So my Mother-in-Law sold us a Northwestern Mutual Whole Life policy. Now what?

[bearkat]

Man, do I wish I'd found you guys about a year ago! Would have saved me a lot of whole lot of headaches, but alas, hakuna matata ...

My wife and I are each 24 and live in CA. We got married 9 months ago, and a couple months after the ceremony we got hit up by my wife's mother that we needed to get life insurance ... whole life insurance ... that she sells ... as an agent for Northwestern Mutual.

I didn't have the ability, knowledge, or guts to tell her "no". I'd only "joined the family" a couple months prior, and it didn't seem like the best first impression to refuse her. My mother-in-law is an incredibly nice person, and I'm sure she thought she was doing what was in our best interest, but it definitely felt awkward and forced.

Regardless we were able to talk her down from getting 2 whole life's (1 on each of us), and we compromised by getting a whole life on me, and a 20-year CONVERTIBLE term on my wife.

Some Details:

• Convertible term: $1MM death benefit, 20-year policy, $450 / year premium, able to convert to whole life during the first 10 years of the policy (in year 1 now). Unsure of the costs to convert, but I imagine very high.
  
  
• Whole Life: $1MM death benefit, $12,000 / year premium. This is one of those "over-funded" policies that supposedly seek to maximize the cash value portion of the product. Because of that, the premium payments will only last 20 years before it is paid-up, and the coverage will last until i die or surrender it. As far as "returns" go, the dividend rate was 5.6% for NWM policies last year, and essentially the entire "investment portfolio" is in corporate & US bonds, with small %'s in REITs, preferred stock, and "private equity".
  
  
  • The policy started in January 2014 when we forked over $12k. The current surrender value is about $10k. According to their illustration, we break even at about year 7, assuming constant 5.6% dividends (less costs/fees). That means that after 7 years, we’ll have paid $84k into the policy, then we can cancel the policy and get $84k back, but have missed out on 7 years of investment returns.
    
    
  Notes:
  
  • From my online reading in the last 6 months, it seems Northwestern Mutual is a decent company, as in not going to go bankrupt anytime soon ... (and with these premium payments, i should hope not).
    
    
  • From a tax-advantaged perspective: We're already maxing out my 401k, and two roth IRAs, not eligible for HSA, and my wife does not have a retirement plan at work until Jan 2015 when she’ll have a 403b.
    
    
  • We're saving 30% of our gross or 37% of our take-home income, if you count $12k / year for whole life as "savings". Shooting for FI by 45 (21 years away)
    
  
  Questions:
  
  • Anyone have experience with whole life insurance? What are your thoughts? I can provide more detail on my specific policy if it would help.
  • How should we proceed? Any recommendations? Do we keep it as is? Try to reduce the payment and coverage? Or just surrender it?
  • Anyone have experience with pushy salesmen as in-laws or family members?
  • If we choose to reduce or surrender the policy, that will definitely be a conversation I’m not looking forward to with the mother-in-law. Any tips on that?
  
  Thanks for any and all help!

[MikeBear]

1st rule: "NEVER buy a life insurance policy, that has a payout HIGH ENOUGH that somebody would think of offing you"...

2nd rule: You are very young, your wife can work and make an income? If so, she can continue to work if you should die. Or get married again and live off the next guys money. Therefore your life insurance policy doesn't really need to cover more than burying you, MAYBE paying off a house, and say a years worth of living expenses.

Imagine what $12k a year can do for you NOW, invested in something better. That's a lot of money for life insurance, and your mother in law should be ashamed of talking you into buying it. When it comes to money matters involving family, be VERY careful how you proceed. There be Dragons there!

Dealing with ANY pushy salesman, family or not: Keep the word NO! visualized in your mind all during any sort of talk or presentation, and have the balls to actually mean it. You can always use the weasel method: 'Ok, THANKS, we will talk about it and let you know"... Google the term "sucker list", and burn that into your brain...

[dandarc]

I have never bought whole life insurance.  Some quick Excelling based on having 10K today, then getting you a 20 year term to match your wife's - lets say you're spending 500 / year on this policy (you are young and presumably healthy - this might be a high estimate).  Let's say you can get 7% per year in your taxable account, you invest that initial 10K you get by surrendering and actually save the 11,500 per year you are saving for the 20 years till your whole life premiums would have stopped.

For the first 20 years, you're clearly way ahead - you've got 1,000,000 in insurance + the money in your investment account (remember in whole life, you usually only get the death benefit if you die, regardless of the amount of cash value).

Right when the term is up, you should have roughly 510K in your investment account - this is when you are 44.  You stop making the payments just as you would have with the whole life policy.  Now you've "only" got 510K - but remember you don't need this money - in the alternative case, it is tied up in an insurance policy any way.

10 years later, you're 54 and you've got your million dollars.

10 years after that, you're 64 - still quite young - and you've got 1.9million - almost double what your whole life policy would have paid.

10 years more, you're 74 - starting to get into the territory of life expectancy - now you've got 3.8 million.

If you make it to 84, you've got 7.6 million.

You get the point - you only "lose" in comparison to whole life if you die roughly between 44 and 54 - statistically that is pretty unlikely unless there is some unstated serious health concern.  But keep in mind you are going to be FI by this time if you embrace mustachianism - you really don't need any of this money we're talking about any way.

One reason you might consider keeping the whole life is if you don't have the discipline to actually invest the difference - I say might here because you're potentially giving up a whole lot down the road.  If you think you've got that discipline, buy term for now and bet on living a long time.

[MooseOutFront]

Thanks for sharing the details of your policy.  I wasn't every sure how the whole life policies worked.

My first thought is that you have way too high a policy on each of you for your age.  But maybe you're planning on having kids very soon?  Maybe you have family medical issues and have a legitimate concern about insurability.

I just priced a new 30 yr level term policy on my 34 yr old wife and $1MM was $384 per year.  No dividend bullsh or anything to worry about, just level term.  Her current $500k 20 yr term one is $243 per year was bought when she was 32.  Top health rating.

Financially speaking I think you're best off to cancel this thing immediately and take your $2k lump (both policies really, but the whole life one for sure.)  So far as how that plays on the family front... I can't say.

[Cpa Cat]

Cash out and chalk the $2000 loss up to a gift to your MIL. Most of it was probably her commission. They just aren't worth it. Get a term policy and move on. Just say, "We decided that a whole life insurance policy isn't right for us."

Shop around on your wife's term. I have the same level of non-convertible insurance as your wife (31/F) and mine is cheaper by about $100. And my premium got dinged because my father died at 54.

It may not be cheaper enough for you to bother cancelling it - but your wife is also younger than me - and presumably has less "family history", so maybe $150/year is worth it for you.

[gimp]

I get 2x my salary from my company, but it's something like $5/month of a taxable benefit. I'm considering canceling it. I sure as shit wouldn't pay hundreds a month.

[Joggernot]

Cash out and chalk the $2000 loss up to a gift to your MIL. Most of it was probably her commission. They just aren't worth it. Get a term policy and move on. Just say, "We decided that a whole life insurance policy isn't right for us."

+1
You MIL gets most of the money for the first few years as commission.  That's why they like to sell whole life.  Get the cheapest term you can find, if you think you need insurance.

[bearkat]

Thanks for all the quick responses!

1st rule: "NEVER buy a life insurance policy, that has a payout HIGH ENOUGH that somebody would think of offing you"...

I love that rule, Mike, I hadn't heard it before maybe I can use that in the reasoning with the MIL.

2nd rule: You are very young, your wife can work and make an income?

Yes, she can and does, of the $150k of our income, my wife's part-time job brings in $35K, but that should increase in January when she goes full-time at her company (also when she gets a 403b account).

Google the term "sucker list", and burn that into your brain...

Wow! So I googled and the Wikipedia page is certainly frightening ... "A sucker list is a list of people who have previously been successfully solicited for something" and results of being a sucker aren't too pretty. "The consequences for the victims may be devastating, ranging from further loss of their money,[4] and at worst, being forced to change their identity and even commit suicide." Thanks for the tip

[chasesfish]

Let me make sure I understand, you put 12k in and it has a cash value of 10k in year 1?  If so, consider it like you paid 2k for a $1mil term policy.  Not the worst price ever and you have the financial ware withal to just avoid pissing off the MIL and the wife.

The policy and the concept isn't terrible, but the commissions paid almos always make them a little painful to the policyholder.  It's slightly worse than using a taxable account for your investments.

[bearkat]

Dan, thanks for the analysis!

Right when the term is up, you should have roughly 510K in your investment account - this is when you are 44.  You stop making the payments just as you would have with the whole life policy.  Now you've "only" got 510K - but remember you don't need this money - in the alternative case, it is tied up in an insurance policy any way.

I think this is really compelling, and, when taken in its totality, might just be sufficient to convince the wife that we're united when confronting her mother. This analysis is leading me to believe that's a pretty straight-forward answer $$-wise, now I've just got to figure out how to handle it with our sales agent ...

[MikeBear]

Thanks for all the quick responses!

1st rule: "NEVER buy a life insurance policy, that has a payout HIGH ENOUGH that somebody would think of offing you"...

I love that rule, Mike, I hadn't heard it before maybe I can use that in the reasoning with the MIL.

If she hasn't already thought of that possibility, don't give her any ideas, lol

[bearkat]

Moose,

My first thought is that you have way too high a policy on each of you for your age.  But maybe you're planning on having kids very soon?  Maybe you have family medical issues and have a legitimate concern about insurability.

I too feel that the amount is a little high, but there were some (maybe good, maybe poor) reasons for it.

1) My dad has a heart problem that was discovered when he was in his 20s, not a life threatening issue, as he's perfectly healthy in his 50s now, but it is an issue for him to ever have life insurance. I could develop the same problem and not be able to get insurance in the future. Ergo, needed to get it now and at a high amount.

2) My un-mustachian MIL couldn't stand the idea of her baby not being taken care of in the event of my untimely passing. Believe me, I want my wife taken care if I die early too, no argument there ... but not everyone knows/like mustachianism, and thus "taken care of" can mean so many things.

Another note: kids are 3-5 years out at least. some days they are 10+ years away haha

[chasesfish]

I'd also say call in a year or two and just reduce the policy down to $100,000 or $250,000 and the dividends off the money in there will pay your premiums, then move on. 

To all the other posters, I've looked at these policies over and over, they're not bad after the first year.  It's the amount of the first years premium that goes to the agent that makes them awful.  If that's already paid and a sunk cost, keeping it or restructuring may be a better option.  These do have decent tax advantages for someone who is already maxing their retirement accounts.

[PeteD01]

You got one MIL to watch! But she may be just clueless (I'm trying to be nice and that doesn't come naturally to me, but I'm working on it)
Sell the damn thing and move on. Your explanation of what that policy is was already too much for me to read through - failed the first test right there.

Read the JH Collins stock series and the bogleheads wiki to educate.

http://jlcollinsnh.com/2012/05/09/stocks-part-v-keeping-it-simple-considerations-and-tools/

Edit: I don't want to come across too flippant but break even after seven years is not only a poor result but "break even" is not even a term I can put any meaning to when it comes to investing. Get out of this product and educate yourself about investing and get term life insurance for exactly what you need it for. Cancel, period.

[dandarc]

Moose,

My first thought is that you have way too high a policy on each of you for your age.  But maybe you're planning on having kids very soon?  Maybe you have family medical issues and have a legitimate concern about insurability.

I too feel that the amount is a little high, but there were some (maybe good, maybe poor) reasons for it.

1) My dad has a heart problem that was discovered when he was in his 20s, not a life threatening issue, as he's perfectly healthy in his 50s now, but it is an issue for him to ever have life insurance. I could develop the same problem and not be able to get insurance in the future. Ergo, needed to get it now and at a high amount.

2) My un-mustachian MIL couldn't stand the idea of her baby not being taken care of in the event of my untimely passing. Believe me, I want my wife taken care if I die early too, no argument there ... but not everyone knows/like mustachianism, and thus "taken care of" can mean so many things.

Another note: kids are 3-5 years out at least. some days they are 10+ years away haha

If you do decide to get rid of the whole life - be sure that you get the term policy in place first, then surrender the whole life.  And be sure to disclose this heart problem your dad has - most life insurance applications ask for family history generally meaning your parents / siblings.  You don't want to "forget" about this and then god forbid something happens and your wife's claim is denied because of insurance fraud.

Sounds like you guys are doing pretty darn well for 24 - keep this up and I bet you're FI well before that 45 target.

As a way to smooth this over with mom, maybe plan on putting the insurance savings into your wife's 403(b) when she's eligible - might be a 'feel good' to have her name on it and the insurance is really for her any way.  Heck go ahead and max that thing from the get-go - sounds like you'll be able to afford it.

[MooseOutFront]

Nice thing about a 403b over a 401k in my wife's case (state .gov 403b) is that it's available penalty free in early retirement.  Wish I had known that at 24. :)

[dandarc]

Nice thing about a 403b over a 401k in my wife's case (state .gov 403b) is that it's available penalty free in early retirement.  Wish I had known that at 24. :)

I thought the no penalty thing was a 457?  A lot of places have both 403Bs and 457s and you can contribute 17500 to each which is pretty awesome.

[MooseOutFront]

Nice thing about a 403b over a 401k in my wife's case (state .gov 403b) is that it's available penalty free in early retirement.  Wish I had known that at 24. :)

I thought the no penalty thing was a 457?  A lot of places have both 403Bs and 457s and you can contribute 17500 to each which is pretty awesome.

oh you right.  Got those mixed up.  So what I meant was that maybe there's a 457 available too. :)

[PeteD01]

I'm a mustachian and a Northwestern Mutual agent.  I've never registered on the site, but I had to, to respond to your post.  Your MIL did you a favor.   If you keep the policy, (which you should for many reasons) you will thank her in 20 years.   I could go on and on with all the reasons why, but just know this... If this was the worst financial decision you ever made, you will be very well off indeed.  You will have lifetime protection for your family, guaranteed returns and tax avoidance in a very highly taxed state.   I hope you man up and talk to her about your concerns instead of a bunch of anonymous bloggers, and arrive at an informed decision based on your own very personal circumstances.

I would appreciate that you would go on and on with the reasons why. We just happen to be sticklers for the details. And if you just come in here to let us know that we are a bunch of idiots who are not worthy of your efforts, then I would kindly ask you to fuck off and take your pitch somewhere else.

[MooseOutFront]

I would like to hear the details also.  It may even be possible that somebody in the highest tax brackets in CA may benefit, but I would love to see it.

[bearkat]

Thanks for all the replies so far guys. Puck I would be very interested to hear; feel free to PM if you like.

Chasesfish, I checked the policy when I got home today, and the surrender value is $9,400 now, so I was rounding up.

EDIT: fixed some poor English.

[PeteD01]

Thanks for all the replies so far guys. Puck I would be very interested to hear, feel free to PM if you like. I checked the policy today, and the surrender value is $9,400 now, so I rounding up.

Report back.

[bearkat]

I get 2x my salary from my company, but it's something like $5/month of a taxable benefit. I'm considering canceling it. I sure as shit wouldn't pay hundreds a month.

I'm definitely not the most mustachian individual here, but $5 for a little bit of life insurance seems like a good deal to me ... But I have a dependent (wife) and a mortgage

[bearkat]

Hi Bearkat,
My wife had to explain what PM meant.   I would, but don't know how.   This is my first ever blog post in my life.   I guess your mention of NML just happened to catch my eye.
  I admit I was hesitant, and for good reason.   The first reply I get is a guy telling me to fuck off.  Oh well, PeteD, guess what?   I'm not pitching anything.   Just offering a different (and way more experienced) opinion than yours. 

Every person's situation is different.    Taxes, income, expenses, health, goals, etc.  whole life is not the product for everyone, but it's not always wrong, either.   it does make sense, sometimes.   I know, based on your description, that your MIL designed the lowest load policy possible.  And Northwestern Mutual has historically provided the highest cash value RORs in the industry.   Period.   She is not ripping you off.  Im sure she wants you and her daughter to be financially successful and self-reliant.   

I'd be glad to share more details later and offer you a "free" although biased second opinion.   But it's late on a Friday night.   I'm winding down after three fingers of delicious Costco 7 yr old bourbon.   And I'm tired of thinking about insurance.   You'll be fine either way.  And if you do happen to keep it, it would be a reasonable price to pay to keep your wife and MIL happy.    I speak from experience.

Thanks for your insights, Puck. I'll post some more information about my situation later this weekend, and if you feel like sticking around, I would be interested to hear your thoughts -- and everyone else's too.

Before I do anything, I'll definitely test the waters with my MIL. As I said in the first post, I really don't think there was any bad intent. That said, she's not a frugal person, and I'm just becoming one, so I wanted to bounce the situation of the fine folks here.

[PeteD01]

The first reply I get is a guy telling me to fuck off.  Oh well, PeteD, guess what?   I'm not pitching anything.   Just offering a different (and way more experienced) opinion than yours. 

"And way more experienced" in what? Selling insurance? I'd happily concede that.
Stop blowing gas and tell us instead how whole life insurance could possibly benefit the OP compared to reasonable alternative strategies. Numbers please.

[MikeBear]

Hi Bearkat,
My wife had to explain what PM meant.   I would, but don't know how.   This is my first ever blog post in my life.   I guess your mention of NML just happened to catch my eye.
  I admit I was hesitant, and for good reason.   The first reply I get is a guy telling me to fuck off.  Oh well, PeteD, guess what?   I'm not pitching anything.   Just offering a different (and way more experienced) opinion than yours. 

Every person's situation is different.    Taxes, income, expenses, health, goals, etc.  whole life is not the product for everyone, but it's not always wrong, either.   it does make sense, sometimes.   I know, based on your description, that your MIL designed the lowest load policy possible.  And Northwestern Mutual has historically provided the highest cash value RORs in the industry.   Period.   She is not ripping you off.  Im sure she wants you and her daughter to be financially successful and self-reliant.   

I'd be glad to share more details later and offer you a "free" although biased second opinion.   But it's late on a Friday night.   I'm winding down after three fingers of delicious Costco 7 yr old bourbon.   And I'm tired of thinking about insurance.   You'll be fine either way.  And if you do happen to keep it, it would be a reasonable price to pay to keep your wife and MIL happy.    I speak from experience.

Thanks for your insights, Puck. I'll post some more information about my situation later this weekend, and if you feel like sticking around, I would be interested to hear your thoughts -- and everyone else's too.

Before I do anything, I'll definitely test the waters with my MIL. As I said in the first post, I really don't think there was any bad intent. That said, she's not a frugal person, and I'm just becoming one, so I wanted to bounce the situation of the fine folks here.

Bearkat, remember "sucker list"... You now already have a second insurance agent zero'ing in on you... Don't let the fact that he claims to be an agent cloud your judgment, due to thinking he has more experience, and is therefore 100% right.

Listen to people's input, but do what's best for YOU and your wife, once you are sure of what that is.

Here's the base: You only need enough insurance to cover you between now and your FIRE retirement. After that, you'll be self-insured due to having enough money socked away for your (or your wife's) lifetime at that point. The process of working and preparing for that goal will make your wife be able to weather that eventuality if it should happen.

[CanuckExpat]

I think you've already got all the advice you need, to sum it up:
"Buy term and invest the difference"

Second, consider whether you actually need to "buy" term or whether it is offered for free/very cheap through your employers.

[libertarian4321]

Look at the bright side.  Your mother and law is making a nice commission every month.  So she's less likely to move in with you. :)

[chasesfish]

Look at the bright side.  Your mother and law is making a nice commission every month.  So she's less likely to move in with you. :)

That's the reality here, $9400 to investments, $1000 for the life insurance, and a $1600 gift to his MIL. 

Hopefully she's returning that commission to you

[Cheddar Stacker]

….but it definitely felt awkward and forced. …..

First sign it was a bad decision. Also, EVERY interaction I’ve had with NW Mutual agents have felt forced and awkward, and I’ve had plenty in my line of work. (no offense intended Puck, but it’s true from all my experience with this company)

I'm a mustachian and a Northwestern Mutual agent.  I've never registered on the site, but I had to, to respond to your post.  Your MIL did you a favor.   If you keep the policy, (which you should for many reasons) you will thank her in 20 years.   I could go on and on with all the reasons why, but just know this... If this was the worst financial decision you ever made, you will be very well off indeed.  You will have lifetime protection for your family, guaranteed returns and tax avoidance in a very highly taxed state.   I hope you man up and talk to her about your concerns instead of a bunch of anonymous bloggers, and arrive at an informed decision based on your own very personal circumstances.

I would appreciate that you would go on and on with the reasons why. We just happen to be sticklers for the details. And if you just come in here to let us know that we are a bunch of idiots who are not worthy of your efforts, then I would kindly ask you to fuck off and take your pitch somewhere else.

PeteD01 – take it easy and remember the rules of the forum. Saying fuck off is no way to welcome someone to the forum on their first post. That said, I agree with the rest of the sentiment of what you said.

Puck, welcome to the forum. You say you’re mustachian so you’ve likely read here many of the reasons why we don’t much care for whole life insurance. You also should know as PeteD01 said that we are sticklers for details. So please try to enlighten us, just know we are skeptical and have already heard many of the reasons you were trained to give us.

…I'm not pitching anything.   Just offering a different (and way more experienced) opinion than yours. ….

...I'd be glad to share more details later and offer you a "free" although biased second opinion....

Bolded for emphasis. This is the problem here Puck, you are inherently biased and likely very skeptical of the arguments against whole life due to your line of work.


bearkat, life inurance can be a very good thing, but the thing I haven't heard yet is what you are insuring? Do you own a home? You have no kids, and you are 3-10 from having them. Your wife is an able bodied person and can take care of herself if she needs to. Insure for funeral costs, and if you own a home insure for the mortgage so she has a roof over her head, that's all you need. Then invest very heavily with everything you have.

By the time you have kids you'll be rich and won't need life insurance as shown so nicely above by dandarc. Re-think the whole thing, do what's best for you and have the courage to tell your MIL why, and the courage to not care what she thinks.

Good luck!

[frugaliknowit]

Dump it and buy competitively priced term.

[usmarine1975]

My perspective may differ from most that post.  My personal opinion is that a time does not exist in which life insurance is not a benefit to those you leave behind when you die.  We are all going to die at some point.  Funeral expenses climb and so do other cost as well.  Whole Life Insurance also transfers tax favored to your beneficiaries and by passes probate which has added expenses.  And any that have life insurance you should rarely ever have your estate be the beneficiary.  Lawyers like to recommend that so they can charge on the proceeds.  And any accounts that you have in which you can list a beneficiary should also not have the estate listed or left blank.  And updating them on a regular basis is also a good idea things change.

I would also add that only 2 % of term life insurance owners ever collect on Term Insurance. 

That being said I have almost 1 million in coverage but my break down is as follows.

100k Whole life  (permanent insurance)
670k Term 20 year
220 k VUL group (it made sense for me)

Someone above mentioned restructuring or lowering your benefit amount.  You can either do that or replace it with a policy more in line with your goals and situation. 

I also carry a whole life policy on my son because as I stated I don't know what his circumstances will be and a whole life policy will always be in place as long as you pay the premium.  In 15 to 25 years the policy can be what is paid up.  But that depends on the dividends which can be changed.  There is no gauranteed dividend with these policies.

I am not generally a fan of the VUL's because they are sold wrong but if used properly they can be a good product as well.  I would use term for the bulk of your coverage.

I carry the insurance I do because I have rental properties with mortgages tied to them.  They are not my wife's dream.  How nice of me is it to die and stick her with the problems etc... that can come with something she doesn't want.  And yes they do cash flow.

I worked as a financial advisor for a Life Insurance Company for around 3 years.  I am no longer selling life insurance so my opinion is biased Just like any one's is on the forum.  We all have bias based on the things we see, read, etc...  I cringe every time I read about someone who has died early and the family has to ask for donations to bury them or to even help plan for the family that is left behind.  You are married with no kid's so it's not so much your issue but if you are planning to have kids in the future planning ahead is always a good idea. 

I was sold a VUL at the age of 25 I wish they would have sold me a Whole Life Policy, It would almost pay it's own premium with the dividends now and would be permanent for the rest of my life.  It's a personal choice to inure via a company or to self-insure.

Your mother n law hopefully bought you some nice gifts.

[Cpa Cat]

The question isn't whether this policy is a good whole life insurance policy. The question is: Is whole life a good choice for you?

Whole life is rarely a good choice for people. Especially younger people who can buy really cheap term insurance.

If you die young with term insurance, then you've paid much less for insurance than if you had a whole life insurance.

If you die old without insurance, then the 12k/year that you saved has easily grown to an amount that will cover your funeral expenses and then some.

The tax advantaged estate planning bonuses that come along with whole life are only worthwhile if you think your combined estate will be greater than roughly 11 million dollars (adjusted for inflation). If you think you and your wife will die with more than $11 million to leave to your heirs, then the scales tip in favor of whole life. But at that point, it's not because you're short on cash for your funeral expenses.

[Dodge]

Bearkat, remember "sucker list"... You now already have a second insurance agent zero'ing in on you...

Ha!  I was hoping Bearkat recognized this, good job pointing it out!

Why is it that in every thread about whole life insurance, someone comes out of nowhere (literally a brand new account) to defend it?  One thing always becomes clear in these threads...the only people who promote it, are the same people who profit from it's sale.  Everyone else says either:

"Buy term and invest the difference."

or

"HELP I BOUGHT WHOLE LIFE INSURANCE HOW THE HECK DO I GET OUT OF THIS?"

[Daleth]

I'll let others discuss whether keeping the whole life and cashing it in a ways down the road vs. getting term life is the best path, but I just wanted to pipe up to say that whatever you do, if you plan to have kids, don't underestimate how much insurance coverage you need on your wife. It's apparently pretty common for people to insure the main wage earner (usually the husband) for a decent amount but then to insure the stay-at-home parent (or part time worker/less intense career parent) for way less. A friend of mine lost his wife very suddenly when they had two kids under 10 and found out quickly just how much it costs to hire someone to do what she did (get the kids fed, ferry them around to school and doctors and activities, care for them after school while he was still at work, etc.). It is MASSIVELY expensive.

[Catbert]

I'm not an insurance agent and don't have whole life insurance.  (Actually at this point I have no life insurance.)  A friend who was a former life insurance agent told me that only a limited group of people should even consider whole life:

1.  Need life insurance
2.  High tax bracket
3.  Already maxed out all other tax advantaged accounts (IRAs, 401k, 357, etc.)
4.  Be able to consistently overfund the policy year after year.

I looks like you *might* meet these criteria so it may not be a bad option.  If you get a get a term policy and then become ineligible to get another one and then die shortly after the expiration of the term policy your wife will be glad you went for whole life.

I don't know enough about whole life to have an opinion as to whether this particular policy is any good. 

You and your wife need to be on the same page if you decide to cancel this policy.

[innkeeper77]

I find it interesting that you have posted this thread, as I am being aggressively hounded by a Northwestern Mutual rep. to purchase what seems to be the exact same policy. My wife and I agree that we want to proceed with life planning for the most likely outcomes, and we can deal with unlucky circumstances if they come up- since insurance is stacked in the favor of the company (assuming we do not die between 44 and 54) we will likely be better off without it. It is true that it would help in that unlucky circumstance, but since we are saving at what is a mustachian percentage, buying rental properties, and generally giving ourselves a stable passive income foundation, we are able to self insure. Also, the disability insurance they are also trying to sell us is less important each and every year as we get closer to FI....

[PeteD01]

I'm a mustachian and a Northwestern Mutual agent.  I've never registered on the site, but I had to, to respond to your post.  Your MIL did you a favor.   If you keep the policy, (which you should for many reasons) you will thank her in 20 years.   I could go on and on with all the reasons why, but just know this... If this was the worst financial decision you ever made, you will be very well off indeed.  You will have lifetime protection for your family, guaranteed returns and tax avoidance in a very highly taxed state.   I hope you man up and talk to her about your concerns instead of a bunch of anonymous bloggers, and arrive at an informed decision based on your own very personal circumstances.

I would appreciate that you would go on and on with the reasons why. We just happen to be sticklers for the details. And if you just come in here to let us know that we are a bunch of idiots who are not worthy of your efforts, then I would kindly ask you to fuck off and take your pitch somewhere else.

PeteD01 – take it easy and remember the rules of the forum. Saying fuck off is no way to welcome someone to the forum on their first post. That said, I agree with the rest of the sentiment of what you said.

I agree that using a four letter word is not a good way to welcome someone to the forum on their first post. On the other hand, I did not really welcome the person to the forum in the strict sense of the word. I find it highly offensive when an insurance salesperson walks into a discussion, dismisses us as a bunch of anonymous bloggers and proceeds to congratulate the mark to their decision without even knowing anything about their situation except that the product was already purchased. But that is all that counts for the salesman, right? I'm working on taking it easy, but these guys don't make it easy.
I know the rules of the forum and I will therefore restrain myself from posting how I really feel about this.  :-)

[Dodge]

I appreciate your not telling me to F off, just because I did not offer specific numbers.   Funny.   I looked at peteDs posts and I do not notice any facts at all.   Just his opinion and a link to another post, like it is an absolute truth.

The numbers to support his position have already been detailed in reply #2:

http://forum.mrmoneymustache.com/ask-a-mustachian/so-my-mother-in-law-sold-us-a-northwestern-mutual-whole-life-policy-now-what/msg360288/#msg360288

Since you're making a claim against those numbers, the onus is on you to provide supporting evidence.  If Pete ran through the numbers again, he would just be repeating what has been repeated over and over and over again, in many threads on this forum over the years.  The insurance agents who come here, never use numbers to support their claim.  This is what we're waiting for.

[PeteD01]

I appreciate your not telling me to F off, just because I did not offer specific numbers.   Funny.   I looked at peteDs posts and I do not notice any facts at all.   Just his opinion and a link to another post, like it is an absolute truth.

The numbers to support his position have already been detailed in reply #2:

http://forum.mrmoneymustache.com/ask-a-mustachian/so-my-mother-in-law-sold-us-a-northwestern-mutual-whole-life-policy-now-what/msg360288/#msg360288

Since you're making a claim against those numbers, the onus is on you to provide supporting evidence.  If Pete ran through the numbers again, he would just be repeating what has been repeated over and over and over again, in many threads on this forum over the years.  The insurance agents who come here, never use numbers to support their claim.  This is what we're waiting for.

They can't make a case using numbers. The effect of whole life insurance on an individual seeking FI will virtually always be the simple combined effect of having investments in low risk low yield securities with a large fraction diverted into the coffers of the insurance company. The overall effect is a delay in achieving FI and that is the opposite of what this forum is about.

[Cheddar Stacker]

..As I stated earlier, it's not always right, but it's not always wrong, either.   

Agree. It's not one size fits all, just like everything else. But, I would say 90% of mustachians should have no use for a whole life policy. The ones that need it are the ones with $11M+ as cpa cat mentioned. I see no other valid reason.

People post a lot of "ifs" on this blog.   BearKat will be fine financially if he buys 20 yr term and doesn't die between 44 and 54.   But what if he does?   And what if he still has younger children, or his spouse had become disabled?   Then the loved ones he leaves behind might be screwed.   Again, I speak from very personal experience.   

He's 24 (ish IIRC) and he makes penty of money. He should easily be able to amass $100k in a few years, $250K in a few more, $500k a few more after that. If he (or she) dies at that point they would not be screwed, they would be more than covered financially. If he dies at 26 that's another story, but if you have no need for insurance at that point it really doesn't matter. A huge liability like a mortgage, or kids will drastically change his circumstances.

...But that is NOT what BearKat owns.     His is the opposite of that.  But I'm not sure how I can prove that to him and everyone else reading here.   Sorry.

1) How can it be a net benefit to him if it doesn't break even for 7 years?
2) I've heard this pitch multiple times so let me try to explain it from memory:

NW Mutual is the best because they pay such high dividends because the policy is invested in the company itself which is very profitable. It's better than nearly every other whole life policy out there.

Is that about right? Here's the problem - it can pay high dividends because it's invested in NW Mutual. But how is NW Mutual so profitable? My theory is becuase they sell so may of these policies that commissions are through the roof every year, therefore they can share some of those profits with the policy holders. Do you have a better answer?

But somehow, because he is bashing me and whole life, he gets a free pass from everyone else.   I'm turned off, just like in politics.    Because I live in an extremely liberal area of the country and I'm not.    It's Always "Free Speech!!" But Only as long as you agree with them.   

He does not get a free pass. I already scolded him once for his comment, and I'll gladly do it again if he or anyone else is inappropriate.

Also, he obviously disagrees with you completely, yet he asked you to continue speaking to justify your opinion. He's encouraging your free speeach despite the disagreement.

You and your opinions are welcome here anytime. Just be prepared to defend yourself with facts. It's ok if we disagree with them. Maybe you will teach us something we don't know.

[Kansaslover5]

This is one of my favorite threads. I don't know why but I really enjoy others debating insurance (annuities included). I find it amusing.

[PeteD01]

This is one of my favorite threads. I don't know why but I really enjoy others debating insurance (annuities included). I find it amusing.

It is somewhat entertaining. I didn't know much about the insurance industry until the Everest Wealth Management incident. That made me look into the subject. Up to then, I had just dismissed them because of poor expected returns.
Now I'm positively hostile towards this part of the industry. I was dimly aware that people were sold these products who didn't need them but it didn't bother me because people buy crap they don't need all the time. However, there is something different here. The issue is that the market for these products, when defined as the people who actually might benefit from them, is minuscule. And yet it appears to be a huge business. There is only one conclusion that I can draw from this and that is that the business model itself requires the products to be sold to people who do not need them. This is done by exploiting financial illiteracy and, as far as I'm concerned, this crosses the line.
A few months ago I was just mildly amused when an insurance salesman showed up in this forum. I just thought they took a wrong turn on the internet and accidentally ended up in a place where no suitable customer could possibly be found.
I've revised my opinion. The insurance sales force intentionally targets people who are at risk to be financially harmed by their products. In that sense, an insurance agent is not really out of place in forum where more than 90% of people have no use for their products.
The danger is that by giving them a pass on this forum is that we might bestow some legitimacy to these products which they do not deserve.

Edit: there is another post from Puck which again is short on numbers, and that is how it is going to go down, because that is how they are trained to do it.

[Dodge]

I appreciate your not telling me to F off, just because I did not offer specific numbers.   Funny.   I looked at peteDs posts and I do not notice any facts at all.   Just his opinion and a link to another post, like it is an absolute truth.

The numbers to support his position have already been detailed in reply #2:

http://forum.mrmoneymustache.com/ask-a-mustachian/so-my-mother-in-law-sold-us-a-northwestern-mutual-whole-life-policy-now-what/msg360288/#msg360288

Since you're making a claim against those numbers, the onus is on you to provide supporting evidence.  If Pete ran through the numbers again, he would just be repeating what has been repeated over and over and over again, in many threads on this forum over the years.  The insurance agents who come here, never use numbers to support their claim.  This is what we're waiting for.

They can't make a case using numbers. The effect of whole life insurance on an individual seeking FI will virtually always be the simple combined effect of having investments in low risk low yield securities with a large fraction diverted into the coffers of the insurance company. The overall effect is a delay in achieving FI and that is the opposite of what this forum is about.

Indeed.  Especially when you consider the class of investments where your money is stashed, I don't think this can be denied.

[PeteD01]

I appreciate your not telling me to F off, just because I did not offer specific numbers.   Funny.   I looked at peteDs posts and I do not notice any facts at all.   Just his opinion and a link to another post, like it is an absolute truth.

The numbers to support his position have already been detailed in reply #2:

http://forum.mrmoneymustache.com/ask-a-mustachian/so-my-mother-in-law-sold-us-a-northwestern-mutual-whole-life-policy-now-what/msg360288/#msg360288

Since you're making a claim against those numbers, the onus is on you to provide supporting evidence.  If Pete ran through the numbers again, he would just be repeating what has been repeated over and over and over again, in many threads on this forum over the years.  The insurance agents who come here, never use numbers to support their claim.  This is what we're waiting for.

They can't make a case using numbers. The effect of whole life insurance on an individual seeking FI will virtually always be the simple combined effect of having investments in low risk low yield securities with a large fraction diverted into the coffers of the insurance company. The overall effect is a delay in achieving FI and that is the opposite of what this forum is about.

Indeed.  Especially when you consider the class of investments where your money is stashed, I don't think this can be denied.

No, it can't be denied.
The key in evaluating the claims insurance agents make is to look at them from an investors perspective and to undo the conflation of insuring and investing. We already have some leads here from Puck's latest post. The interesting part so far is that the policy indirectly includes shares of the company which makes it sort of a private equity deal with atrocious conditions attached. It'll be interesting to get down to the numbers and how this squares with the simple rules of investing.

[rocklebock]

So here's my personal, anecdotal, possibly informative experience with Northwestern Mutual. In the late 2000s my ex-SO and I were solicited by one of their agents, who had been given our contact info by our mortgage broker. He described himself as a "financial advisor" and said he would meet with us to go over our financial situation, discuss our goals, and recommend a portfolio. Sweet! Ex-SO and I were looking for that kind of help at the time. I was in my late 20s, and had an OK level of financial literacy for my age in that I understood various kinds of investment vehicles and why one would contribute to one or the other. But I thought I would learn something from having an impartial third party review my overall situation. My SO was terrified of investing and vaguely opposed to the stock market on moral grounds. So he had tens of thousands of dollars in a savings account, plus a small inheritance that he intended to use for philanthropic purposes. We thought an advisor could help us come up with an investment plan for him, too.

We both go in for our initial meeting with the guy. He listened attentively as we described our various assets and debts, life goals, etc. We were super specific about things like not wanting kids, wanting to use the inheritance for philanthropy, etc. ER wasn't a goal of mine at the time, so that didn't come up. He discusses various directions we could go in, and makes some suggestions that were helpful at the time, but I now recognize as just garden-variety personal finance. He gives us an overview of NM, and discusses all their insurance offerings in detail. He says he's going to run some numbers and then we'll have a follow-up meeting where he presents us with a suggested portfolio. I'm a born skeptic, but my BS meter wasn't going off too much at this point, though I recognized he was obviously going to try to sell us something that he would make money from.

Second meeting was a few weeks later. Sure enough, he recommends that we buy the full-course menu of what NM has to offer, including whole life insurance. Also we should talk to our parents about long-term care insurance, and if we pass along their contact information someone in their area will follow up. His recommendations did not address any of the very, very specific things we talked to him about. When we asked "But what about how we're not having kids and we both work? What about the philanthropy thing?" he brushed it aside and kept pushing that what we really needed was lots of insurance. Ex-SO and I were very non-confrontational people and afraid of saying no to the nice, helpful man. But my BS meter was ringing very loudly at this point so I said we'd think about it and call him.

Ex and I talked about it, and I said I didn't think what he was offering met our needs. In fact, he hadn't even addressed our very, very clearly stated priorities, which I felt was just bad customer service, in addition to poor advice. So we said no, thank goodness.

Edited: Various typos, weird phrasings.

[PeteD01]

Thanks for posting this and I would like to encourage others to chime in with their experiences.

[brewer12345]

Hahahahaha!!!  You all realize that you are trying to teach the pig to sing in arguing with pfuck puck.  As Mark Twain said:

Never try to teach a pig to sing. It wastes your time and annoys the pig.

Insurance agents are trained salesbots and they have heard every counter-argument.  They have a slick half-truth to counter anything you say that does not result in you buying something that results in a gigantic commission being paid to them.

OP does not under any circumstances need a 1MM whole life policy.  His MIL screwed him, plain and simple (does that count as incest?  a threesome?).  Cancel the policy and stay the hell away from MIL on financial matters.  Stay away from all life insurance agents, for that matter.  And for Gawd's sake, stop trying to teach pigs to sing.

[usmarine1975]

Life Insurance is not an investment and it should not be considered such. I respect your wish to not have it.  And can honestly say that during my 3 years selling it that I never pressured or guilted someone into buying it.  I was honest and explained each policy and actually listened to my clients. Probably why I only did it for 3 years. Good and bad agents do exist. Look for the good ones and I don't mean the ones pretending they are wealthy or putting on a good show. And watch out for the "I would offer this to my mother" comments among other lines that are actually taught.  Do your research and do what's right for you.  Read every comment and consider its merit.  Both the nay sayers and the for.  The fact that you are asking the questions says a lot. Always ask more and never feel pressured or guilted into doing something. I sleep well at night.  Good discussion and good luck.

I appreciate the nay sayers comments it helps me keep a proper perspective and to re evaluate my own decisions.  Things do change and your plan needs to be rehashed.

[Cheddar Stacker]

Thanks for posting this and I would like to encourage others to chime in with their experiences.

Ok, I'll share another one. Part of rockelbock's story sounded like my story - the refer a friend pitch part.

So I met with a NW Mutual agent who was a friend/acquaintance of mine one day. After he realized I wasn't buying a single thing from him he proceeded to ask me to just go ahead and forward him the contact info of everyone of my co-workers so he could solicit them. And he was dead serious. I told him "um, yeah, that is not ever going to happen so don't ask again". I was dumbfounded. Who does that shit?