (9.7%) Total Account Value Equivalent taxable (assuming 39.6% tax bracket)
1 3,400 330 3,730 5,207
2 3,400 692 7,821 10,919
3 3,400 1,088 12,310 17,185
4 3,400 1,524 17,234 24,058
5 3,400 2,001 22,635 31,599
6 3,400 2,525 28,561 39,871
7 3,400 3,100 35,061 48,945
8 3,400 3,731 42,191 58,899
9 3,400 4,422 50,014 69,819
10 3,400 5,181 58,595 81,799
11 3,400 6,014 68,009 94,940
12 3,400 6,927 78,335 109,356
13 3,400 7,928 89,663 125,170
14 3,400 9,027 102,091 142,518
15 3,400 10,233 115,723 161,550
16 3,400 11,555 130,678 182,427
17 3,400 13,006 147,084 205,329
18 3,400 14,597 165,081 230,453
19 3,400 16,343 184,823 258,013
20 3,400 18,258 206,481 288,247
21 3,400 20,358 230,239 321,414

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goingup
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by goingup » Wed Apr 12, 2017 10:26 am

OP-
Cancel immediately. You don't need a whole life policy, or even term insurance right now.

I bet a majority of Bogleheads got duped with a whole life policy when they were younger. We certainly did. Bought it through our friendly local Farmer's Insurance agent. I forget the premium amount but we cancelled it after 2 years. Still stings a little 20 years later to think about it.

Don't confuse insurance with investing.

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

Post by LadyGeek » Mon Jul 02, 2018 6:16 pm

New member onfo has a question which I've moved into a stand-alone thread. See: [Northwestern Mutual (65 Life) Whole Life Insurance - Add to it?]
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by VaR » Mon Jul 02, 2018 6:54 pm

Hi OP,

As a fellow Northwestern Mutual whole life policyholder who is 6 years in, I advise you to swallow your pride and dump it. I wish I had done the same years ago and I am actually still considering doing so even though I've hit the point where additional premiums may not be going down the toilet (only the previous premiums are).

The three things that I neglected to consider are:
1. At this point, even though I'm married with kids, I will not need life insurance after another few years because the retirement portfolio will be self-sustaining.
2. In the past 6 years, the amount of life insurance I needed was 80% covered by term insurance anyway. There's no way that the whole life policy that I could afford could provide adequate life insurance coverage.
3. I was also attracted to tax deferred growth, but at the time I neglected to realize that a total stock market index fund or ETF ends up being 80% tax deferred anyway because of deferred capital gains. And compared to life insurance you could probably arrange to not pay that deferred capital gains tax due to step-up basis rules (depending on the size of your estate). Also important to this part of my new plan is to concentrate my fixed income allocation in my tax deferred accounts.

Hope this helps you in your decision-making process.

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

Post by CedarWaxWing » Mon Jul 02, 2018 7:14 pm

If you instead had put 3k into VTSAX in 2001, and repeated that every year until 2018 about now, and invest all distributions, you would have had about 162,893 in returns, and could have also paid the 476 or so difference into a term policy (if there is a reason to) you would have had a lot more death benefit, and a lot more cash in your pocket that could continue to be invested for another 20-40 years for retirement living.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

(If you then kept that 3k per year going for another 20 years and got 6% on it... you would have over 600k as a result. Asuuming this was in a roth so you have no taxes to pay on the returns/dividends.)



I

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

Post by LadyGeek » Mon Jul 02, 2018 7:39 pm

FYI - This discussion is from 2017. New member onfo bumped the thread asking for help.
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HereForTheAdvice1111
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by HereForTheAdvice1111 » Tue Jul 10, 2018 11:41 am

I’m having second thoughts about the whole life insurance policy I just made the first payment on. I have to sign the paperwork saying I've received it and have I think a 10 day window to cancel. I’m 48, divorced, no kids. I have a $100,000 policy with $3,340 annual premium. It’s a 65 life policy with an 8.0% policy loan rate. Between this thread and some of their collateral verbiage, I am nervous.
The materials they sent say: The primary reason to own a whole life insurance is to provide a death benefit, but don’t overlook the lifetime benefits that policy cash value can provide. You can access the cash value in a variety of ways including: policy loans, surrendering paid-up additions, receiving dividends in cash and exchanging values tax-free for long-term care insurance.
I really think this may not be right for me, but my agent is someone I used to work with and I don’t think I did a good job of being a bulldog like I would be with a stranger.
I suspect now is the time to bail if I need to. I will say I did like the idea of being able to leave my nephew a little money (or my two siblings) if I were to pass. But, I also have a $140,000 policy currently through my government job. I’m not sure how to attach pictures (I just found this site) but I’ll provide some rounded off number.
It says for year 20 – when I am 68, end of year non-guaranteed insurance would be $143,ooo. End of year guaranteed cash surrender value is $52,000 (about $3,500 less than what I put in) My end of year non-guaranteed cash surrender value is $74,000.
At age 78 the cash surrender value is $66,000 and the non-guaranteed cash surrender value is $111,000.
I can provide other numbers if that’s helpful.
Thanks so much for any advice folks have!!

simas
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by simas » Tue Jul 10, 2018 5:21 pm

trust your gut - bail.
besides, what is the point of insurance in your case? what risk does it intend to cover (who is it for)? buying very expensive financial product is bad enough, buying it for no reason - you are better of getting rolls of twenties and burning them...

FBN2014
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by FBN2014 » Wed Jul 11, 2018 5:56 am

Insurance is for one purpose only, protection against loss of income. Your heirs benefit, not you. Any agent that sold a policy by calling it an "investment" is unethical and/or ignorant about what he/she is selling.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

stevew7
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by stevew7 » Wed Jul 11, 2018 6:26 am

HereForTheAdvice1111 wrote:
Tue Jul 10, 2018 11:41 am
It says for year 20 – when I am 68, end of year non-guaranteed insurance would be $143,ooo. End of year guaranteed cash surrender value is $52,000 (about $3,500 less than what I put in) My end of year non-guaranteed cash surrender value is $74,000.
At age 78 the cash surrender value is $66,000 and the non-guaranteed cash surrender value is $111,000.
You've answered your own question. Let me phrase it differently. Do you want to lock in a loss for 20 years? Run the numbers you'd be better off putting the money into a FDIC insured bank account or CD than you would be with this policy. The right long term play is a bogleheads 3 fund portfolio or something similar, but presumably you are looking at whole life because the volatility of the stock market worries you.

Let me ask another question. Are you certain you can pay the premiums for many consecutive years? What happens if you lose your job? The policy will start falling apart and the rosy projections you see will look awful quickly if you stop paying. Ask the agent what happens if you stop paying at year 3. How much money will you get back?

Also ask the agent how you get your money out. Say you make it to age 78 and the illustraton is accurate (it isn't) and you want to pull out 111k. How much in taxes will you owe? Hint, this isn't considered a long term capital gain. If the agent says ok take out a loan don't withdraw, have him show that to you in the illustration. Then ask him what happens if I can't keep making payments? The policy will collapse with an outstanding loan and then you will have a big tax bill and no money from the policy to pay it. Is that what you want to be dealing with at age 78 when you really need the money?

Contrast that to holding a mutual fund or etf. If you have gains, you only pay the long term capital gains tax rate (in some cases zero if your income is low enough) on the gains. You sell what you need, nothing more. No potential giant tax bill.

If you still think this is the right way to go, insist your agent rerun the illustration blending whole life maximizing PUAs (paid up additions). This will dramatically lower his commission but will make the policy not be a loss in shorter time period (around 6-8 years).

HereForTheAdvice1111
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by HereForTheAdvice1111 » Wed Jul 11, 2018 11:09 am

I can't thank you enough for all of this. This is my own doing. I should have just shut down the conversation from the word go because I questioned if I would have the ba##s to push back. I am going to email him tonight. Again, I have some kind of ten day grace period from the time I receive the packet to walk away. I don't even care if I lose the initial $288 payment at this point. Thanks soooo much. I think I need to invest more in my government TSP (I'm only putting in 5%) right now instead. ;)

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

Post by David Jay » Wed Jul 11, 2018 9:36 pm

HereForTheAdvice1111 wrote:
Wed Jul 11, 2018 11:09 am
I think I need to invest more in my government TSP (I'm only putting in 5%) right now instead. ;)
Absolutely! TSP is for investment.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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BL
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by BL » Wed Jul 11, 2018 10:26 pm

Ten days go by really fast. Be sure to find out quickly exactly what you need to do and who to contact, and do it quickly! Don't count on you agent (that person is not your friend!) to help you as he is losing some commissions that he didn't deserve in the first place. You might have to contact the company, I don't really know. Just do it this week.

Consider it a lesson learned and practice in being assertive.
Read If You Can:
https://www.etf.com/docs/IfYouCan.pdf
especially the part about who to watch out for.

HereForTheAdvice1111
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Re: Northwestern Mutual (65 Life) Whole Life Insurance Question

Post by HereForTheAdvice1111 » Wed Jul 11, 2018 11:37 pm

I spoke to my brother tonight and crafted an email for him to look at. Then i am sending it off to my agent in the morning. Again, thank you everyone. I am going to start educating myself now. :) And, if for some reason I am out of the window, then I guess I'll be eating that $288, but I'd rather bail now than 3 years from now. Again many thanks and I'm glad I discovered this website.

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