Whole life: question on specific underlying assumptions

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Joined: Mon Oct 08, 2018 3:43 pm

Whole life: question on specific underlying assumptions

Post by SeattleBogleHead95 » Mon Oct 08, 2018 4:04 pm

Hi all,

I have a friend who is considering a Northwestern Mutual "65 Life" whole life policy (he has only received an "illustration" from them at this point), and I'm trying to help him quantitatively evaluate this decision. I know much has been written (here and elsewhere on the internet) on the merits of "buy term and invest the difference," but I typically see a list of factors rather than actual quantitative analysis. So, I'm trying to build a model of the policy's value/coverage vs. buying term and investing the difference, keeping the underlying investment the same. Here are they key inputs I have from him now -- which are most likely to be incorrect/suspect/variable?

-"Non-guaranteed dividend interest rate" = 4.9% (what is this based on? Could it be lower? Could it be higher? Which is more likely?)
-They present the cash value that builds on a pre-tax basis, but I will model as whatever he withdraws from the cash value in excess of premiums paid as taxable as ordinary income. This of course assumes he makes the withdrawals while alive.
-I don't see anything on surrender charges/fees when pulling out the cash value. Would a policy like this have surrender charges/fees?
-They show year-by-year "end of year cash value" and "end of year insurance". The "end of year insurance" is always higher than the cash value, but the difference decreases over time. Can I correctly think about the difference between the two as the amount of "term" coverage provide per year?



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