Need help understanding whole life illustration

[mi2k]

I am considering a whole life policy for which I have received the following illustration from an NWM agent:


I have several questions that my agent has not been able to answer satisfactorily. I would appreciate if someone can enlighten me.

• The illustration assumes a 5% "non-loan dividend interest rate" for all years. Elsewhere I have read that NWM's 2020 dividend rate is 5%. Are non-loan dividend interest rate and dividend rate the same?
• I don't understand to what amount the 5% is going to apply to. If I multiply the annual dividend numbers by 20, the results don't match anything in the spreadsheet.
• How is the increase in cash value getting calculated? Is it related to the dividend?
• How is the guaranteed cash value set? Will this be the cash value if the non-loan dividend interest rate is 0% each year?

Thanks for your help in advance!

 

[Markthebroker]

I wouldn't do business with any sort of consultant where I had to double check his work with other people.

Shouldn't you be looking for a new agent that can answer your questions properly?

 

[Life Hawk]

Better question, are you looking at this as only an investment or are you trying to by life insurance?

Your agent needs to answer your questions, but you need to determine if this is really what you had in mind. Something tells me you and your agent may be looking at this from a different perspectives.

I can tell you right now, if any of my clients get on the forums to ask other agents to help explain what I'm trying to offer them... that is a sale gone bad.

 

[WMSG]

I have several questions that my agent has not been able to answer satisfactorily. I would appreciate if someone can enlighten me.

• The illustration assumes a 5% "non-loan dividend interest rate" for all years. Elsewhere I have read that NWM's 2020 dividend rate is 5%. Are non-loan dividend interest rate and dividend rate the same?
• I don't understand to what amount the 5% is going to apply to. If I multiply the annual dividend numbers by 20, the results don't match anything in the spreadsheet.
• How is the increase in cash value getting calculated? Is it related to the dividend?
• How is the guaranteed cash value set? Will this be the cash value if the non-loan dividend interest rate is 0% each year?

Thanks for your help in advance!

The simple -- and obvious -- fact that "your agent" cannot answer these specific questions is very critical here. That is truly the sole issue here. Being that he cannot answer the questions satisfactorily -- means that you truly need a new agent. This is not an indictment of the agent, nor is it criticism of the agent. He is who he is, he has his limitations, etc. That's it. However, not being able to answer these specific questions -- is however absolutely reflective of the fact that agent is limited in his knowledge, does not understand the product, and/or if he does, he simply cannot answer them satisfactorily. Either way, it is to your detriment. That's a problem. The purchase of life insurance is about client first. Period.

I suggest that you ask the agent to bring someone else into the conversation/discussion who can answer these questions satisfactorily, or else you will have no other choice than to find an agent who is more knowledgeable, and can better serve your needs, wants, desires, etc.

All the best.

 

[fed up]

Only posting the guaranteed portion, without the age of client and initial cash into policy, leaves too much information excluded for your question

 

[marindependent]

my agent has not been able to answer satisfactorily.

Case Closed - Find a New Agent.

 

[scagnt83]

I am considering a whole life policy for which I have received the following illustration from an NWM agent:
.....
I have several questions that my agent has not been able to answer satisfactorily. I would appreciate if someone can enlighten me.

• The illustration assumes a 5% "non-loan dividend interest rate" for all years. Elsewhere I have read that NWM's 2020 dividend rate is 5%. Are non-loan dividend interest rate and dividend rate the same?
• I don't understand to what amount the 5% is going to apply to. If I multiply the annual dividend numbers by 20, the results don't match anything in the spreadsheet.
• How is the increase in cash value getting calculated? Is it related to the dividend?
• How is the guaranteed cash value set? Will this be the cash value if the non-loan dividend interest rate is 0% each year?

Thanks for your help in advance!

If the agent cant find the answer, then never use them as an agent.

Your agent doesnt have to know everything, but at a bare minimum, they should be able to find out everything related to that policy.


However, if the agent is unable to answer this list of questions, they lack a basic understanding of how the policy/product works. Find a new agent.

 

[Life Hawk]

That?

I tell folks I may not know the answer to a particular question, but I do know where to find the answer.

We are not all knowing, but we should act professionally.

 

[mi2k]

My agent was able to provide me answers to the extent it was possible with help from NWM. There are some things that NWM does not make transparent.

 

[scagnt83]

My agent was able to provide me answers to the extent it was possible with help from NWM. There are some things that NWM does not make transparent.

That is not accurate. NWM most certainly discloses the answer to those questions. They are not even specific to NWM, they are basic facts about how a WL policy works... any policy. I smell something fishy about that answer.... these are basic questions that most any experienced agent would know. The internal experts agents have to reach out to at the company definitely know those answers.

And most of these questions are answered in the explanation section of the illustration they provided you. (most likely)

That means your agent has not even taken the time to fully read the illustration. Or, they are not capable of understanding what they read.
Not the kind of financial "professional" I would recommend utilizing.

That also means YOU likely have not read the illustration. The illustration is part of the legally binding policy contract if you buy a policy. Read it, all of it. The front "explanation of benefits" section explains how the policy works in detail.

Find an agent who is capable of answering your questions. Your questions are pretty basic. Inaccurate advice can lead to big issues for clients, usually monetary loses in these types of situations.... or "lost opportunity costs" of having money locked up in a product you dont want.

• The illustration assumes a 5% "non-loan dividend interest rate" for all years. Elsewhere I have read that NWM's 2020 dividend rate is 5%. Are non-loan dividend interest rate and dividend rate the same?

Yes, they are the same. In many WL policies, when a Loan is taken, those funds then receive a "Modified Dividend" (lower) until the Loan is repaid. It seems that is the case with this particular NWM policy. (I am not a NWM agent, nor do I currently know the exact specifics of their current policy line up. But based on the terminology used, it would indicate a different dividend is used for Loaned funds)

• I don't understand to what amount the 5% is going to apply to. If I multiply the annual dividend numbers by 20, the results don't match anything in the spreadsheet.

To give you a quick summary. The 5% is applied to the amount that is in the policy. However, the interest generated is used to increase both CV and DB. Plus there are internal expenses deducted. So the CV increase is not going to be exactly 5%, it is always going to be a percentage lower than the actual dividend.

To get technical (skimming the surface), the Dividend is applied to the "Net Amount at Risk". Which is the CV, plus an extra amount that makes up the total DB. For example, you could have $50k in CV, and $100k in DB.... but the internal breakdown is really more like $50k in CV and $50k in DB, which make up $100k Net Amount at Risk.

To get even more technical, there are certain regulatory calculations being used that require the DB to increase a certain amount if CV grows too close to the DB. That, along with some other factors, affect distribution of the 5% Dividend. For example, it could mean more of the 5% Dividend has to go to DB that year vs. other years to satisfy that regulatory requirement. (agents Im talking about CVAT, not MEC)

• How is the increase in cash value getting calculated? Is it related to the dividend?
• How is the guaranteed cash value set? Will this be the cash value if the non-loan dividend interest rate is 0% each year?

Yes to both.

To get technical, the policy receives a guaranteed interest rate. This is what creates the increase in CV in the guaranteed illustration and ensures expenses are covered.

The Dividend is just what the company gives you above and beyond the Guaranteed interest rate. You will notice in the Guaranteed illustration that the DB stays level, but in the "current" illustration the DB increases. That is due to the Dividend being paid. Same goes for the CV increase above and beyond the guaranteed CV. The Dividend increases both CV and DB above guaranteed levels provided by the guaranteed interest rate.

(the guaranteed interest rate is usually not disclosed because the math behind it being applied to the policy is very complicated and more of an actuarial number. however, its usually around 4% if I remember correctly. it really doesnt matter, the guaranteed numbers are what they are and they are guaranteed. the CV increase is not going to be that, so it doesnt matter.... but you seem like a details oriented person.)

(also, be sure to request a "rate of return" page included in the illustration so you can see the actual % return you are getting. it usually does not run by default and the agent has to manually include it)