by Guest » Mon Sep 20, 2010 11:43 pm
Please tell me if you think this is a good investment. I am considering purchasing a policy through Northwestern Mutual as a retirement supplement for me (if I need it) and for retirement for my 19 year old son. My son will be the insured, I will own the policy and be beneficiary. I will insure my son for 1.5 million and pay a total of $286,570 over the course of 20 years. The 20 year cash value will be $532,976 and if all goes well I won't need any of it. When my son is 69 the cash value will be $3,150,254, life insurance will be $5,314,080 and the premium outlay will have been $387,303. Please tell me if you think this would be a sound investment for my son's future.
Also, will this increase the value of my estate if I die and am still the policy owner? I plan on transferring it to him in around the 20 year mark. Thanks for your help. It looks like it could be a great thing to do for my son but I'm on the fence. Any advice is appreciated
Also, will this increase the value of my estate if I die and am still the policy owner? I plan on transferring it to him in around the 20 year mark. Thanks for your help. It looks like it could be a great thing to do for my son but I'm on the fence. Any advice is appreciated
Posted: Tue Sep 21, 2010 12:29 am Post Subject:
It may be good life insurance, but it isn't an investment.
It is a great thing for your son.
Are you dependent upon your son financially? I'm asking because with you being the owner and beneficiary, you will need to prove insurable interest. That may not be so easy, especially for $1,500,000 on someone who probably has no income and no net worth.
Posted: Tue Sep 21, 2010 01:05 am Post Subject: Insurance
My son is dependent on me, he's in college right now. My agent told me that he felt he could justify insuring my son for that amount because he is the sole beneficiary of my estate and will inherit my business.
Why do you not consider this an investment? After 20 years I would realize about a 5.5% return on my $ and have the insurance value. I know I could probably do better in the market but right now this return looks pretty good. From what I can see Northwestern has a good dividend history. Am I off base considering it a safe investment? Is it your opinon that I should view it more as a gift to my son rather then an investment?
If you can't tell, I am conflicted about going forward with this. Your opinons are appreciated.
Posted: Tue Sep 21, 2010 02:37 am Post Subject:
I'm asking because with you being the owner and beneficiary, you will need to prove insurable interest. That may not be so easy, especially for $1,500,000 on someone who probably has no income and no net worth.
As the mother, she has an inherent and statutory insurable interest right off the bat. This shouldn't be a problem.
As to the OPs concern:
Also, will this increase the value of my estate if I die and am still the policy owner? I plan on transferring it to him in around the 20 year mark.
No, it will not. The estate of the policyowner is increased only if that same person is the insured person, referred to as "first-party ownership." When you transfer ownership to your son, then HE will then have an estate problem in a sense as he will be in a first-party ownership situation. This will especially be true later in life as the death benefit/cash value increase as he ages. There are ways around this problem and with a policy of that size- you should consider some pro advice. Not sure if your agent can provide you with estate planning advice... don't know your agent.
While life insurance cannot be considered an investment in the pure sense of the word, it is definitely an investment in his future... if your intentions were to purchase the policy with HIS life and future as your primary interest. These policies are great ways to provide for kid's futures. Get 'em while the kids are young, it's a lot cheaper, your money has a lot longer to work, and there's no problems with insurability issues if the kids get medically checkered in their future. Just make sure you keep paying the premiums.
Finally- remember that policy dividends are NOT guaranteed. They can show you all the illustrations and projections they want, but they cannot guarantee the payment of policy dividends.
InsTeacher 8)
Posted: Tue Sep 21, 2010 03:03 am Post Subject:
As the mother, she has an inherent and statutory insurable interest right off the bat. This shouldn't be a problem.
It's the amount of coverage that I'm questioning. One can't buy $1.5 million on their adult child simply because they want to do so.
No, it will not. The estate of the policyowner is increased only if that same person is the insured person, referred to as "first-party ownership."
Huh? If I own a policy and I die, that policy is part of my estate. It doesn't matter who the insured happens to be.
Posted: Tue Sep 21, 2010 03:09 am Post Subject:
My son is dependent on me, he's in college right now. My agent told me that he felt he could justify insuring my son for that amount because he is the sole beneficiary of my estate and will inherit my business.
I want to preface this by saying that I don't know if your agent is wrong, but the logic makes no sense to me. Aren't you saying the following:
"My son is going to inherit a lot of money in the future. Therefore, I need to make sure that I get a big death benefit if he dies prematurely."
Insurance on you to benefit your son makes sense, but I'm missing the need on insurance on your son to benefit you.
Why do you not consider this an investment?
Maybe we're talking semantics. "Investments" are something that can lose value. This is a savings vehicle. However, I find that life insurance only makes the most sense if the primary purpose is to leave money behind at death.
Posted: Tue Sep 21, 2010 03:24 am Post Subject:
One can't buy $1.5 million on their adult child simply because they want to do so.
While this may be a true statement, I'm guessing NML will because their two principal Universal Life policy forms have $1,000,000 minimum face amounts.
From what I can see Northwestern has a good dividend history. Am I off base considering it a safe investment?
NML does not pay dividends on its Universal Life policies. What they state in their marketing materials is that you
benefit from the investments in Northwestern Mutual's general account. The cash value increases when you make premium payments and when interest is credited to the policy
Only when you look at any of their Whole Life materials will you find any discussion of DIVIDENDS. And although others delight in arguing the point with me in another thread, life insurance dividends are not like dividends from stocks, bonds, mutual funds, or credit unions. Those dividends are taxable, because they come from other people's money. Life insurance dividends are not taxable because they are a return of your own money on which you've already paid taxes.
As for the thought of life insurance and investment in the same sentence, that's another topic that leads to spirited discussion. According to the securities regulators, life insurance is not an investment, but it may have an investment component.
As InsTeacher stated, assuming that cash value does accrue over time in some relationship to the illustration you have been given -- the huge numbers you recite are in the NON-GUARANTEED columns -- it will not hurt you or your son.
Just remember that the reason life insurance was created as a product was to provide money that a person might not have otherwise accumulated for the benefit of those left behind when the person dies. Since that time, insurance companies have created a variety of product that they market in ways that sometimes obscure, or minimize the importance of, that fact.
It doesn't diminish the value of the products, it just causes some people to sometimes do things for the wrong reasons.
If you are comfortable with the product, the company, the agent, the amount of benefit, and the potential it represents, that's what matters.
Posted: Tue Sep 21, 2010 03:31 am Post Subject:
While this may be a true statement, I'm guessing NML will because their two principal Universal Life policy forms have $1,000,000 minimum face amounts.
When NML first started selling some UL, I believe that it was for policies with a minimum of a $250,000 annual premium! I don't know the scoop now, but I assume that it's still just designed for big cases. Regardless, based upon what the OP has written, this isn't UL, it is WL.
I don't know any specifics about NML underwriting, but I'd be surprised if they would write a policy on a child this large without a documented need. That being said, I wouldn't be that surprised.
Posted: Tue Sep 21, 2010 03:44 am Post Subject:
[[ I was busy editing my post above, when fakruavm slipped in ahead of me ]]
One can't buy $1.5 million on their adult child simply because they want to do so.
While this may be a true statement, I'm guessing NML will because their two principal Universal Life policy forms have $1,000,000 minimum face amounts.
From what I can see Northwestern has a good dividend history. Am I off base considering it a safe investment?
To the best of my knowledge, NML does not pay dividends on its Universal Life policies. What they state in their marketing materials is that you may:
benefit from the investments in Northwestern Mutual's general account. The cash value increases when you make premium payments and when interest is credited to the policy
Notice . . . not "when interest and dividends are credited to the policy."
Only when you look at any of their Whole Life insurance marketing materials will you find any discussion of DIVIDENDS. And although others delight in arguing the point with me in another thread, life insurance dividends are not like dividends from stocks, bonds, mutual funds, or credit unions. Those dividends are taxable, because they come from other people's money. Life insurance dividends are not taxable because they are a return of your own money on which you've already paid taxes.
As for the thought of life insurance and investment in the same sentence, that's another topic that leads to spirited discussion. According to the securities regulators, life insurance is not an investment, but it may have an investment component.
As InsTeacher stated, assuming that cash value does accrue over time in some relationship to the illustration you have been given -- the huge numbers you recite are in the NON-GUARANTEED columns -- it will not hurt you or your son.
Just remember that the reason life insurance was created as a product was to provide money that a person might not have otherwise accumulated for the benefit of those left behind when the person dies. Since that time, insurance companies have created a variety of product that they market in ways that sometimes obscure, or minimize the importance of, that fact.
It doesn't diminish the value of the products, it just causes some people to sometimes do things for the wrong reasons.
If you are comfortable with the product, the company, the agent, the amount of benefit, and the potential it represents, that's what matters.
But understand that Universal Life is not a buy it and forget about it product. It requires that you learn to read and understand the annual statement you will be sent, and how to react when the news is not what you expected. Universal Life policyowners have more responsibility for the performance of the contract than they may understand.
Such as what to do when a statement shows the interest crediting rate has been decreased, or when cash accumulation is being overtaken by the increasing cost of insurance. Without paying more money, to represent the lost interest credits, the illustration you had when you purchased the policy will be off track, and it would take a significant increase in the interest crediting rate to get back on track in the absence of higher premium payments. The longer the policy's cash accumulation is off-track, the longer and harder it is to get it back on track with interest credits alone.
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** I'm not convinced this is a Whole Life policy at all. How could anyone lead a person to believe a Whole Life policy will perform as indicated without intimating that dividends are guaranteed? I've never seen an illustration like that for Whole Life, at least not one prepared using insurance company software . . . I've seen some pretty interesting stuff drawn by hand.
Also, the other tipoff for me is the big difference in premiums from year 21-50 -- the first 20 years premiums are $286,570 ($14,328.50 per year) and the next 30 are only $90,733 ($3,024.43 per year)? Makes no sense to me at all. I wouldn't even expect a UL policy to work that way unless it was being heavily front loaded, which is appropriate for UL -- but most agents would never illustrate it that way, except perhaps to a corporate client.
And whole life doesn't work that way at all, except perhaps for a Modified Premium life policy with its one time change in premium, but with a huge reduction in premium like that, there is no way the policy could improve to $5.3 million in death benefit. Something is way wrong with this scenario if it's not UL.
So, I'll bet you $0.45 that it's a UL policy. Just wish we could get the OP to post more information about it. :D
Posted: Tue Sep 21, 2010 04:04 am Post Subject:
Max, you'll lose the bet on the product.
We can almost be certain that it's WL simply because it's Northwestern Mutual.
Don't let what the OP writes confuse you. I'm willing to be also that the premium didn't decrease. The premium outlay decreased. The illustration can be showing dividends paying premiums, etc.
I don't know what is being shown in terms of the illustration and, yes, the OP is talking as if the dividends are guaranteed and we know that they performance can be better or worse than what is illustrated.
When you combine the fact that this is NML along with the fact that consumers tend to not know exactly what they are talking about, it should be clear that this is WL.
Posted: Tue Sep 21, 2010 04:12 am Post Subject:
The illustration can be showing dividends paying premiums, etc.
I certainly don't mind losing the bet. At least we'll have the product in the open.
Until, then, what explains the huge increase in death benefit if dividends are paying premiums and not purchasing paid up additions?
As for NML and UL, the agency I last worked for as a policy and benefits analyst (before deciding to go back to the sales side as an independent) specialized in nonqualified executive benefit deferred compensation plans. Although NML was not the main carrier we used, we had a lot of NML UL policies in force with very large face amounts. Kept me busy requesting in force illustrations in order to complete my analytical workups.
So I wouldn't discount NML as a UL player. There are certainly bigger fish in the water, but NML is no slouch. They paid death claims promptly and efficiently, compared to some other well-known companies, and with an absolute minimum amount of fuss. I have no complaints about them at all. But this whole illustration is curious.
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