Are we about to make a big mistake? NWM & Whole Life

[BrandonSi]

We're both just under 30, and getting married in April. We had a Northwestern Mutual agent referred to us, and explained the term/whole options and we're waiting for the nurse to stop by and give us our exams to find out what our rates will be. That being said, we have no children, and right now have no immediate plans to have children. We both are contributing towards our 401k's past the matching point of our employer, and also stashing a good percentage of our income in an ING account right now for expenses (Wedding, honeymoon, vacations, etc..). We also have about $10k saved up for emergencies, so that if we lose our jobs, etc.. we have money to get by. We have no debt, other than our mortgage and are about 1 raise short of not being able to invest in Roth IRA's.

Now, should we "invest" in whole life insurance? We recognize the importance of term insurance and will be getting the appropriate amounts to cover our income, earning potential, etc.. Now on to the whole life.. We're looking at investing a pretty good amount, probably close to $1,200+ a month for two whole policies for myself and my fiancee. This was under the assumption of their "pretty standard" 7.5% annual dividend, and being able to take out loans against the cash value tax free (up to 90%), as well as the dividend being not taxed.

Basically we were sold on whole life since it was a good mid-length investment (20-25+ years) that will grow and remain stable throughout the years and provide us with insurance down the line should we need it. We would also be converting term into these whole policies at certain amounts down the line (not to sure on the details, the agent told us we could do that). In addition, we are able to save enough money to invest $700-$800 into taxable investments (i.e. mutual funds) after our premiums and short term savings that go into the ING account.

I've read 4-5 different posts on this forum that I found via Google regarding NWM Whole Life and Whole Life in general, and I'm now scared we might be making a mistake. Should we forgo the entire whole life insurance policy, stick with term and invest the would-be "premiums" into mutual funds?

I really appreciate your input, we should be getting our individual rates in about a week or two.

[Valuethinker]

I've read 4-5 different posts on this forum that I found via Google regarding NWM Whole Life and Whole Life in general, and I'm now scared we might be making a mistake. Should we forgo the entire whole life insurance policy, stick with term and invest the would-be "premiums" into mutual funds?

In a word, 'yes'.

My background is that I worked in IT for a major Canadian insurer, more than 20 years ago. But I did learn a fair bit about the business.

Basically whole life isn't really suited to the modern career. The whole idea was that the company would make a lot of money from you in commissions and charges in the early years, but if you stuck it to the end, there would be bonuses which would pay some of that back. So forced savings.

But as future investment returns have fallen, the whole structure of the product is flawed. Because you don't make enough in the latter years to offset the costs you paid in the early years.

In addition, most people cash their policies in early (I would guess at least 50%). In effect, they lose, to subsidise the insurance company and other policyholders. They do this because of life change (unemployment, divorce, family commitments, career change, buying a house etc.). these changes all come faster and more frequently than they used to.

I would recommend, unless there are special tax benefits, that you avoid paying all that commission to an agent, and simply buy term life from a high financial strength insurer (the key is that your rate remains level, even if your health deteriorates). Given your employer probably has some term life on your salary (typically 3-4 times) and that you both work, and don't have any dependents, you won't need a lot more than you have. But if you take out a mortgage, at least enough to cover mortgage and estate costs.

When you do have dependents, up to 10 times your salary is not unreasonable.

The rest of your cash flow you should zealously invest in a stock/bond mix. At your age, you could be as much as 80% in stocks, but I would suggest that if you want stability, 60/40 stocks and bonds (or ideally: 20% international stocks, 40% domestic stocks (Total Market Index); 40% bonds (ST or medium term investment grade or US treasury). Most years, that 60/40 mix should grow and some years, pretty spectacularly.

[stratton]

The general attitude around here is life insurance is not an investment. It's far too expensive fees and commissions to the selling agent.

You would do better to buy term insurance for whatever period you need such as 20 or 30 years. Probably 10x of your annual income is a good starting guess. Quite likely more if you're early in your career and you're likely to make a lot more income later.

There are a lot more folks around here who can give you a better answer.

Paul

[BrandonSi]

Wow, thanks for the quick reply. We'll definitely look into more aggressive growth options given our age for stocks/mutual funds/bonds, regardless of what we choose to do with the insurance, but right now I'm just feeling a little taken aback at how different the reality of whole insurance as an investment is, versus how our "agent" painted the picture..

[Valuethinker]

Wow, thanks for the quick reply. We'll definitely look into more aggressive growth options given our age for stocks/mutual funds/bonds, regardless of what we choose to do with the insurance, but right now I'm just feeling a little taken aback at how different the reality of whole insurance as an investment is, versus how our "agent" painted the picture..

The bottom line is that most people with commitments need 10X salary in life insurance (including employer provided insurance).

There's no way to do that affordably without term life. Term life pays the lowest commissions, and is the most transparent product in that you can compare it between insurance companies.

The main things to look for are:

- guaranteed premium over the life of the policy (vital because if you get some terminal or serious disease or condition, they will jack the premiums through the roof)

- financial strength of the insurer (I think Weiss has the most impartial ratings, there is also AM Best)

[livesoft]

How your agent painted the picture? To get an idea of the mindset of your agent, you should read this article that TimDex posted about a stockbroker. It's about selling stocks, but could just as easily be about selling whole-life insurance, used cars, timeshares, what have you:

http://www.portfolio.com/executives/fea ... rd-Profile

[dm200]

are very high, in my opinion, that IF you sign up for this whole life with the expensive monthly payments - a year or two or three down the road, you will decide it is a bad idea, stop the payments - and have almost nothing to show for your "investment" and the sales person will have collected a big commission.

[Ted Valentine]

I don't understand why you even need life insurance. You have no dependents. Do you not get a 2X salary at work? If not just by a small term policy and save your money yourself instead of sending it to an insurance company. That should be enough for this stage of your life.

[BrandonSi]

I don't understand why you even need life insurance. You have no dependents. Do you not get a 2X salary at work? If not just by a small term policy and save your money yourself instead of sending it to an insurance company. That should be enough for this stage of your life.

Because, as our "agent" put it, our "ability to earn income is our biggest asset." My fiancee has 2X annual pay, I have $25,000 through work and that's it. She has no disability insurance, and I have 70% salary. So, no, I don't get 2x at work. From what I've read today on this forum, I don't think I can come up with a valid reason to have whole life insurance, either, and that's honestly got me a bit frustrated at this "agent." We'll definitely be looking into term, but now I'm not even sure if we should use the same guy after this.

Thanks again for everyones responses.

[BrandonSi]

One more question..

Is there anything to the argument that the dividends earned through Northwestern Mutual whole life will not be assessed by Capital Gains taxes and we will never have to pay income taxes on the “loans” we take out against our cash value, say.. 25 years down the line?

[mephistophles]

I am a CLU (Chartered Life Underwriter) with 40 years in the business and will offer a few suggestions:

1. Cancel the exam with the nurse and save your blood for a better use.
The agent used the "medical close" to ease you into the buying
process. The "nurse" does not determine what your rates will be.
Only the company determines that after assessing a wide variety
of risk factors.
2. Northwestern Mutual agents and most agents with most companies
are highly trained, professional salesmen who have a great amount
of expertise in separating "you" from your hard earned dollars in
order to provide "them" with a hefty commission in the neighborhood
of 50% of your first year premium, and perhaps another 50% in
renewals in years to come. These agents are very good at what they
do, so do not feel ashamed by being sucked into the "con." You were
very, very smart to come here before things got to far.
3. There is absolutely "no" need for either you or your spouse to buy
whole life insurance for any reason. Also do not buy any form of
variable life (VUL) or Universal Life. You can probably get some
inexpensive group term at work or maybe get it for free. If you are
sure you will have kids in the next few years you might want to
consider buying some commerical term to lock in your insurability.
4. Do not buy from this agent. He already tried to con you. Even if he
now offered good term rates, why buy from a conman.
5. What you do need to do is to make sure your P&C coverages including
auto, home and liability are in good order. Then you need to make
research and obtain high quality DI (disability income) insurance for
both of you. Get this for the max available (60% + of your income.
6. Try to find an Independent Life Insurance Agent who is a CLU (not an
independent property and casualty agent) who will advise you and
shop for you. Before selecting anyone as an agent make clear to
them, up front, that the first interview will be you interviewing them
to see if they qualify to be the agent you select based on your criteria
only for life insurance and the absence of proprietary products being
pushed on you from a primary company if he has one.

Good luck,

ole meph

[Valuethinker]

I don't understand why you even need life insurance. You have no dependents. Do you not get a 2X salary at work? If not just by a small term policy and save your money yourself instead of sending it to an insurance company. That should be enough for this stage of your life.

Because, as our "agent" put it, our "ability to earn income is our biggest asset." My fiancee has 2X annual pay, I have $25,000 through work and that's it. She has no disability insurance, and I have 70% salary. So, no, I don't get 2x at work. From what I've read today on this forum, I don't think I can come up with a valid reason to have whole life insurance, either, and that's honestly got me a bit frustrated at this "agent." We'll definitely be looking into term, but now I'm not even sure if we should use the same guy after this.

Thanks again for everyones responses.

Whole life won't protect your income. Only Long Term Disability insurance (a good contract, with an 'own occupation' definition) will do that.

It sounds like you need maybe 4X salary in term life. If your fiance passed away, you would keep working, so you probably don't need any more insurance for her. If you have a family, she (I assume I've got your sexes the right way round) is more likely to give up work: then you need insurance for her to pay for childcare. If you passed away and you had children, she would need insurance for you to replace your income.

[Valuethinker]

One more question..

Is there anything to the argument that the dividends earned through Northwestern Mutual whole life will not be assessed by Capital Gains taxes and we will never have to pay income taxes on the “loans” we take out against our cash value, say.. 25 years down the line?

Capital gains taxes aren't that high. And better to have those gains, than to lose them in commissions and 'smoothing' of fund performance.

Policy loans... these days, I think it's just easier to get a line of credit or a home equity loan. If you really need the money.

[mephistophles]

Near the last sentence meant to say criteria for term only life insurance.

Also, for Long Term Disability Income check with your employer first. Even though DI is necessary it is expensive so a group rate at your employer could be a cost saving measure.

Also, that 7% dividend interest rate is only part of an "internal" company rate
of return that NWM actuaries use to determine how much of the "overcharge" of premium they might return to you over the years if you are nice enough to let them steal the balance of your premium And, imagine this, the agent probably got you thinking that you were getting a 7% rate of return on your investment instead of simply returning part of the overcharge.

Also, the bit about tax free loans to get at your cash value is a very subtle sales trick to make you think your are getting this wonderful tax advantage when, in reality, the insurance company is charging "you the client" interest simply to access your own very hard earned cash value buildup that has already been heavily diluted by the huge expenses and commissions that have already been skimmed off the top.

More realistic scenarios might be buying the Brooklyn Bridge or becoming a martyr by blowing yourself and other up in order to get 79 virgins in paradise

[JasonR]

at evaluatelifeinsurancedotorg should be of some help in determining if you should buy whole life/universal life or a mutual fund and invest the difference. I personally haven't read too much (actually, anything) that would support insurance products as builders of wealth--unless you die, of course.

Jason

[nisiprius]

This is going to be a double reply.

First of all, every source of unbiassed advice I've ever read, starting with Consumer Reports in the 1960s, says it is better to "buy term and invest the different." Nobody has ever recommended whole life except someone who was selling it.

Now, yes, the "enforced savings" feature of whole life is a Good Thing. So you should make sure you really do "invest the difference" by setting up some kind of automatic deduction from your paycheck that goes into some kind of investment account. Believe me, this is easy to do. Any mutual fund company or brokerage will fall over themselves with happiness to make this easy for you.

There are two reasons for this. First, term life insurance is pure protection, and you can only get it from an insurance company. Whole life is a combination product which mixes up the insurance you need with an investment component. There's nothing magic the insurance company does with the investment that you couldn't do better yourself, the investment may not be quite what you need/want, the insurance company always rakes in more than the expense ratio of a good mutual fund, and you've pretty well locked yourself into the investment for no good reason.

The second reason is that most people can afford enough term insurance and can't afford enough whole-life.

Remember that the need for life insurance is temporary. Once the house is paid off and the kids are through college and you've got a few years' salary saved, you don't need life insurance any more. The purpose of life insurance is to provide an instant estate for your dependents if you die before you've managed to accumulate enough to provide for them. As the kids grow up, fewer dependents. As you accumulate, eventually you have enough, and your spouse does not need the protection of life insurance.

The cost of term life insurance does increase as you age and starts to skyrocket somewhere around age 55. But that's not a problem because it doesn't cost much and you usually can afford to pay the higher premiums as your career advances. The time the premiums become really huge is about the time you don't need the insurance.

Oh, a tip: buy several smaller term policies, not one big one... because there is a point at which you both need less and can afford less, but still need some, and it's helpful to be able to cancel the policies one at a time, instead of all at one.

Having said all that, buying whole life is not the worst thing in the world that can happen to someone. I think, yes, you should bail if you still can. I think you should buy term and invest the difference.

Yes, if the insurance agent is any good he or she will manage to make you feel lousy about it. Tough it out.

(By the way: if you're in a state where SBLI does business, check out SBLI. And if you happen to live in Wisconsin, check out the Wisconsin State Life Fund: you can only get $10,000 worth which hardly seems worth the effort, but believe me it is by far the cheapest $10,000 worth of term insurance you'll ever see).

But all that happens if you buy whole life is you've gotten suckered into a not-so-good deal when you could have done better. It's not as if you'd been swindled out of your money and gotten nothing in return. The insurance companies do take care of your money and your beneficiaries do get it in the end. My wife's mom is living off her husband's whole-life policy right now. Do I wish they'd done something different? Yes, I do. But a whole life policy is way better than no savings at all.

[BrandonSi]

Again, thanks so much for all the valuable insight.. We're wondering about one more thing.. We want to get the term insurance, but our agent said something about converting term into whole.. That seems like a good way to get some equity out of term premiums that would otherwise be lost when the policy is dropped after a given time period. Does that make sense, or is that another sales "technique"?

[nisiprius]

P. S. If you get a little bit of term insurance at work that's a nice little benefit, but if there's an option to buy more, don't take it. You do not want your term insurance to be tied to your employment, and the deals you get are not particularly good.

[nisiprius]

Again, thanks so much for all the valuable insight.. We're wondering about one more thing.. We want to get the term insurance, but our agent said something about converting term into whole.. That seems like a good way to get some equity out of term premiums that would otherwise be lost when the policy is dropped after a given time period. Does that make sense, or is that another sales "technique"?

I don't think it makes sense.

I'm 99% sure your term premiums are not "lost." The insurance will stay in force for however long you're paid. You get exactly what you pay for.

You may be able to "surrender" the policy and get back a part of the year's premium; if it's a "participating" policy you may even get back a bit more than that.

It's whole life, not term, that has all sorts of potential pitfalls involved if you try to cancel it and get a different policy.

Oh, by the way: do not let an agent get you into a mindset of thinking that you get "nothing" with term insurance. I've had term insurance for about forty years, just cancelled our last policy a few months ago. Yes indeedy, I've paid premiums all that time and I'm not dead. Does that mean the money was somehow wasted? Of course not. It's insurance, you buy it to cover things you hope won't happen, you want to waste the premiums!

[White Coat Investor]

I count buying a NWM Whole Life policy as one of the 4 worst financial mistakes I've made in my life. Buy term and invest the rest.

[Mel Lindauer]

Hi BrandonSi:

FWIW, I agree with the sage adivice you've received from the others. Bottom line: insurance is for protection, and investing is for accumulating assets. Don't mix the two, because, IMO, insurance is a lousy investment.

As the others have recommended, simply buy term and invest the rest. And buy the term from another agent.

Regards,

Mel

[BrandonSi]

Thank you all, I really appreciate the info. I'll definitely be sticking around the board and hoping to learn as much as I can. I can't tell you how glad I am that I found this place BEFORE getting that whole life policy!

[TimDex]

Brandon: This is an excellent forum; the replies to your query were first-rate.

You might want to read the two "stickies" posted by Laura at the top of this forum index. They are a good place to start.

Good luck. Tim

[mephistophles]

"Term Conversion" is a term used by insurance companies and agents which can be misleading, depending on the presentation of the concept.

Typically, if the agent tries to sell you a large whole life policy and fails they will recommend a term policy as a last resort. The commission is smaller but they have you as a client. After the first year or two they will recommend converting the term to some form of whole life. They then, replace your term policy for a new whole life policy at your attained age. You get the benefit of not having to go back through an application and blood test and the agent gets the benefit of a new commission on the whole life policy. This is great for the agent as they get paid twice and you end up stuck with a whole life policy that costs more, now, than it would have in the beginning, plus all or most of your term premiums are gone (not credited to the new policy) and you end up with a policy you don't need or want.

Recommend, again, that you move on to the type of agent I recommended above. If you cannot find a good agent you can learn a little and buy your term online, but you will need some kind of agent for D.I.

Regards,

ole meph

[Valuethinker]

P. S. If you get a little bit of term insurance at work that's a nice little benefit, but if there's an option to buy more, don't take it. You do not want your term insurance to be tied to your employment, and the deals you get are not particularly good.

That's an interesting counter intuitive point.

This is going back aways, but in my day in my first jobs in computers, our department sold Group Life and Health policies. Health wasn't so important (we pulled out of the US market because of rising costs, and we had state health insurance anyways). But Group Life was a great product for the customer.

The margins for us (as an insurer) were slim, but we did have the largest chain of retail stores as a client. The product (typically 3-4X employee annual salary as cover, and for execs 7X or something) was very good value for the employees (it wasn't even a taxable benefit).

I agree when one moves employer, that is lost. But for a typical father of a family of 2, whose wife doesn't work and has a need for 10X salary, it was a cheap way of getting 40% of the way there.

[rchrdshn]

I've had my VUL for 2 years now and have had doubts about it. After reading all the responses to the OP's original question, I am definitely looking for a way out. I did research in the beginning and had doubts about the policy but my agent said one thing that made me change my mind. PLEASE correct me if my agent isn't telling me the whole truth. She explained that when I die and my assets are passed down to my beneficiaries, the government cannot assess a death tax. Since death tax is around 50%, I should come out way ahead than with term and investing. Thank you in advance for any and all advice.

Rich

[Valuethinker]

I've had my VUL for 2 years now and have had doubts about it. After reading all the responses to the OP's original question, I am definitely looking for a way out. I did research in the beginning and had doubts about the policy but my agent said one thing that made me change my mind. PLEASE correct me if my agent isn't telling me the whole truth. She explained that when I die and my assets are passed down to my beneficiaries, the government cannot assess a death tax. Since death tax is around 50%, I should come out way ahead than with term and investing. Thank you in advance for any and all advice.

Rich

Rich

Do you have an estate large enough to pay estate duties? Because if you do, I question your need for life insurance *unless* you have a child or dependent who is significantly handicapped(+).

+ then you need a lawyer. The playwright Arthur Miller left $10m to his 3 children. However one has had Down's Syndrome. The State of Connecticut is now suing that son, for all the money spent caring for the child in the last 40 years, by the State. Miller failed to put the money into trust, a common device to avoid that problem.

[rchrdshn]

Thank you for the response Valuethinker. My net worth is insignificant at this point, but my agent explained that my estate should be worth around $3 million by the time I pass on. In that case, if the tax assessment is in fact averted, wouldn't I want to invest in the VUL even though I don't need the life insurance part?? According to my agent, if I accumulate the $3 million any other way, my beneficiaries will get $1.5 million less. I am a newb when it comes to financial matters so please forgive me if I'm not making sense in any way.

Rich

[Valuethinker]

Thank you for the response Valuethinker. My net worth is insignificant at this point, but my agent explained that my estate should be worth around $3 million by the time I pass on. In that case, if the tax assessment is in fact averted, wouldn't I want to invest in the VUL even though I don't need the life insurance part?? According to my agent, if I accumulate the $3 million any other way, my beneficiaries will get $1.5 million less. I am a newb when it comes to financial matters so please forgive me if I'm not making sense in any way.

Rich

1. I would think the death duty limit would be raised by the time you got there ($3m then is nothing like $3m now).

it's a really high quality problem to have, though, to die with enough money to pay estate duties .

2. I dislike intensely anything to do with mixing investment and insurance.

Insurance is for protection. You need, basically, protection on your life which you can buy with cheap term insurance. Protection on your income which you can buy with Long Term Disability insurance. Protection on everything else which you can buy the usual ways (property and casualty insurance). Protection you can buy relatively cheaply: term life is the least profitable product for insurance companies, and pays the lowest commissions to agents.

Now on the investment side, I dislike anything that pays a high commission (VUL) and where I can't see where the money flows are going.

I should stress I worked in the insurance industry (in information technology) a long time ago and I am not based in the US. But in my experience, the tax benefits never paid for the cost of the commissions.

You will find other people here really don't like VUL if you surf back through the threads over the last year.

[smithdad]

Not to hijack the thread, but I have a similar question...

I own a NW mutual policy that my dad bought me when I was an infant. The dividends on the policy pay for it so there is no immediate cost to me. There is cash value to the policy in addition to insurance. The cash value is about 14k and insurance about 55k (originally an 11k insurance policy but I am in my mid 30s). I can take a loan against the policy (if I wished to) at 6% as a built in feature. I don't quite get it, but apparently they pay currently about 5.3% dividend still on funds loaned out which translates into an interest rate of 0.7% - man I wish there was a couple hundred grand here I could roll into a MMF...

If I cash it out now, I would have to pay income tax on the majority of the cash value (I am in 25% tax bracket). I really do not consider myself to "need" the extra insurance, but I guess it would help my wife and kid. Granted, I could get better returns than the policy, but we already max out Roth's, etc. This would probably go towards a house downpayment if anything.

The insurance agent has me convinced to keep the policy and allow the dividends to pay the premiums in that it is a good "property". I am dead set against buying a whole life policy for myself, but what about this one that I did not and am not going to pay for?

[BrandonSi]

Not to hijack the thread, but I have a similar question...

I own a NW mutual policy that my dad bought me when I was an infant. The dividends on the policy pay for it so there is no immediate cost to me. There is cash value to the policy in addition to insurance. The cash value is about 14k and insurance about 55k (originally an 11k insurance policy but I am in my mid 30s). I can take a loan against the policy (if I wished to) at 6% as a built in feature. I don't quite get it, but apparently they pay currently about 5.3% dividend still on funds loaned out which translates into an interest rate of 0.7% - man I wish there was a couple hundred grand here I could roll into a MMF...

If I cash it out now, I would have to pay income tax on the majority of the cash value (I am in 25% tax bracket). I really do not consider myself to "need" the extra insurance, but I guess it would help my wife and kid. Granted, I could get better returns than the policy, but we already max out Roth's, etc. This would probably go towards a house downpayment if anything.

The insurance agent has me convinced to keep the policy and allow the dividends to pay the premiums in that it is a good "property". I am dead set against buying a whole life policy for myself, but what about this one that I did not and am not going to pay for?

Hey smithdad,

I started the thread, so I'm by no means an expert, but this seems to be pretty cut and dry. Since your dividends are paying your policy premium for you, the growth rate of that "good property" is pretty small. If you were to cash it out and get the 14k (ok, minus the 25%, so ~ $11,300) and invest that into a vehicle that returned 5% annually, it looks like it would take about 30+ years for that amount to reach the $55k payout value. An investment returning 8% would take ~ 20 years. So you're looking at age 50-60 for a break-even point on taking the money out, not considering taxes on the back-end. Tough call, but I would assume you might want that money liquid, or for retirement, rather than tied up as a death benefit in life insurance at that point.. but I don't have kids, so for me that's a wild-card there.

[Eric]

She explained that when I die and my assets are passed down to my beneficiaries, the government cannot assess a death tax.

That is not correct. Life insurance normally counts as part of your estate for federal estate tax purposes. There are steps you can take to avoid that, but this requires careful planning.

[Eric]

According to my agent, if I accumulate the $3 million any other way, my beneficiaries will get $1.5 million less.

The federal estate tax exemption for 2007 is $2 million. That amount is scheduled to increase to $3.5 million in 2009. In theory, the exemption will fall back to $1 million in 2011 upon expiration of prior tax cuts. However, I think it's fair to say that most people don't expect that to happen. Without getting too deep into politics, I note that Hillary Clinton has indicated she is comfortable leaving the exemption at the 2009 level.

[Live Free or Diehard]

If I cash it out now, I would have to pay income tax on the majority of the cash value (I am in 25% tax bracket).

If you haven't already done so, I would call the life insurance company and ask them to calculate the cost basis of the policy and the guaranteed cash value. The guaranteed cash value does not include the accumulated dividends (which are return of your unused premium). Each year's annual premium actually reduces your cost basis. The difference between the guaranteed cash value and the cost basis is the amount that would be taxed if you surrendered the policy. You may be surprized that there is no taxable amount. If it we me I'd call the life insurance company directly and skip the agent.

If you still have a large taxable amount and you don't want the policy anymore, and you don't want pay taxes (at this time) by surrendering the policy there is another option. You could always do a Section 1035 exchange from the life insurance policy into a low-cost Variable Annuity (like the Vanguard Variable Annuity). Your cost basis from the life insurance carries over into the Variable Annuity and taxes are deferred until you distribute from the annuity. The total expense ratios (including mortality and Administrative expenses) on these investments are between .44 and .74% (which are higher than their regular mutual funds). Variable Annuities are generally not recommended here, but they can be a good way to get out of an unwanted life insurance policy and defer taxes. At least you wouldn't be paying the insurance preium from your dividends each year for unwanted insurance.

[bluemarlin08]

According to my agent, if I accumulate the $3 million any other way, my beneficiaries will get $1.5 million less.

The federal estate tax exemption for 2007 is $2 million. That amount is scheduled to increase to $3.5 million in 2009. In theory, the exemption will fall back to $1 million in 2011 upon expiration of prior tax cuts. However, I think it's fair to say that most people don't expect that to happen. Without getting too deep into politics, I note that Hillary Clinton has indicated she is comfortable leaving the exemption at the 2009 level.

Most of the experts in the field I know do believe it will fall back to the 1 million exemption. Very doubtfull any Congress is going to pass a new bill rolling back the exemption when we have the debts and deficits we are running, and it would have to be a new bill. We came very close to making permanet changes a few years ago but the Republicans, at the last minute added a crazy minimum wage increase that killed the bill.

[BrandonSi]

First of all, thanks for those who gave me some specific answers regarding the NWM Whole Life policy. I emailed the agent last night to cancel any further movements towards that policy, and I've got a phone call with him this morning. Knowing that he's a good salesman and probably has much more experience convincing customers to stay with them, than I do at trying to turn down the insurance, I've put together a list of talking points on why we don't want the whole life. Can anyone add any more points, or correct mine if I have them wrong? Thanks again everyone!!

Brandon

-------------
1 - We have no dependents, and don't plan on having children, thus we
really see no need for whole life.

2 - We've also seen research stating that close to a good portion of people who take out whole life policies end up cashing them in early, and we'd like to avoid that penalty, and better invest that money.

3 - I feel like NWM would pull in more than the expense ratio of a good mutual fund, and sticking with NWM has removed the liquidity option of the investment, which is worth a lot in its own right. (For example, a expense ratio is about 1.5% for a decent, actively managed fund).

4 - As far as the loan option, these days I think it's easier to get a home equity loan or a line of credit if we really need the money.

5 - I also don't feel that we make enough in the later years through the whole life policy to offset the costs we'll pay in the early years. Right now, we're going to focus on buying term, and investing the difference.

[bluemarlin08]

Brandon,
There is no need to do anything other than tell the agent that you aren't interested and you will call him back if you change your mind. These guys are goos enough salesmen to already have interested and contrasting answers to your objections.

[BrandonSi]

Brandon,
There is no need to do anything other than tell the agent that you aren't interested and you will call him back if you change your mind. These guys are goos enough salesmen to already have interested and contrasting answers to your objections.

Thanks! Unfortunately I do have to say a bit more to him, as they already have about $500 of ours they took as pre-payment of our first premiums at their "premier" rate. I'm pretty sure I didn't sign that $500 away, but I don't have a copy of anything Either way, it sounds like losing $500 is better than having gone through with that insurance policy.

[pkcrafter]

Brandon, while your arguments are certainly valid, the agent has heard them all before and he is trained on just how to respond. So, really, you will be wasting your time. You'll need to be direct. Just say you have researched the issue and this isn't something you are interested in. You do not have to, nor should you, explain the specific reasons, although the agent will probably ask to keep you in the discussion. Don't give him the opportunity.

One last point on life insurance. It's primary function is to replace lost income. When viewing it that way, it becomes clear that life insurance is most important when children are in the picture. Your maximum need for insurance will be in mid life, but many people can drop it later in life when the children are grown and the need drops. Many retired people are self insured when it comes to basic life insurance.

Paul

[Live Free or Diehard]

Thanks! Unfortunately I do have to say a bit more to him, as they already have about $500 of ours they took as pre-payment of our first premiums at their "premier" rate. I'm pretty sure I didn't sign that $500 away, but I don't have a copy of anything Either way, it sounds like losing $500 is better than having gone through with that insurance policy.

With Life Insurance there is a free-look time period. I think it's 10 days. After they deliver the policy you have 10 days to cancel the policy and thay have to return any money you paid them. If they give you any problem with the $500 tell them to issue the policy and then cancel it during the free-look period. If they refuse to issue the policy they have to return the premium you paid. It's illegal for them to refuse to issue the policy and keep the premium.

[pkcrafter]

Bluemarlin and I were posting at the same time. I did not know about the $500. However, I still agree with Bluemarlin that you want to avoid any discussion about your decision.

Paul

[nisiprius]

First of all, thanks for those who gave me some specific answers regarding the NWM Whole Life policy. I emailed the agent last night to cancel any further movements towards that policy, and I've got a phone call with him this morning. Knowing that he's a good salesman and probably has much more experience convincing customers to stay with them, than I do at trying to turn down the insurance, I've put together a list of talking points on why we don't want the whole life. Can anyone add any more points, or correct mine if I have them wrong? Thanks again everyone!! Brandon

Keep these points in your head so you'll know why you're doing it. Discuss these points with any significant others who'll be accompanying you so that he/she will know why you're doing it. Avoid discussing them with the insurance agent.

The mental trap is in thinking you are obligated to buy the policy unless you can win a debate with the agent.

Forget the talking points. Your basic approach should be "We're sure you're absolutely right, but we're doing this anyway. I'm sure we're being stupid, but we're doing this anyway. We understand everything you say and we agree with all of it, but we're doing this anyway."

It's your money. You can do what you like.

Every point you make, the agent will counter with some plausible-sounding, obfuscated half-truth, facing you with the choice of a) going along with the agent because you don't have an answer on the spot, or b) wasting time in further research until you understand the subtle problem hidden in the plausible-sounding, obfuscated half-truth.

(I characteristically make mistake b myself...)

[BrandonSi]

Thanks everyone.. I did have the conversation with the agent, and I made sure to take the whole life off of the table.. It's gone. No more talk about that. I mentioned refunding the premiums, and he said he'd be happy to do that, but he mentioned that the premiums NWM offered for 80 term and dropping it at year 30 might be cheaper than level term 30.. so I'm going to verify that on my own, and if it holds true, will probably go with NWM for term, but I already mentioned to the agent I very well might come back tomorrow and ask for the premium refund.

Thanks again

[bluemarlin08]

NWM term isn't competitive AND if you buy from this guy he will always be around like a bad memory worrying you to death to try and get you to convert to a permanent policy. Your business, I would lose this guy quick.

[Valuethinker]

Most of the experts in the field I know do believe it will fall back to the 1 million exemption. Very doubtfull any Congress is going to pass a new bill rolling back the exemption when we have the debts and deficits we are running, and it would have to be a new bill. We came very close to making permanet changes a few years ago but the Republicans, at the last minute added a crazy minimum wage increase that killed the bill.

Suggesting in the way of things, that the Republicans wanted to be seen to do something about it, but not actually do something about it (given the deficit, etc.). ie they knew attaching the minimum wage to the bill would kill the bill.

FWIW I think it will rise. The Democrats know that they have to raise it (Hilary Clinton as cited above).

[Eric]

We came very close to making permanet changes a few years ago but the Republicans, at the last minute added a crazy minimum wage increase that killed the bill.

I believe it was the other way around. The Republicans linked their estate tax legislation to a minimum-wage hike the Democrats wanted, in the hope of picking up a few Democratic votes. (The theory being that Democrats wouldn't vote against a minimum-wage increase.) The strategy didn't work, but arguably it was the Republicans' best shot. Without the minimum-wage provisions, they may have gotten even fewer votes.

[mephistophles]

Sorry to be blunt but you are either not getting the messages given here or have chosen to follow your own course of action disregarding the advice.

Put simply. In order to do the right thing:

---Can the agent and request a refund of your prepayment verbally and in writing. Do not continue underwriting. Stop the process, stat.

---Buy your insurance elsewhere.

End of discussion on my part.

ole meph

[BrandonSi]

Sorry to be blunt but you are either not getting the messages given here or have chosen to follow your own course of action disregarding the advice.

Put simply. In order to do the right thing:

---Can the agent and request a refund of your prepayment verbally and in writing. Do not continue underwriting. Stop the process, stat.

---Buy your insurance elsewhere.

End of discussion on my part.

ole meph

That was a bit harsh? I have followed the advice. We've stopped the underwriting process, and have already let the agent know that we're not interested in his services. We'll be looking for insurance elsewhere.

I guess I'll have to be more careful how I word things in the future. Sorry if I caused you to get upset.

[Laura]

Brandon,

I believe that Meph was referring to your comment

he mentioned that the premiums NWM offered for 80 term and dropping it at year 30 might be cheaper than level term 30.. so I'm going to verify that on my own, and if it holds true, will probably go with NWM for term

NWM and this agent are not looking out for your best interest. You should not be working with either one any more. Go find another insurance agent and get quotes online to see what works better for you. What we don't understand is why you are continuing to work with an insurance agent that tried to direct you into a product that is not suitable for you but gives them a nice commission. In your case, the agent is just as bad or even worse than the product they initially recommended.

Laura

[RoloRonnie]

Brandon:

I would recommend reading the Bogleheads Guide - it has a great section on life insurance.

And when looking for term - maybe try Accuquote (that's what I did) and compare rates before deciding on a particular ins company.

Just my 2 cents - I think both would be well worth your time.