Author Topic: Should I liquidate this "Adjustable Complife" Life Insurance Policy?  (Read 2420 times)

GOFU

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Northwestern Mutual “Adjustable Complife” insurance policy. It is a combination of whole life and term life. It “pays” an annual dividend around 7%, which goes to increase cash value and death benefit.

Current death benefit is $200,000.

Current cash value is $36,446.

Annual premium is $3,780 ($314 per month)

As of this writing I have paid into this thing for 125 months (10.4 years) for a total premium outlay of $39,312.

Leaving aside the cringe-worthy opportunity cost of missed growth of these funds over this period, in strictly cash outlay I am down a net $2,866 on this deal.

But, I did have the benefit of the life insurance component over this time, which works out to about $23 a month, which isn’t the greatest deal but somewhere near the ballpark of reasonable for a term policy.

I expect NWM is nicking me on some kind of other fees and expenses I can’t see, so the cost is surely higher than this and most likely takes it outside the bounds of reasonable.

Absurdity: to terminate the monthly payments and still maintain the death benefit would reduce cash value by $185 per month!

The NWM death benefit component is not really significant any more. I am 50 years old with a wife and two toddlers. I am financially independent by Mr. Mustache standards. Current assets are 50 times annual expenses, and my family and I live well on about 35 percent of current income, so the financial rocket is still in the powered ascent phase. I have other life insurance with death benefits that total about 50% of current assets. In short, even without the NWM death benefit, the financial security of my family is fully insured/self-insured in the event of my untimely demise.

This is what I am considering:

Cash out the NWM policy and put the $36k cash value in broad-based Vanguard mutual funds as a lump sum, and continue monthly contributions in the same amount as the NWM premium ($314 per month). In 10 years, at 5%, I calculate the sum will be $109,196.

If at that point I stop the monthly contributions and just let it ride at 5% for another 25 years (at which time I will be 85 years old and likely not long for this earth), the sum will be $369,776. Much better than the death benefit of $200k.

The death benefit and cash value of the NWM policy would also increase during that time, but not nearly that much and at much higher cost.

In addition, the mutual fund investment money obviously comes with liquidity during my lifetime. But if I don’t touch it before I die then it will just go to my heirs the same way the NWM death benefit would have.

This Adjustable Complife product is a murky bog, and my past choices were perhaps not good. The idea of continuing to donate money to NWM annoys and embarrasses me. But what’s done is done. I want to avoid perpetuating/compounding a high opportunity cost.

Is the decision as easy and obvious as it now appears to me, i.e., liquidate this policy and otherwise invest? Am I missing something fundamental shrouded in the murky mist? Is there a tax issue that would clobber me?

Insights and references to reliable authoritative sources greatly appreciated.

KungfuRabbit

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #1 on: January 27, 2018, 04:04:29 PM »
No tax bills  on losing money (and no, it's not a loss either for a write off)

Do you just need someone to tell you it's ok?  You obviously know from a math standpoint it's a waste of money.

GOFU

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #2 on: January 27, 2018, 04:25:59 PM »
Do you just need someone to tell you it's ok?

Perhaps that's part of it. Reassurance. Comfort. Hand holding. Fuzzy cuddly hugs.

Supposedly there are some tax benefits to the accumulation of the cash value in this product. Perhaps the odds are slim but I am curious if any of the cash value if I take it out can be imputed to me as income.

Thanks for reading and responding.


CupcakeGuru

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #3 on: January 27, 2018, 04:51:41 PM »
Step 1. You already have 50x annual expenses and other life insurance
Step 2. Cash out policy
Step 3. Invest in index funds

This is a horrible product. I also had an universal variable life policy and finally woke up and cashed it out. Took a bath on it, but at least I stopped the bleeding.

GOFU

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #4 on: January 27, 2018, 07:57:35 PM »
Step 1. You already have 50x annual expenses and other life insurance
Step 2. Cash out policy
Step 3. Invest in index funds

This is a horrible product. I also had an universal variable life policy and finally woke up and cashed it out. Took a bath on it, but at least I stopped the bleeding.

Thank you. Maybe I am just looking for affirmation. I will take a loss but, as you say, stop the bleeding. 

lhamo

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #5 on: January 27, 2018, 09:06:10 PM »
I would cash out and put the money in a 529 for your kids, assuming you don't have money allocated for college already.

Chalk it up to a learning experience.  At least you didn't lose too much (as long as you don't start calculating what that money would have earned in an index fund over that 10 year period -- ouch....)

GOFU

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #6 on: January 27, 2018, 10:39:32 PM »
I would cash out and put the money in a 529 for your kids, assuming you don't have money allocated for college already.

Chalk it up to a learning experience.  At least you didn't lose too much (as long as you don't start calculating what that money would have earned in an index fund over that 10 year period -- ouch....)

Heh. In masochistic fashion I ran an opportunity cost calculation for that 10 year period. That stream of payments, at a meager 5% return, would be worth $50k today compared to the $36k cash value, a $14,000 difference in growth.

But it's not like I got nothing. I mean, the death benefit was always there had my family needed it. But a similar term policy for the same period would have cost me about $2,500, so the opportunity cost associated the NWM death benefit was $11,500 over those 10 years, which is like $92 a month. That's some expensive life insurance.

That's figuring at 5%. Shares in the Vanguard Total Stock Market Index Fund have more than doubled in value from 10 years ago to today. I'm not masochistic enough to calculate the value of the lost opportunity at that rate.

Learning experience indeed.

Thanks for the suggestion on planning for educational expenses.


Laura33

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #7 on: January 28, 2018, 09:25:12 AM »
Yes, it is that simple.  If you had that $36k in cash right now, would you give it to the insurance company to buy the same insurance today (assuming it would put you in exactly the same position you are currently in)?  If not, then get the hell out of Dodge.

IIRC, insurance payouts are not taxable.  But check with an expert.

GOFU

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Re: Should I liquidate this "Adjustable Complife" Life Insurance Policy?
« Reply #8 on: January 28, 2018, 11:56:59 AM »
Yes, it is that simple.  If you had that $36k in cash right now, would you give it to the insurance company to buy the same insurance today (assuming it would put you in exactly the same position you are currently in)?  If not, then get the hell out of Dodge.

IIRC, insurance payouts are not taxable.  But check with an expert.

Thanks. This thing has been like a rock in my shoe for far too long. Adios Northwestern Mutual.