Does Northwestern Really Outperform MassMutual?

[mikichan]

I am not too clear on how the dividend scale works, or how they use it to calculate dividends -- anyone care to explain? I do know it's not a 7% return on the cash value.

One thing that I did notice was that from 2003-2007, NML's dividend scale was higher than MM's by avg 50bps (don't know the div scale for NML from 2008-2011), so I'm wondering -- NML beat MM on dividend scale for so many years, and now it's slashed it's dividend rate to 5.85 to be conservative while MM's is still hovering around 7%.

 

[DHK]

I wouldn't worry about the dividend rate at ALL.

Most agents will tell you that "they have the highest dividend", etc.

It's all crap.

Dividends are a company's divisible surplus that is distributed back to policy holders. But there is a RANKING SYSTEM in place in CREDITING that dividend.

Better rated policies will get a higher dividend than standard or sub-rated.

Policies on the books LONGER will get a better yield than new policies just issued.

Just like a credit score, there are many other variables regarding the dividend.

Basically, don't use the company's dividend history and the expectation of getting a dividend as a deciding factor.



Have you been underwritten for either of these policies? Until you've received an offer, comparing illusions, or illustrations is POINTLESS until you have received an offer for coverage.

The better the underwriting (preferred vs. standard, etc.), the better your policy will perform.

 

[Chuckles21]

I am not too clear on how the dividend scale works, or how they use it to calculate dividends -- anyone care to explain? I do know it's not a 7% return on the cash value.

One thing that I did notice was that from 2003-2007, NML's dividend scale was higher than MM's by avg 50bps (don't know the div scale for NML from 2008-2011), so I'm wondering -- NML beat MM on dividend scale for so many years, and now it's slashed it's dividend rate to 5.85 to be conservative while MM's is still hovering around 7%.

One thing to consider is that MM's dividend interest rates are net of investment expenses but not net of some other charges, such as surplus contribution charges. (P.S. they contributed $534,922,000 to surplus in 2010 so it is no chump change to neglect)

NML's dividend scale interest rate is net of investment expenses, a portion of federal income tax, and a contribution to surplus.

What this means is that NML's declared rate is a truer rate already factoring almost all expenses where MM's does not factor all these in.

Yes NML has historically outperformed MM. Does this guarantee that they will outperform them going forward? No, but I would expect them to.

Here is a real world study published by NWM but not influenced or funded by them. It shows NWM has outperformed the field by a good margin historically (see attachment).

One other thing to think about is that in 2010 NWM had total ordinary only life income of $15,831,323,000 and paid out $4,527,758,000 in ordinary life dividends or 28.6%. In 2010 MM had total ordinary life income of $5,559,107,000 and paid out $1,189,649,000 in ordinary life dividends or 21.4%.

You tell me what company you would rather have long term.

 

[mikichan]

Have you been underwritten for either of these policies? Until you've received an offer, comparing illusions, or illustrations is POINTLESS until you have received an offer for coverage.

The better the underwriting (preferred vs. standard, etc.), the better your policy will perform.

There's no need for further underwriting with NML, because they were going to convert my existing W/L and part of my term into an ACL, using the age and class from when I first got the policies. I was in the top NML class.

I expect to be in the same class at MM, but underwriting results haven't come back yet.

 

[Larry Tew]

Of course, other than winning arguments with other agents and agents who pretend to be consumers, these numbers and crediting rates and direct versus non-direct ad infinitum mean less than zero to the people who actually matter... your clients and prospects.

 

[Chuckles21]

There's no need for further underwriting with NML, because they were going to convert my existing W/L and part of my term into an ACL, using the age and class from when I first got the policies. I was in the top NML class.

I expect to be in the same class at MM, but underwriting results haven't come back yet.

What current WL policy do you have and how long have you had it? I would think twice before replacing it, but would for sure convert the term.

 

[mikichan]

What current WL policy do you have and how long have you had it? I would think twice before replacing it, but would for sure convert the term.

98L 20K policy, 7 years.

I think if I convert the term only, though, it would be converted at my current age, not my age from 7 years ago. Whereas if I convert the WL, it would be converted at my age back then.

I might be wrong about that, but don't want to ask NML agent. I feel bad asking him for all the quotes and then not going with him.

 

[mikichan]

When I asked my MM agent about a press release from NML "Northwestern Mutual Leads in Long-Term Value of Permanent Life Insurance", he said that because NML premiums are higher for the same face amount, therefore their cash returns would naturally be higher. That anyone can make stats speak for themselves, depending on how you manipulate the data.

My NML agent said that the numbers speak for themselves, and sent me a comparison with MM. Just not sure how to interpret it. NML's capital surplus is higher, but their surplus ratio is lower. Is that good or bad? Their investment yield is about the same. MM's expense ratio is higher (that's bad, right?). MM's mortality margin ratio is higher (is that good or bad)?

The NML agent also sent me a study of a 65L policy issued 30 years ago to a healthy 35 yo male, and the performance significantly outperforms MM, even after taking into account the premium difference.

So it does sound like NML does better. Just not comfortable with the lack of guarantees. Plus, NML agent is recommending an ACL with minimum life and high additional premium to buy PUAs. MM agent says that MM policy blows NML out of the water b/c it's a higher WL face amount from the beginning.

My (really tiny) 20K NML WL policy has been performing a little better than guaranteed, but not similar to illustrated. Of course, when I bought it, NML's dividend rate was hovering around 8%, I think, and dividend has been going down ever since (general industry trend, it seems, so not NML's fault). So I'm a little gun-shy about both companies.

 

[Chuckles21]

When I asked my MM agent about a press release from NML "Northwestern Mutual Leads in Long-Term Value of Permanent Life Insurance", he said that because NML premiums are higher for the same face amount, therefore their cash returns would naturally be higher. That anyone can make stats speak for themselves, depending on how you manipulate the data.

Not true, I completely agree that NML is higher priced but the MM agent is wrong to say that this is the reason for higher cash returns. What you have to compare is the IRR (internal rate of return). What this does is show you how the dollars that were taken in performed. NML has a historically higher IRR than MM. In a nut shell if both policies would cost the exact same NML would still have had more cash than MM due to the higher IRR.

Look at the attachment and focus on actual IRR. The NML policy is 1.1% better than MM. So if both cost the exact same NML outperforms MM by over a percent.

My NML agent said that the numbers speak for themselves, and sent me a comparison with MM. Just not sure how to interpret it. NML's capital surplus is higher, but their surplus ratio is lower. Is that good or bad? Their investment yield is about the same. MM's expense ratio is higher (that's bad, right?). MM's mortality margin ratio is higher (is that good or bad)?

Ideally more surplus better, investment yield should be about the same (buying the same bonds in general). You want a lower expense ratio for sure and you want as low mortality as possible.

The dividend rate is only a portion of how the actual dividend gets credited. The other two components are mortality and expense charges. The lower these two charges the better dividend you get/better your policy performs. This is the reason NML has outperformed Mass. They have lower expenses and better mortality.

The NML agent also sent me a study of a 65L policy issued 30 years ago to a healthy 35 yo male, and the performance significantly outperforms MM, even after taking into account the premium difference.

So it does sound like NML does better. Just not comfortable with the lack of guarantees. Plus, NML agent is recommending an ACL with minimum life and high additional premium to buy PUAs. MM agent says that MM policy blows NML out of the water b/c it's a higher WL face amount from the beginning.

I wouldn't focus to hard on the guarantees. Both companies have been paying dividends forever. I know they are not guaranteed but anyone that tries to tell you that there will be no dividends in the future is full of it in my opinion. NML has paid one every single year since 1872, not sure about MM but I'm sure it is a long history as well.

The NML agent is actually doing you a favor with the ACL mix if cash accumulation is your goal. In fact he is giving up commission to give you a better product (he hardly gets paid anything on the PUA's), plus it is a lot more flexible plan.

My (really tiny) 20K NML WL policy has been performing a little better than guaranteed, but not similar to illustrated. Of course, when I bought it, NML's dividend rate was hovering around 8%, I think, and dividend has been going down ever since (general industry trend, it seems, so not NML's fault). So I'm a little gun-shy about both companies.

This is to be expected given what has happened over the last 7 years since you took out the policy. Same thing would have happened with pretty much all the companies. It is still a good idea to do and no matter what company you choose they are both solid.

 

[Larry Tew]

These cherry-picked reports are not helpful nor are they truly 3rd party. If Mass Mutual had a die-hard desciple posting in this thread, they too would no doubt be posting their own cherry-picked pseudo-3rd party literature.