Tips for Buying Permanent Insurance?

[jboussea]

Re: Northwestern Vs Mass for Whole Life Policies?

So my financial adviser is also a broker (for MassMutual?) and is starting to push whole life on me pretty hard. Not sure if this is the best forum to discuss this, but how do yall usually compare and project this? I'm trying to run projections and it seems at best to be equal to a 5.5% RoR on an after-tax account.

Thoughts? I have a lot I can talk about.

Hey, here's some more details.

• Age 30, male
• Married, wife is 30 y/o
• new baby born, 3 months old
• $150k/yr income (wife stays at home)
• Live in TX, own a home. $410k mortgage (about 75% LtV)
• maxing out all tax-advantaged retirement accounts (401k, IRA, HSA), I'd say maybe $250k between wife & I in tax-advantaged accounts
• due to recent windfall inheritance, we have about $600k in after-tax accounts
• currently have $250k TERM policy with MassMutual that can be converted.
• Group insurance & ADD through employer, 2x salary free (option upto 8x but its expensive)

So I'm in a pretty good financial situation and am looking for ways to create a well balanced portfolio. I understand really well the concepts of Whole Life (personal banking, dividend, loans, etc). With the new baby and being young, I definitely need to up my insurance levels. I am looking at at least $2M for myself & $500k on the wife.

So I'm looking at 2 main conversations here:

1. BTID vs permanent insurance for wife & I. Converting my existing $250k term and buying new policy w/ higher DB.
2. buying large permanent policy on new baby to use as investment tool for college education.

For Item #1, I dunno, I just don't know if I'm convinced that it is an equal or better investment vs BTID. I see that the Current Value projections, it is showing 12 years just to break even and reach 0% IRR and a long term 4.6% IRR for 30+ years.

I will try to attach some projections I made.

For #2, they are proposing something big, like a 10-pay $2M policy on baby (~$20k/yr premium) to then use as a college tuition investment & long term gift to child.

Which item can we discuss first?

also:
So my insurance broker is pushing Mass Mutual, claiming they have the best returns and dividends. However, it looks like Northwestern is better. Is this a one-off statistic or am I splitting hairs?

20 year returns: bleakes report:

--Northwestern Mutual, 4.44%
--New York Life, 3.37%
--Thrivent, 3.20%
--MassMutual, 3.01%
--The Guardian, 2.62%

You must have edited your 1st post. For a max funded policy .. you should definitely break even before year 12. How much are you trying to put in the policy a year? and should we have you stop paying at 65? what is the end goal? is it retirement?

 

[atxeng]

Until or unless one can think about life in addition to pure financial numbers, it is difficult to fully appreciate the awesomeness of of whole life insurance.

There is a thread called something like I am your insurance policy. Read over that and then put that, your financial thoughts, a favorite view and a favorite beverage together and chill out for awhile letting all those things tumble around and merge together in your head.

(also i'm not quite sure what the right search terms would be, but look around for combinations of DHK and life insurance. His posts over a period of time reveal a lot of good "perspective" information about life insurance.)

Are you actually advising making a serious and important financial decisions and not look at or consider the financial numbers? wtf?

Yea, I looked up that thread. So you are telling me to make a serious choice based on a poem?

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If you're creating a well-balanced portfolio, looking at the WL as the conservative (fixed/bond) portion might add some clarity.

WL is not designed to outperform a diversified portfolio, but it can certainly be part of one.

Exactly. I understand that WLI needs to be fairly compared against similar asset classes. So looking at the numbers, even the best case scenario (current value tables), the WLI plans seem to trail behind the bond market by 1-2%.

Guaranteed returns on WLI is about 1%. 30-year T-bills are 3.2%.

Looking at Current Value projections, it shows an IRR of 4.6% after 35 years (takes 12 years just to cross from negative to positive). This appears to be similar to a ~5.5% RoR on an after tax account. Top rated muni bonds show RoR's of 5% and corporate bonds are easily in the 5-7%.

If we look at historical returns, the 30-year bond return is 11% while the 20-year return for WLI is around 3-4%.

I just don't think this is as good as a BTID strategy.

 

[DHK]

Exactly. I understand that WLI needs to be fairly compared against similar asset classes. So looking at the numbers, even the best case scenario (current value tables), the WLI plans seem to trail behind the bond market by 1-2%.

Guaranteed returns on WLI is about 1%. 30-year T-bills are 3.2%.

Looking at Current Value projections, it shows an IRR of 4.6% after 35 years (takes 12 years just to cross from negative to positive). This appears to be similar to a ~5.5% RoR on an after tax account. Top rated muni bonds show RoR's of 5% and corporate bonds are easily in the 5-7%.

If we look at historical returns, the 30-year bond return is 11% while the 20-year return for WLI is around 3-4%.

I just don't think this is as good as a BTID strategy.

Really??? You're going to compare bond funds with the interest rates of the 80's... to today's interest rate environment??? You do know that those bond rates are expiring and therefore will be replaced with the current interest bond rates, right? The insurance company knows this - that's why it is reflected in the illustration you have.

And where will you find those 30-year bonds with 8-12% returns today?

Past performance is not a guarantee of future results.

I truly think you need an economic update. I provided such information above within a PDF link and a YouTube video.

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So many countries have had 0% or negative interest rates... and you're wanting 8-12% returns on 30-year bonds???

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I assume you're "A TX Eng"ineer... but you're trying to engineer a financial strategy for today with the wrong variable assumptions.

 

[DHK]

Regarding college funding - here's something from MassMutual themselves, with my own highlights on it.

 

[DHK]

Are you actually advising making a serious and important financial decisions and not look at or consider the financial numbers? wtf?

Yea, I looked up that thread. So you are telling me to make a serious choice based on a poem?

Just FYI - LostDdollar is actually not an agent, but has been a long-time policy holder himself. He cannot advise, but he can share his personal experience.

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btw, no one else on here is 'advising' you as giving advice is subject to state licensing regulations. However, some of us certainly know our way around life insurance well enough to help you make a clear decision.

Although, I must admit that I often don't know why I help other agents I don't know to make sales. I guess I like the challenge.

 

[atxeng]

1 - Are you comparing "like for like"? BTID is often done with BACKTESTING with past investment assumptions and business environment that is constantly changing due to demographics, economy, political influence, and monetary policy.

If you are comparing buying term and investing in a mutual fund from back in the 80's... you have WAY TOO MANY THINGS WRONG in the comparison, besides the inappropriate asset-class comparison.

Yup. Like for like. See other post.

2 - Are you familiar with today's interest rate environment? Here's an economic update from last year - before the election:

Yes. Everything’s low. Not sure what you are getting at here. As rates rise, the WLI dividends will rise, but so will any other investment, like bonds.

3 - Dividends are not locked in. They are not guaranteed. They are shown based on TODAY'S dividend yield. They can increase and they could (theoretically) decrease, even in today's interest rate environment. This will probably be one of the WORST illustrations that this agent will ever have to show you.

Yup. Again, not sure what you’re getting at here. If the dividends suck, then that makes this WLI investment an even worse choice. And if the dividends increase, that means that the correlated bond market is increasing as well, so a bond investment would still beat the WLI, right?

I don't know the structure of the proposed policy (MassMutual has lots of different variations) - whether it is being pumped full of cash using PUA riders (Paid up additions) or not.

Can you tell us the "break even" year - the year when your cash values exceed your cumulative premiums paid?

Mass Mutual, $250k policy, LP-65, $3300/yr annual premiums.
Guaranteed tables takes 25 years to break even on cash value and has a 35-year IRR of 0.93%.
Current Value tables takes 12 years to break even and has a 35-year IRR of 4.6%.

 

[jboussea]

Are you actually advising making a serious and important financial decisions and not look at or consider the financial numbers? wtf?

Yea, I looked up that thread. So you are telling me to make a serious choice based on a poem?

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Exactly. I understand that WLI needs to be fairly compared against similar asset classes. So looking at the numbers, even the best case scenario (current value tables), the WLI plans seem to trail behind the bond market by 1-2%.

Guaranteed returns on WLI is about 1%. 30-year T-bills are 3.2%.

Looking at Current Value projections, it shows an IRR of 4.6% after 35 years (takes 12 years just to cross from negative to positive). This appears to be similar to a ~5.5% RoR on an after tax account. Top rated muni bonds show RoR's of 5% and corporate bonds are easily in the 5-7%.

If we look at historical returns, the 30-year bond return is 11% while the 20-year return for WLI is around 3-4%.

I just don't think this is as good as a BTID strategy.

If you think it's better to get a 30 year T bill right now over a WLI policy.. then you either need to do a lot more research and truly find out what WLI policy is or you need to go the route that you're convinced that will work.

Have you ever heard of the principal risk with holding a bond position.especially a 30 yr.

When interest rates go up ... you are in deep sh*t with that bond.. when interest rate goes up with WLI .. your dividend rate will most likely go up though not immediately.

THere is no history of 20 year WLI ... there are a variety of factors. that can contribute to a WLI policy return

1. what was the purpose of the WLI policy.. typically.. if you're trying to max fund a WLI policy your return in the last 20 years would be a lot more .. here is an example of a Northwestern Mutual policy .. that was in the 7% in 17 years.. remember once that guy achieved that 7+ % .. he is pretty much locked in . .. he doesn't have to worry about a market correction

https://www.bogleheads.org/forum/viewtopic.php?f=1&t=50626&start=50

See how he broke even in his 2nd year. Dividends were higher at the time of course.. but your policy is designed incorrectly if it's breaking even year 12.

Blease policies are not designed for cash value accumulation.. they are just a regular whole life wth dividendss.. but NO paid up additions and no term rider to max out the cash you need.

You need to go back to the drawing board

 

[atxeng]

Really??? You're going to compare bond funds with the interest rates of the 80's... to today's interest rate environment??? You do know that those bond rates are expiring and therefore will be replaced with the current interest bond rates, right? The insurance company knows this - that's why it is reflected in the illustration you have.

And where will you find those 30-year bonds with 8-12% returns today?

Past performance is not a guarantee of future results.

I truly think you need an economic update. I provided such information above within a PDF link and a YouTube video.

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So many countries have had 0% or negative interest rates... and you're wanting 8-12% returns on 30-year bonds???

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I assume you're "A TX Eng"ineer... but you're trying to engineer a financial strategy for today with the wrong variable assumptions.

Umm, dude. Did you not read anything I actually wrote? You focused in on the one sentence comparing historical returns for both bonds and WLI policies. Did you not see any of the projected current returns for the current bond market? Are you selectively blind?

 

[DHK]

For you, go with BTID. You're seeking confirmation bias right now. At least with Term, you'll have some protection until it expires.

As far as being "selectively blind", I could ask you the same thing. I doubt you've watched the videos I've posted.

- I doubt you understand that you could borrow against your policy for enhanced liquidity and more favorable borrowing terms while allowing your original balance to continue to grow as though you never touched it.

- I doubt that you understand the favorable treatment of life insurance and annuities when it comes to planning for college funding for your children - assuming that you're in a high tax/high income bracket and we know that college is only going to get more and more expensive.

- I doubt that you understand that you could structure your life insurance policy to provide you with a tax-free cash flow source in retirement, saving your social security benefits from being included in your taxable income.

The good news... is that you're not MY prospect or client, so I don't have to care as much as the agent who is trying to get you to do something that HE hasn't clearly explained as well as I already have in this thread.

 

[jboussea]

Umm, dude. Did you not read anything I actually wrote? You focused in on the one sentence comparing historical returns for both bonds and WLI policies. Did you not see any of the projected current returns for the current bond market? Are you selectively blind?

Do you really want to learn about WLI policy .. or do you really want to make your case as to why BTID is better ?

I take it if you were truly interested in WLI policy .. you would inquire as to why your policy is breaking even in 12 years. and you would go back to your advisor to try to get some explanation.

Instead you chose to ignore any constructive points that we make and you rather fight over things that you already have made up your mind about.