Please help with evaluation of whole life and term from Northwest mutual.

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tubelight
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Please help with evaluation of whole life and term from Northwest mutual.

Post by tubelight » Wed Sep 20, 2017 4:22 am

Hi Bogleheads,

I am a relatively new user (came upon your this forum recently) and has already helped me immensely. Any assistance with this issue would be much appreciated. I am 35 (physician, married with no kids and no plans for them) and at 32 was sold (by a friend) a 65 whole life and term 80 insurance. Policy was bought Oct 2014.

65 life- Net death benefit $715705; Annualized premium $11321 to which have been paying 940$ a mth. Net cash value- $18890
Term 80- Net death benefit- 1.3M; Annualized premium 725$ with a monthly payment of ~ 60$.

I have read the previous posts which have dealt with similar issues but have some difficulty understanding them. It seems obvious from reading them, this is a bad investment (i already have disability insurance). I have read on prior posts advice to completely stop payment and take the cash surrender value vs stopping it and moving the money to Vanguard into a variable annuity vs stopping it and just letting it sit there. If someone could help guide me through which might be the best option.

I have the attachment showing the end of yr guaranteed insurance/surrender value/paid-up; non-guaranteed insurance/ surrender value/paid-up but doesn't look like attachments are permitted.

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TomatoTomahto
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by TomatoTomahto » Wed Sep 20, 2017 5:36 am

Hello Doc, I like your username.

First, that was no friend. Perhaps someone will come by and give you a rigorous analysis of your best financial option with the whole life. I'm not qualified.

I can, however, tell you that I would resent it every time I paid a premium, so for me, ending that misadventure would outweigh the analysis. A lot of life is regret avoidance, and I'd feel regret with every payment. Ymmv.

Jack FFR1846
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by Jack FFR1846 » Wed Sep 20, 2017 6:39 am

Since there's term in place, get a surrender form from NW and take out the cash now. Make no mistake....you're going to take a bath. If you continue to make payments, you'll simply extend the bath you're taking.
Bogle: Smart Beta is stupid

tubelight
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by tubelight » Wed Sep 20, 2017 7:03 am

Thank you, yeah I realize thats the only option. Thank you for putting it so gently :). Am set to talk with my former friend tomorrow to end it.

If you guys would believe it, during my residency training, the hospital arranged NWM to come in and give us a presentation/lecture on this. When your working 90 hr weeks and barely sleeping, when you hear their pitch, it does sound like the best idea and only natural course of action. They use what you know against you (death/suffering part of my job) and obviously put the final nails in with your lack of knowledge on finance. You are required to read and absorb a lot of knowledge in medschool/residency. I wish the bogleheads guide to investing/retirement was part of that (its much shorter and more easy to read :).

Well better late then never. I also plan on contacting my hospital and letting them know, they aren't doing anyone any favors by setting up these presentations.

DarthSage
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by DarthSage » Wed Sep 20, 2017 7:09 am

You're right--better late than never. It does seem odd that the hospital arranged the NM presentation--probably someone knew someone, that kind of thing. I'm sure it was presented to the hospital as a helpful presentation, to help all you residents get on a good road to investing. Yeah, some help!

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oldcomputerguy
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by oldcomputerguy » Wed Sep 20, 2017 7:35 am

tubelight wrote:
Wed Sep 20, 2017 7:03 am
If you guys would believe it, during my residency training, the hospital arranged NWM to come in and give us a presentation/lecture on this. When your working 90 hr weeks and barely sleeping, when you hear their pitch, it does sound like the best idea and only natural course of action.
Ah. Sleep deprivation. That explains it.
:twisted:
Anybody know why there's a 20-pound frozen turkey up in the light grid?

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TomatoTomahto
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by TomatoTomahto » Wed Sep 20, 2017 7:38 am

DarthSage wrote:
Wed Sep 20, 2017 7:09 am
You're right--better late than never. It does seem odd that the hospital arranged the NM presentation--probably someone knew someone, that kind of thing. I'm sure it was presented to the hospital as a helpful presentation, to help all you residents get on a good road to investing. Yeah, some help!
Lots of that going on. Community colleges host these things, libraries do, employers sometimes do.

Jack FFR1846
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by Jack FFR1846 » Wed Sep 20, 2017 7:53 am

I would recommend that you NOT call your friend. Contact NWM directly and ask for a surrender form. Fill it out and mail it in.

I had a Universal Life policy (not quite as bad, but not good) and never even figured out who the agent was. I contacted the company directly and asked for a surrender form. They sent it. I filled it out and a few weeks later got a check.
Bogle: Smart Beta is stupid

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Strayshot
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by Strayshot » Wed Sep 20, 2017 8:26 am

If I had to go talk to a "friend" like that, I'd bring some brass knuckles and return the favor. Well, I'd be helping a dentist out of the hole he/she was in from the policy they were sold at least......

In the interest of avoiding the criminal justice system, go with the form recommended previously.

The folks who bring these salesmen into the medschools honestly don't know any better, they have probably been sold the same trash (albeit at a lower premium, these salesmen are just as happy to take $1K from an admin as they are to take 10K from a doc......well maybe not quite as happy but still).

Nate79
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by Nate79 » Wed Sep 20, 2017 9:31 am

I would not even analyze the WL junk, just cancel thru NW. NW is one of the worst/expensive for these products. As for the term get a quote online from the recommended term life quote sites recommended by folks here on Bogleheads, just search.

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BolderBoy
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by BolderBoy » Wed Sep 20, 2017 10:29 am

Not a friend. Exit it as soon as you can. Accept the experience as "learning the hard way".
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

tubelight
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by tubelight » Wed Sep 20, 2017 3:27 pm

Thanks for all your input. On the white coat investor site, he describes it as paying the "Stupid tax" :P

Alchemist
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by Alchemist » Wed Sep 20, 2017 4:49 pm

Not to beat up the OP with the math, but just for demonstration for anyone else reading this thread I ran some quick numbers

Over three years the premiums cost $33,963. The current cash value is $18,890 which means that this policy cost 15,073 in fees! Compared to the term (worth twice as much coverage!) which only cost $2,175 over that time period. So even if we are generous and say that atleast the insurance provided as some value, it still means $12,898 or 38% of every contribution went to pay fees and sales commissions. A high enough rate to make a Hedge Fund manager blush.

Do not send them another dime, and run. Also consider cancelling the term. If you are single with no dependents, why would you even need life insurance?

afan
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by afan » Wed Sep 20, 2017 7:09 pm

Just make sure you know the "surrender value". At this early point in the policy you may not be able to collect the entire cash value.

There have been discussions of exchanging one of these underwater policies for a low cost annuity, such as Vanguard sells. The idea is that you retain as a basis all the premiums you paid. You then put the cash you get out of the insurance policy into the annuity. It grows tax free and you cash it in when it has come up to equal sum of all your premiums. So you have no income tax on the growth. It may be better than just surrendering the policy.

You could look up what Vanguard is paying on annuities now.

There are threads on this maneuver. Fortunately I am not in that position so I have not gone through the numbers. But the idea sounds logical assuming the annuity pays more than the after tax return on a comparably safe taxable investment.

Obviously, it would not make sense to buy the annuity from a high commission company like NMWL.

With no kids now and none planned some people still need life insurance to cover the spouse or other relatives they may be supporting. If that applies to the OP then work out on your own, not with the "help" of an insurance agent, how much coverage you need and for how long. Unless you need permanent insurance, very few people do, you are better off with term. The NMWL term policy may be just fine, assuming you need the coverage.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

tubelight
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by tubelight » Thu Sep 21, 2017 5:40 pm

Thanks everybody, after a shouting match (with my "friend") they ended up sending the surrender forms (term and whole). Seriously considered strayshot's advice as well :).

To afan, I talked with Vanguard about options to do a 1035 exchange into a VA. How it was explained to me was, the only reason to do that is if my surrender value exceeded what ive already sunk in (so as to save tax on that excess). There's no way to reclaim the lost premiums (in my case ~ 15G above the surrender value). And if any taxes are due on the surrender value, it makes more sense to absorb that and invest normally than putting in a VA.

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prudent
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by prudent » Thu Sep 21, 2017 6:02 pm

I wouldn't be too hard on your friend - he might honestly believe he was doing right by you. After all, agents aren't trained to think they are convincing customers into making poor choices.

stevew7
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by stevew7 » Fri Sep 22, 2017 8:23 am

tubelight wrote:
Wed Sep 20, 2017 4:22 am
at 32 was sold (by a friend) a 65 whole life and term 80 insurance. Policy was bought Oct 2014.

65 life- Net death benefit $715705; Annualized premium $11321 to which have been paying 940$ a mth. Net cash value- $18890
Term 80- Net death benefit- 1.3M; Annualized premium 725$ with a monthly payment of ~ 60$.
So, if the policy started Oct 14 and you pay $940/month, you've paid 36 months x 940 = $33,840 through Sept 2017. That means your total loss is 33840 - 18890 = $14,950.

That's a big enough loss where I would consider the added complexity of doing a 1035 exchange into a Vanguard variable annuity. Basically, instead of having to eat that $14,950 loss, by doing a 1035 exchange, you are basically "rolling" the loss from the policy into a Vanguard annuity. When the life insurance company does the 1035 exchange to Vanugard, they are required to report the amount of dollars you paid into the policy, which becomes your basis in the annuity. Since the surrender value (dollars sent to Vanguard) is less than your basis (total dollars you paid to the life insurance company), you can have gains in the annuity without taxes due until your account value is greater than your basis.

This strategy allows you to take advantage of Vanguard annuity's lower costs (all-in expense ratios of ~0.50%) until you've "made" 14,950 in the vanguard annuity, at which point you can cash out the Vanguard annuity with no additional taxes due. If you go this route, start the paperwork at Vanguard and have them handle the transaction with the life insurance company. Also make sure the variable annuity is titled the exact same way as your life insurance policy to avoid problems in completing the 1035 exchange.

However, this does add a little complexity and requires you to manage another account. If you don't wish to do so, cashing out the policy is easy and as you stated, you could rack it up to a learning experience.

One quick note - do you have adequate term life insurance outside of these two policies? It is unlikely you've had a life event that will make you uninsurable in 3 years, but if you don't have another term life policy in place, get it done first before you cancel the term 80 life policy. $60 bucks/month on the term policy isn't a big cost to carry a couple extra months while you get a new 20 or 30 year term policy in place. Obviously any negative health changes could make you unable to obtain term life at all (or make it horrifically expensive if you can get it), but if you are healthy, getting another policy from a different insurance company should be easy and only take a month or two.

Good luck!

afan
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by afan » Fri Sep 22, 2017 9:14 am

Re:1035 exchange- What stevew7 said.

You will not have to pay tax when you surrender the whole life policy since your total of premiums paid is greater than the surrender value.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

tubelight
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Re: Please help with evaluation of whole life and term from Northwest mutual.

Post by tubelight » Sat Sep 23, 2017 4:40 am

Thanks a lot stevew7 for explaining that so clearly. The concept was lost on me from my prior conversation with someone at Vanguard. But today managed to get hold of someone who knew exactly what this was and was able to guide me properly to start the process of the 1035 exchange.

I think to not lose > 15G, i'll anyday take the complexity and work of managing an additional account :happy
I have yet to decide on whether to keep the term on not. But did plan on looking into other options prior to cancelling that if I decide to go that way.

Thanks again everyone for their input and assistance. It was invaluable.

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