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Originally Posted by Dave020
I will always maintain that if I went back into life insurance full-time I would re-contract with Northwestern Mutual. Nobody can ...
Let's look at how WL is developed as a fixed-level payment plan:
1. Add-up all the separate mortality rates between your current age and age 100. ART rates are used for WL -- a "worst scenario", and the most you can pay for the COI element.
2. Divide the total by the number of years until age 100 -- to find the average rate.
3. Discount that average mortality by the time value of money at a fixed rate of generally 4%.
Design of WL uses maximum cost for mortality; maximum expense loading; and minimum rate of interest.
Excess dollars are created in the early years, to pre-pay the higher mortality costs in the later years, when the cost of mortality exceeds the amount of each premium payment.
These excess dollars pre-paid in the early years are owned by the company as part of the contract, and are listed as a schedule of values inside the policy. This schedule represents the least amount of money the insurance company must return to you if you terminate the policy.
CAUTION -- this schedule of Cash Values is only calculated to be enough to pay future premiums. This is not to be considered a "Savings Account". Use of this money without paying interest could cause you to lose your life insurance.
If the insurance company has fewer death claims; lower expenses; better investment returns -- than you are paying for -- then the company may refund some of these additional profits back to you in later years as "dividends" or "excess interest". Time lag is generally about four years.
These dividends are not guaranteed, nor do they change your obligation to pay the fixed premiums; they don't change the cash value tables in the policy; and they don't change the guaranteed death benefit.
WL par dividends are a separate, stand-alone transaction.
Dividends are simply part of the forced overpayment design, that you may or may not get back some years later. If you do, it's generally about half of your overpayment.
I have a study done by a NML actuary that shows the 20-year ROI to be about 2% on their par WL. That must be why NML is known as the "Quiet Company".
If I sold this kind of stuff, I'd be really quiet about it too.
I agree, VUL is not the route to go however there is more than one type of client out there and that is why there is more than one type of Life Ins. product.
I do feel however that VUL is for the most part not a good route to go down. Sticking with WL 9 out of 10 times is often best to do. Like is said, there is no One size fits all product.
Let's look at how WL is developed as a fixed-level payment plan:
1. Add-up all the separate mortality rates between your current age and age 100. ART rates are used for WL -- a "worst scenario", and the most you can pay for the COI element.
2. Divide the total by the number of years until age 100 -- to find the average rate.
3. Discount that average mortality by the time value of money at a fixed rate of generally 4%.
Design of WL uses maximum cost for mortality; maximum expense loading; and minimum rate of interest.
Excess dollars are created in the early years, to pre-pay the higher mortality costs in the later years, when the cost of mortality exceeds the amount of each premium payment.
These excess dollars pre-paid in the early years are owned by the company as part of the contract, and are listed as a schedule of values inside the policy. This schedule represents the least amount of money the insurance company must return to you if you terminate the policy.
CAUTION -- this schedule of Cash Values is only calculated to be enough to pay future premiums. This is not to be considered a "Savings Account". Use of this money without paying interest could cause you to lose your life insurance.
If the insurance company has fewer death claims; lower expenses; better investment returns -- than you are paying for -- then the company may refund some of these additional profits back to you in later years as "dividends" or "excess interest". Time lag is generally about four years.
These dividends are not guaranteed, nor do they change your obligation to pay the fixed premiums; they don't change the cash value tables in the policy; and they don't change the guaranteed death benefit.
WL par dividends are a separate, stand-alone transaction.
Dividends are simply part of the forced overpayment design, that you may or may not get back some years later. If you do, it's generally about half of your overpayment.
I have a study done by a NML actuary that shows the 20-year ROI to be about 2% on their par WL. That must be why NML is known as the "Quiet Company".
If I sold this kind of stuff, I'd be really quiet about it too.
You're saying NML's fully-underwritten DI policy is NOT non-can?
To the best of my knowledge, it is guaranteed renewable. They use the dividend to try to keep rates flat. So, if the dividend doesn't come in right, then the premium can and will go up.
I have heard rumor they are coming out with a new series that might be non-can, but that is just that, a rumor.
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Originally Posted by atlantainsguy
These dividends are not guaranteed, nor do they change your obligation to pay the fixed premiums; they don't change the cash value tables in the policy; and they don't change the guaranteed death benefit.
WL par dividends are a separate, stand-alone transaction.
Almost right. If the dividends are taken as a PUA, then they do change the cash value tables and guaranteed death benefit. That is when a WL really shines.
Last edited by VolAgent : 08-21-2009 at 11:09 AM.
Reason: Posts merged
VolAgent -- Dividends are a separate, stand-alone transaction. Each of your PUA is a separate transaction, and they have not changed the base policy's CV or DB. They are in addition to the base policy/contract, not part of it. I think we are both talking about "six of one, and half-dozen of the other" here.
I would like to know, though, how "WL really shines" when you want to get the money back?
Ruck4Life -- If there is no one size fits all, then why is WL good for 9 out of 10 times?
Sorry, but there is only one type of life insurance. It's all the same thing -- a legal contract that says, "You die...we pay".
Being the same thing, they just have different payment plans. Some payment plans are increasing, and people call that "Term". Some are fixed-level, and people call that "Whole Life". Some are flexible, and people call that "Universal Life".
You cannot make a WL or UL out of Term. You cannot make a Term or UL out of WL. You can, however, make a Term or WL out of UL.
Without understanding these concepts, I don't know how customers could be asked if they want the lowest starting cost, or the lowest total cost.
Let's look at how WL is developed as a fixed-level payment plan:
1. Add-up all the separate mortality rates between your current age and age 100. ART rates are used for WL -- a "worst scenario", and the most you can pay for the COI element.
2. Divide the total by the number of years until age 100 -- to find the average rate.
3. Discount that average mortality by the time value of money at a fixed rate of generally 4%.
Design of WL uses maximum cost for mortality; maximum expense loading; and minimum rate of interest.
Excess dollars are created in the early years, to pre-pay the higher mortality costs in the later years, when the cost of mortality exceeds the amount of each premium payment.
These excess dollars pre-paid in the early years are owned by the company as part of the contract, and are listed as a schedule of values inside the policy. This schedule represents the least amount of money the insurance company must return to you if you terminate the policy.
CAUTION -- this schedule of Cash Values is only calculated to be enough to pay future premiums. This is not to be considered a "Savings Account". Use of this money without paying interest could cause you to lose your life insurance.
If the insurance company has fewer death claims; lower expenses; better investment returns -- than you are paying for -- then the company may refund some of these additional profits back to you in later years as "dividends" or "excess interest". Time lag is generally about four years.
These dividends are not guaranteed, nor do they change your obligation to pay the fixed premiums; they don't change the cash value tables in the policy; and they don't change the guaranteed death benefit.
WL par dividends are a separate, stand-alone transaction.
Dividends are simply part of the forced overpayment design, that you may or may not get back some years later. If you do, it's generally about half of your overpayment.
I have a study done by a NML actuary that shows the 20-year ROI to be about 2% on their par WL. That must be why NML is known as the "Quiet Company".
If I sold this kind of stuff, I'd be really quiet about it too.
Atlantainsguy
20 years is not a good indicator of ROI. As you said atlanta, the first few years of the policy is meant to pre-pay the mortality costs. Do you retire 20 years after you start your retirement plan? I started my policies between the ages of 23 and 25. I don't pay much attention to what the values are at the age of 45. I'm more concerned with what the values are at 65-70. Even then I won't touch the CV as my IRA and pension will be the bulk of my retirement.
It will be nice to know that there will be a solid earner in that time with my CV growth. Go look at a Northwestern policy that has been in place for over 30 years and see what the CV increase over the premium is on the policy. It will be staggering. I'll pay the up front fees on something that returns a boat load during retirement time.
I'm not saying my LI is my retirement, but it will be a nice addition.
Also, there is additional money you can put into a whole life policy. The majority of it goes into the cash value and on average I've see 70% of money returned in the first year vs. 10% for a traditional policy. You obviously don't get as much death benefit as much of the insurance cost is taken out of the equation.
In reference to the disability: As far as I know Northwestern has always had the non-can option. It is more expensive, but it is an option. The rumor you are hearing about may be the fact that they are going to start own occ. classes for the medical market in the next month.
NMFNMDRT -- hey, if I could truly retire after even one year from starting my retirement plan, I'd sure as heck do that in a heartbeat! But that's just me.
Your comments are really appreciated for their lack of name calling, and none of the vile I see on some other posts. Also appreciate your thoughtfullness with the concepts.
There are a few things in the "mix" that I'm uncomfortable with, however:
1. WL is inflexible. That to me is a drewback in its basic design. I think flexibility is a solid benefit.
2. When you supplement your other retirement income, how will you get the money/CV back? I view an 8% gross loan as being quite inefficient. My preference is a wash loan.
3. You can only put true "additional money" into a UL (Option 2 -- difference between minimum and GLL). Then, it's totally voluntary. You have the right, but not the obligation, to do that. If you do, 100% of the money goes straight into the CV -- no COI, no fees, no commission.
4. Have you ever done a "parallel what if" to putting the same money into a UL, as you did into your WL? I've compared NML policies before that way, and the UL always comes out ahead on CV. Or, same CV at age 100 = lower premium. This is on the guaranteed side, not current.
Northwestern's answer to an overfunded UL policy is called our Adjustable CompLife policy or ACL. You can have within the policy a very small portion of whole life with a large portion of adjustable term protection mixed in. This is called a minimum mix ACL. On top of this goes our addiional premiums or "AP's". This portion of the policy is the flexible portion as you can decrease the amount of AP's in the policy. In order to add though a person must go through underwriting as it does cause the death benefit to increase at a faster pace.
All in all an overfunded ACL policy does come out on top in terms of IRR over a traditioinal whole life. In the beginning it's a lot better due to the reduced insurance cost and lower agent commissions, but toward the end of the policy period the traditional policy does come back, because it is paying higher dividends.
I do agree that the 8% loan provision is a bit steep. I've seen people use their cash values to pay for their children's entire college education only to be eaten alive by the loans later on. CV insurance was never meant to be used in this fashion.
The best way to get around the loan provision is called "surrender to basis, then loans." Take your cost basis at retirement, so no taxes are paid, and then take out loans of up to 92% of the policies CV. The death benefit takes a hit, but you won't have paid a dime in taxes on the policy, and you will have used it in the most efficient manner possible.
It's somewhat difficult to explain and if I could show you an illustration it would probably make more sense. It's a very popular option with people in retirement.
Let's do a quick UL/WL comparision. We'll use Ohio National (competitive WL & UL), 35 year old non-smoker at standard who has $250/month to pay for life insurance protection. Let's compare the death benefit and surrender value:
Let's compare a middle of the road WL product (not maxed out close to MEC limit) with dividends sent to paid-up additions versus a no lapse guarantee UL product. Yes, this isn't a UL vs. WL arguement, it's a UL minimally funded NLG product vs. WL arguement for a younger person.
10 Yrs Out = $231,854 WL DB / $438,000 UL DB
$22,418 WL CV / $3,289 UL CV
20 Yrs Out = $282,850 WL DB /$438,000 UL DB
$77,503 WL CV / $0 UL CV
30 Yrs Out = $345,628 WL DB / $438,000 UL DB
$160,473 WL CV / $0 UL CV
40 Yrs Out = $431,233 WL DB / $438,000 UL DB
$278,052 WL CV / $0 UL CV
Summary: If I was 35 years old, I would hands down take the whole life policy as it will be roughly the same at projected mortality age, but I will have a hell of a lot more options with the cash value accumulation. I could surrender the policy if my needs changed, I could take a reduced paid-up policy, I could use a portion of the cash value for retirement income, and more.
The arguement would be the early years, I have less death benefit. As a 35 year old, I would gladly buy a $200,000 20 year term policy for $20/month to plug the gap for the ability to have cash value options later on in life. If I was absolutely 100% certain that I only cared about the death benefit and not the cash value, they're about a wash near projected mortality. The cost savings with a NLG UL policy would be so minimal, plus with the possibility of beating the UL policy if I live beyond age 75 with the death benefit, I would still take the WL policy.
Side note: I'm not against NLG UL policies. I think they're great for people in their later years who want it strictly for the death benefit.
VolAgent -- Dividends are a separate, stand-alone transaction. Each of your PUA is a separate transaction, and they have not changed the base policy's CV or DB. They are in addition to the base policy/contract, not part of it. I think we are both talking about "six of one, and half-dozen of the other" here.
I would like to know, though, how "WL really shines" when you want to get the money back?
As NMFNMDRT said, you can surrender down to the cost basis, and take longs from that point. Also, with a non-direct recognition policy, you continue to receive dividends on the borrowed amount.
NMFNMDRT, why should I have to pay extra for non-can, when I can get a policy that is non-can, with better definitions?
I have to say that even though I focus the majority of my business on Ind health ins these days, this has been an awesome thread with people inputting excellent perspective from all sides. It has been a great refresher for me!
My current policy is a $400K death benefit WL that has been structured to use a combination of paid up additions to increase the CV, and several types of additions for paying the premiums due to disability, loss of income etc. I pay a fair amount of money each month for it and so far all of the returns have outpaced even the projections in the original illustrations.
I actually sold the policy to myself a few years ago but have not really spent much time on life insurance since then. This thread has been a great refresher and I would like to thank all that have contributed so far!
NMFNMDRT -- hey, if I could truly retire after even one year from starting my retirement plan, I'd sure as heck do that in a heartbeat! But that's just me.
Your comments are really appreciated for their lack of name calling, and none of the vile I see on some other posts. Also appreciate your thoughtfullness with the concepts.
There are a few things in the "mix" that I'm uncomfortable with, however:
1. WL is inflexible. That to me is a drewback in its basic design. I think flexibility is a solid benefit.
Explain two things: One, how is WL inflexible? I assume you're referring to the premium. Well, I don't know of a single policy that won't blow up if you don't pay on it. The advantage is WL offers non-forfeiture options. Look it up and you'll see what I mean. Two, why is flexibility a benefit? What happens if a client stops payment, falls behind on bills (*ahem today*) and can't get back to paying for premiums?
2. When you supplement your other retirement income, how will you get the money/CV back? I view an 8% gross loan as being quite inefficient. My preference is a wash loan.
The loan on a WL policy does not effect the DB until it pays out. The bene's get the net. IOW, $10k loan grow to $40k after 30 years, 8% interest. DB grows from $1mm to $2mm over that same time frame. Why? In non-direct-recognition par WL, the dividiend does not get affected by a loan outstanding. Subtract the $40k and the bene's get $1.96mm. I'm using rough numbers, but my point is made.
How does an unpaid loan affect a policy who's COI is going up every year?
3. You can only put true "additional money" into a UL (Option 2 -- difference between minimum and GLL). Then, it's totally voluntary. You have the right, but not the obligation, to do that. If you do, 100% of the money goes straight into the CV -- no COI, no fees, no commission.
PUA rider on a WL policy is the equivalent. Not the same as your example. I fail to believe that the extra has no COI, no fees, no commissions. There is no such thing as a free lunch. Prove this statement to me.
4. Have you ever done a "parallel what if" to putting the same money into a UL, as you did into your WL? I've compared NML policies before that way, and the UL always comes out ahead on CV. Or, same CV at age 100 = lower premium. This is on the guaranteed side, not current.
What happens in your illustration when you take a loan or distribution from the policy? Aren't you making this comparision to show how one can spend more money from their policy? Or are you just thumping your chest about accumulation? Who gives a crap about accumulation if they can't spend it?
It's nice we can agree to disagree. Thanks!
Atlantainsguy
All I know is when you take a loan off a UL, you run the risk of blowing the thing up. WL has a much lower risk of this happening. If you can prove me wrong (i.e. can you generate more income without blowing up) with using a UL, be my guest. I feel I'll be waiting a long time.
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Originally Posted by VolAgent
As NMFNMDRT said, you can surrender down to the cost basis, and take longs from that point. Also, with a non-direct recognition policy, you continue to receive dividends on the borrowed amount.
NMFNMDRT, why should I have to pay extra for non-can, when I can get a policy that is non-can, with better definitions?
I checked. NML's DI policy is non-can.
Last edited by Death Cab For Tootie : 08-22-2009 at 08:54 AM.
Reason: Posts merged
All I know is when you take a loan off a UL, you run the risk of blowing the thing up. WL has a much lower risk of this happening. If you can prove me wrong (i.e. can you generate more income without blowing up) with using a UL, be my guest. I feel I'll be waiting a long time.
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I checked. NML's DI policy is non-can.
I refer you to NML's website and NMFNMDRT's earlier comments. The base policy is guaranteed renewable, you have to pay extra for the non-can. Thus my question, why should I have to pay extra for it, when there are companies that are non-can, and with better definitions of disability?
I refer you to NML's website and NMFNMDRT's earlier comments. The base policy is guaranteed renewable, you have to pay extra for the non-can. Thus my question, why should I have to pay extra for it, when there are companies that are non-can, and with better definitions of disability?
In most cases I stick to the GR contract. It does make the most sense to the average person.
How are the definitions so much different than other companies? Take a look at the extended period option (Own Occ.) and tell me how you can make that more simple? We offer that contract to all CPAs, Architects, Engineers, Professors, Teachers, Attorneys, and now Physicians.
The 2 year initial period was the best option before that and made sense, because the premium difference between that and the base contract was around 3%. It is basically 2 year own occ.
In most cases I stick to the GR contract. It does make the most sense to the average person.
How are the definitions so much different than other companies? Take a look at the extended period option (Own Occ.) and tell me how you can make that more simple? We offer that contract to all CPAs, Architects, Engineers, Professors, Teachers, Attorneys, and now Physicians.
The 2 year initial period was the best option before that and made sense, because the premium difference between that and the base contract was around 3%. It is basically 2 year own occ.
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