Northwestern Mutual...

response

When I searched for your consumer reports article I only searched for articles within the last two years. The advice is sound though! For most of the population they (consumer reports) suggest term to protect from an untimely death. It also mentions that whole life insurance provides estate and tax planning benefits for the well-to-do.

I interpret these well-to-do as those who are above IRA contribution limits, max out their 401k opportunity, and are saving 25% of their income. I can guarantee this is not majority of the population. I am arguing that if you do your homework and overfund your policy, life insurance is an option for certain people to consider if it is from the right company. I know… a lot of iff’s.

I am obviously defending whole life policies. However, I have not said that I think people reading this thread should buy one. I did say people who are currently saving 25% of their income should explore whole life insurance for their next dollar allocated.

Regarding the three Mutuals: I said, “My agent told me the only 3 companies to consider are New York Life, Mass Mutual, and Northwestern Mutual.” It seems like good advice since today's WSJ article, "The next big bailout decision: Insurers" explains how the stock life insurers are in trouble and requesting TARP funds, while mutual insurers like NML, NYL, and Mass are still strong with the highest possible ratings. I do not own New York Life nor have a seen a ledger for myself. I have seen New York Life policies in cases, and to an untrained eye they look like they preformed efficiently.

Of course consumer advocates suggest term for their audience. I love Clark Howard! For majority of people in the TOTAL population that is the correct product. I am not disagreeing with you.

I don’t think that 70% fact from Ramsey should be taken for true face value. However, I am not saying that whole life policies aren’t sold in situations that do not warrant them.

I would estimate that 75% of the insurance bought is for the middle class and up. So the people in lower half of the population, who should only consider term, are not buying any life insurance. If they are, it is at significantly lower levels so it has less impact on the over insurance universe. Additionally baby boomers are buying permanent insurance at increasing rates. Those people are leveraging a percentage of their nest egg towards premiums, so their wife or beneficiaries receive a bigger chunk of change at their death. In other words, they are buying permanent insurance for estate and tax reasons.

 

uw, my problem with this is that even if the true number of Whole Life policies sold is 50% (and I have heard 70% before from an agent used as a sales ploy), it will leave the vast majority of Americans badly-underinsured because only the wealthy can pretty much afford the premiums to properly insure using Whole Life. Again though, if Ramsey is wrong, it would be easy to shut him down with a lawsuit and no one has ever contested what he is using which pretty much tells me it probably is pretty doggone close to the truth. Furthermore, the RORs that Dave quotes for Whole Life (using Research from the Consumer Federation of American, Kiplinger, and Forture) is absolutely what I am seeing in the policies that I look at with people (actually, 2.6% is a little high for Whole Life from what I see when breaking these policies down).

Well-to-do, I think, would be multi-millionaires. The vast majority of Americans especially the middle and upper middle class need to properly insure through term, invest the difference by investing 15% of their income, and pay off all their debt and they will be properly self-insured and have no need of Permanent Insurance (unless they become very well-to-do and even then, I would agree with Ramsey that it is such an awful product that it would be better to invest in other areas like annuities or paid-for Rental Real Estate but at least it would make some sense in those situations). Thereby avoiding the atrocious fees built into the premiums and the awful RORs. This is NOT how it is sold and I know that from what I am seeing in my community/Church/Family as well as how it was sold to me. I am in an upper-middle class area and I see families vastly under-insured because these salesmen only wanted commission and didn't teach them about what they truly need and what is the purpose of Life Insurance. That's just wrong and it really bothers me.

 

I think we may have gotten somewhere

Any life insurance agent that does not recommended the proper amout of life insurance to meet the clients objective should loose their license.

If I client has $1,000 to allocate to life insuance, and an agent sells them 150k of permanent insurance instead of the 750K of term that they need to protect their familly; I have a major problem with that!!!

 

Brotha, we on the same page here.

 

70%

To clarify I am not suggesting Ramsey is wrong with the 70% number. He could very well be right. I am willing to accept that figure as fact.

I am saying that the middle, upper-middle, and upper classes are more likely to buy insurance than the lower classes. So I am suggesting that the figure doesn't help us conclude anything. Consider this- when taking our entire population; we could assume that the bottom 2/3rd's of our population should only by term insurance. But that doesn’t mean 66% or all policies sold should be term insurance. Because the upper 33% could be buying more policies than the rest of the population combined. Based on the amount of policies I see in a 3 man S-corp, this is very likely. The three main principals may own up to 30 policies combined.

I think it is important for people to know that you don't have to own all term or all whole life. I have seen policies that are made up of 900K term and 100k whole life. And many different variations. The most important thing is to have the right amount of coverage. I have seen "experts" suggest 7 times gross if you are married and 10-12 times gross if you are married with children.

Additionally, our main discussions have been around life insurance as an investment. I will go on record saying that this is not a good idea for the majority of the nation. However, I have taken that option and there are many hurdles to clear. First you have to pick the right company (there may only be one or two). Second, you have to have an agent that is willing to significantly cut his/her compensation (AKA over funding). Third, the tax advantages must be meaningful to your situation. Lastly, you must have significant cash flow and know that you are going to be keeping that policy for a minimum of 20 years before you ever need to touch the cash value.

Again, life insurance is not a good investment for most people. Get the proper amount of coverage first!! If you do feel that you have a permanent need for death benefit, then whole life might be an option. But please know that it isn’t an all or nothing. You can have a 100K whole life insurance policy with a 900K term companion.

I could see this as a common example:

Joe (32) and Beth (30) have three children Johnny (4), Jimmy (2), and Mary(1). Beth stays at home with the children and Joe makes $105k. They owe 130 K on their mortgage. Joe puts 10% of his income into his 401(k) with a 4% match. They also save 5% of their income in shorter term non-qualified investments (money markets, muni’s, etc). To cover their debt, final expenses, replace income and pay for some of the kids education; Joe needs an additional 1M dollars of coverage besides his group benefit. In further discussions Joe and Beth decide they would like to leave their kids at least 100K when they die side by side at age 87 and 85. In this instance I feel an insurance policy that has 300K of whole life insurance and 700K of term for would be a proper fit. Meaning if a couple decides they have a permanent need for a portion of their insurance it isn’t wrong to by a permanent product.

Chances are there could be a better place for those dollars. But that isn’t the point in this example. I feel Joe and Beth have decided that they are going to save what they need for retirement. They also want the freedom to spend down ALL of their retirement assets but still leave something for the kids. So I think whole life could have a role here.

 

uw, I see your example and would agree that there could be a place for it there. I would argue against it just due to how horrible these things perform but that's my own bias from looking at examples of these policies.

I will say that I get the sense that you think Whole Life is just being sold to the above average person and maybe that is who you primarily work with but I am telling ya man, it is being sold to the lower through upper middle class for a whole host of reasons: Paying for kids school, a great investment, protecting yourself against Estate Tax (like someone making $35K really has an estate problem in most cases). That's why that whole industry really annoys me. They hawk this stuff because of the commissions involved for them even knowing it isn't a good fit for most consumers. That's just wrong to me.