Reputable? Whole Life with Northwestern Mutual...

[mx_599]

As far as direct recognition, Northwestern does pay a lower dividend to policies where there are loans outstanding. I suppose their basis is that if you sold some of the company's dividends by borrowing from the cash value, then you shouldn't be able to receive as many, because you don't own as much of the company as someone who hasn't borrowed from the cash value.

If you don't plan on accessing the cash value until retirement there is a way to access the money at the cost basis first, then loans. This will enable you to access the money in a tax favorable manner.

you can access money at cost basis before retirement? not sure what that means, but okay.

i am still a bit confused on the ramifications of borrowing and paying back the loan vs not paying it back and then BNTRS also mention the tax tricks you can play

 

[BNTRS]

The load...I'm not sure I understand you on that, but if you are talking about the additions, then the payout for the agent should be 4% on additional premiums. That is similar to an A share mutual fund.

We're talking about the load fee concerning PUA's Northwestern charges the client 9% for this. So every dollar put in has nine pennies taken away. That was the issue that first raised an eyebrow with me when he mentioned overfunding the policy. Northwestern charges a lot for this.
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As far as direct recognition, Northwestern does pay a lower dividend to policies where there are loans outstanding. I suppose their basis is that if you sold some of the company's dividends by borrowing from the cash value, then you shouldn't be able to receive as many, because you don't own as much of the company as someone who hasn't borrowed from the cash value.

If you don't plan on accessing the cash value until retirement there is a way to access the money at the cost basis first, then loans. This will enable you to access the money in a tax favorable manner.

A lower dividend rate for policies with outstanding loans? This would be doubly bad. This can't be right. A lower overall dividend I could see, but if they also lowered the dividend rate or left it the same for policies with loans, this would be another strike against them.

Guardian is a direct recognition company yes, but it pays a higher dividend rate on policies with loans to offset the fact that it's not paying dividends on the borrowed amount. The dividend rate increases as the loan increases.
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I'm going to attempt to explain blending and clarify taking money out of the policy.

Blending

Blending a whole life contract involves having a Whole Life contract that has some term insurance attached to it. Eventually the entire death benefit will turn into pure whole life insurance and the term will be gone. This is a strategy used to keep the premium lower if that is a concern. It's also used as a strategy to dump more money into a policy, especially if there is an anticipation for increased income, or available money sometime in the near future.

The extra term insurance is very cheap and makes the death benefit much higher. This allows the policy owner to dump extra money in without turing the policy into a MEC.

The process of putting extra money into the policy remember purchases small life policies and increases the over all death benefit. This move in tern reduced the amount of term insurance attached to the policy, and eventually makes it all go away. This might be a workable strategy that avoids the purchase of another Whole Life contract at a later date, because you are able to put a significant amount of money into the policy in a few years when your income is higher.

On borrowing...

You have two options when it comes to accessing the money inside your policy. You could simply withdraw it. Life insurance has a FIFO (first in first out) tax treatment in accordance to U.S. tax code. This means the money you have deposited (which represents the premiums you pay plus any paid up additions [the extra money]), which is also known as your cost basis, can be withdrawn first when you take money back out. You can't be charges taxes on your cost basis (you already paid taxes on it). Once you've reached your cost basis (or have taken out all of the money you put in) your withdrawals are taxable (now you are accessing the growth).

However, you have another option...

If after withdrawing your basis, you begin taking loans out against the remaining values you'll be able to access the money without paying taxes. It's not income, it's a loan and you can't pay taxes on a loan.

The interest on the loan can be paid for with the dividends on the policy or left to simply accumulate. The growth in cash value within the policy will often times keep up with the accumulation of interest on the outstanding loan. With this strategy you are not paying the loan back. You are not required to do so, and no one from a collection agency is going to contact you. It's your money, you lent it to yourself.

Usually this strategy is used when someone has reached retirement and is wishing to access the money to supplement their needs during retirement.

So to recap...

Retirement strategy two steps

1.) Withdraw money down yo basis

2.) Borrow from policy the remaining amount

Clarification Point!

These distributions would be occurring systematically or as they were needed, most likely you wouldn't take all the money out at once.

The other time you would take money out (aka the other borrowing strategy

Lets say it's been a few years since you opened this policy. You've been funding it well and you have a healthy sum of cash inside it.

You suddenly find yourself in a situation where you need a new car. You could...

Go to the bank

Apply for a loan

Get the money

Buy the car

Pay the bank back the money plus interest.

Or you could...

borrow the money from the whole life policy with the intention on paying it back. Now instead of making a car payment to a bank, you are making payments (whenever you want to) back into your policy. The money you pay interest goes back into the cash value component of the policy (SIDE NOTE: when you do this, you'll actually end up with more cash value later on than if you had never borrowed from the policy. This is because you are putting more money into it with the interest payments.

Putting the money back in by paying off the loan is like never borrowing the money in the first place. It's not like you will end up with less money because of the loan you took and paid back to buy the car.





That is a good enough introduction to how you can use your policy and access money.

A few other considerations.

A few people have already mentioned that you will have full access to this with no age restrictions like you will with a qualified plan like a 403b, 401k, or 412i. Meaning your wish to retire early at age 50 will be easier to work with whole life insurance as a primary wealth accumulation vehicle.

The meeting with the agent is going to be tough. He probably doesn't want to spend a lot of time detailing out every piece of the puzzle here, and your grasp of all this stuff will never be where I think you would like it to be even by the time you've bought your new policy.

Hopefully everything we've offered up helps in some way.

 

[StephenMurphy]

Thanks for th info.
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Thanks for sharing.

 

[mx_599]

We're talking about the load fee concerning PUA's Northwestern charges the client 9% for this. So every dollar put in has nine pennies taken away. That was the issue that first raised an eyebrow with me when he mentioned overfunding the policy. Northwestern charges a lot for this.

actually, it was a typo on my part. hehehe but yeah, "load" too !

wow, thanks for your time on some of these posts. for better or worse, i feel like a much more informed customer. thanks to all who have contributed.

i am supposed to meet on friday i think. i might type up a list of questions for my agent if he does not want to be blind sided.

maybe i could post questions here so you guys can see if they look good before i email to him.

regarding my "physical" for this policy, all things were great. i am unsure if any of the lab work could have been better from NWM ' s standpoint. i am thinking that my age 32 is the worse thing i have going for me with regard to the health criteria or whatever.

should i ask to see proof that i am receiving the best health rates/stratification/classification? (probably wrong terms, but i think you know what i mean)

 

[bluemarlin08]

Regarding blended policies and the statement that the term is cheap, will the company inform you of the term costs each year? The company has the right to change mortality costs, just can't exceed the maximum rates shown in the policy. When rates are increased, are they increased for all policies?

 

[mx_599]

other than blending WL with term, was there another way to substantially increase contributions (sub MEC) short of opening a new policy?

what do you guys think of this idea:

stop over thinking this for now and get the freaking policy. then, in a year or two, open another WL with guardian or one of the others and just have a couple going simultaneously. then as i learn more about the nuances involved i can decide which plan i want to target with asset protection and over funding.

maybe it couldn't hurt to have a few plans going concurrently. i can let the less favorable ones go along their merrily way at the minimum premiums and focus on the others.

would you guys see any major drawback to this that is not clear to me initially?

maybe in this way i can have some of the best of both worlds with different companies.

the only problem i have with the above is: am i only gettingthe NWM to please my agent who i already started with and then lke next yr i am already going to be looking to get guard or MM or another?

what do you guys think of the above plan...ie a couple policies with different companies nearly concurrently and see how things play out?

Another thing we have not discussed, do any of you see the laws changing on some of the rules involved with WL? and if so, wouldn't people who had things in place be "grandfathered in" to prior standards/rules? and if this is the case, wouldn't it behoove someone to get this stuff going asap?

or will there be no likely changes anytime soon?
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we should have a moderator change the title of this thread to something more fitting. i feel like there is now a wealth of info here for others, especially with regard to WL as asset protection.

Unless this info is all common knowledge to many of you.

I know info on forums is often cyclical. I am not sure if all this has been discussed many times here. i probably should have searched better.

honestly, this thread sort of took on a life of its own...which is great!

a better title might be something like "whole life and asset protection". especially for future consumers like me stumbling into a professional forum like this.
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just found out he sells other companies too! would he have incentive to push northwestern? does he make more money by selling northwestern?

also, he is kind of pushing age qualified 400's plans. i really did not want my money locked up. in fact, i really do not have interest in them.

am I totally wrong with this attitude of 400's plans? does he make good money with selling these?

have you guys run into many successful people that avoid these 400's plans?

i almost feel like they are for the uneducated masses. like everyone at walmart or home depot or insert your favorite hospital here_______ excited about their dumb 400 plan (nothing against them, i worked at home depot) this is not a stab at the uneducated for those sensitive types here. i am referring to people like myself. that is why i came here...to try and become educated a little about this stuff

 

[DHK]

Or you could...

borrow the money from the whole life policy with the intention on paying it back. Now instead of making a car payment to a bank, you are making payments (whenever you want to) back into your policy. The money you pay interest goes back into the cash value component of the policy (SIDE NOTE: when you do this, you'll actually end up with more cash value later on than if you had never borrowed from the policy. This is because you are putting more money into it with the interest payments.

Have you checked this with every insurance company you do this with?

I ask because it simply doesn't make sense for an insurance company to let you borrow money to let your policy keep the interest.

In fact, with all the infinite bank-type scenarios, it ALWAYS says to pay yourself the MOST interest.

If your loan has a 6% interest rate, and you're paying your policy 10%, then you are increasing your cash values by 4%. The cost of the loan goes BACK to the insurance company as profit (as part of the investments of the company - and later received as part of your dividend). You keep your 4%. Or, in other words, you are saving at a rate of 4% of your loan values.

Saving more money isn't a bad idea (obviously), but I don't like the way this is usually presented.

But your dividend wouldn't be affected regardless of whether or not you already had a loan against the policy (non-direct recognition).

This is the problem I usually see with infinite-banking type scenarios - that the interest paid on the loan is usually misrepresented. Same thing with 401k loans - except because of taxes and risk of unemployment aren't as prevalent.

Have you asked your company how they handle the interest on your loans and how it is credited to the policy?

 

[BNTRS]

I like you plan regarding multiple policies; it is a very common practice. In fact in the state of NY, we often use multiple carriers when cash values get high b/c the insurance guarantee fund will guarantee those values on a per policy basis. Given the time tested stability of whole life insurance, it's probably not something to get too worried about (the guarantee fund I mean) but for some people it's an added layer of piece of mind.

If you feel like you are buying Northwestern just to please an agent, becareful. You're not alone in feeling this way. I've even had clients who refused to make moves with their money b/c they were afraid it would upset their current advisor and they might do something distructive to their finances. I understand the mindset, and empathize. It's tough especially when you feel like you don't completely understand what is going on.

Regarding the compensation he'll receive from Northwestern versus another carrier, it varies. It depends on a lot of variables like how much business he does with other carriers, and where he is with Northwestern's comp. plan. All that aside, Northwestern has a very high opinion of itself. There's nothing wrong with this, but sometimes Northwestern agencies have an almost cultish attitude about their products and company.

I am assuming you are refering to a 403b when you say age qualifited 400 plans. He'll make money setting yours up, not a lot though. It's not a terrible idea, but I think a discussion about whether or not you should be in one is for another topic post that could likely go on as long if not longer than this one. I'm not sure what kind of selling agreements Northwestern has NMFNMDRT might be able to elaborate. Selling agreements would allow northwestern agents to sell investment products of other companies. I don't know of northwestern as a leader in the 403b market, I cannot sell their products, but that doesn't keep me from trying to know as much as possible about them.

Also, if I'm assuming correctly about what you mean by 400 plans, I agree with you to a degree.

As far as rules changing is concerned, most likely there will be a grandfathering. This happened when they changed the rules and created modified endowment contracts. I don't really see rules changing in the near future.

Good luck and keep us posted on your progress.

 

[mx_599]

Have you checked this with every insurance company you do this with?

I ask because it simply doesn't make sense for an insurance company to let you borrow money to let your policy keep the interest.

In fact, with all the infinite bank-type scenarios, it ALWAYS says to pay yourself the MOST interest.

If your loan has a 6% interest rate, and you're paying your policy 10%, then you are increasing your cash values by 4%. The cost of the loan goes BACK to the insurance company as profit (as part of the investments of the company - and later received as part of your dividend). You keep your 4%. Or, in other words, you are saving at a rate of 4% of your loan values.

Saving more money isn't a bad idea (obviously), but I don't like the way this is usually presented.

But your dividend wouldn't be affected regardless of whether or not you already had a loan against the policy (non-direct recognition).

This is the problem I usually see with infinite-banking type scenarios - that the interest paid on the loan is usually misrepresented. Same thing with 401k loans - except because of taxes and risk of unemployment aren't as prevalent.

Have you asked your company how they handle the interest on your loans and how it is credited to the policy?

you raise some confusing points. actually, i am unsure if i am confused which makes this post even more disconcerting.

 

[BNTRS]

Have you checked this with every insurance company you do this with?

I ask because it simply doesn't make sense for an insurance company to let you borrow money to let your policy keep the interest.

In fact, with all the infinite bank-type scenarios, it ALWAYS says to pay yourself the MOST interest.

If your loan has a 6% interest rate, and you're paying your policy 10%, then you are increasing your cash values by 4%. The cost of the loan goes BACK to the insurance company as profit (as part of the investments of the company - and later received as part of your dividend). You keep your 4%. Or, in other words, you are saving at a rate of 4% of your loan values.

Saving more money isn't a bad idea (obviously), but I don't like the way this is usually presented.

But your dividend wouldn't be affected regardless of whether or not you already had a loan against the policy (non-direct recognition).

This is the problem I usually see with infinite-banking type scenarios - that the interest paid on the loan is usually misrepresented. Same thing with 401k loans - except because of taxes and risk of unemployment aren't as prevalent.

Have you asked your company how they handle the interest on your loans and how it is credited to the policy?

I'm familiar with no company that takes the interest as a charge and keeps it, please explain. Admittedly I don't write cash value policies with all that many companies. I also don't usuall write business with Universal Life-based policies (too risky for my taste). Or better yet identify them so they can go on the do not touch ever list.

Guardian and Massmutual don't do this.