Whole Life Policy Review

[scatteredRubbish]

I was sold a a whole life insurance policy by a NWM agent about 8 months ago. After a little research I'm not sure if it's something I should hold on to or not and was hoping for some input from some experts. Here is a link to the policies illustration:

A little background on myself: I am 24 year old Software Engineer currently making ~65k and soon moving to a new position making 85k year. I am currently paying $300/month to fund this policy. I am currently contributing 5% to my 401(k), and will be upping that to 8% for the match at my new employer. My 401(k) and WL policy are currently my only forms of retirement savings (No IRA or taxable accounts). In addition, my new employer offers and HSA and ESOP. I also have ~24k in student loans that I pay 500/month to and also a car loan ~14k that I pay 230/month to. I am not yet married, though plan to be in the next ~2-3 years and plan to shortly be engaged. I also have no children. In addition, I am not sure if I necessarily value the death benefit of WL yet or not.

After some research on the web, primarily at /r/personalfinance and the boglehead forums (tried to take the advice with a grain of salt), I'm not quite sure a WL policy is in my best interest currently - though I can definitely see the benefits despite the harsh criticism.

Would it be more beneficial for me to drop my WL policy and contribute to a ROTH IRA and up my contributions to my 401(k) or ESOP and focus more on my debt?

 

[Newby]

I'll defer to the other agents to advise you on what you have. But I can tell you with 100% assurance that the main guys running the Bogglehead forum are extreme nut cases with an agenda.

 

[scagnt83]

What is the best car for your personal situation?

The accuracy of the answer to that is about the same as your question.

There is not one single car that is absolutely the best option for you. There are plenty of options that will likely fit your needs. You have to decide which features and options you value most in a car. Not all people value the same things or want the same things.
Investments are similar to cars. It's about what you personally want to achieve and how you want to achieve it.

If you like the features of a WL policy and feel it fits your overall goals then stay with it.

And from what I can tell from your attachment, the policy seems well enough designed but it probably isn't totally maxed out.

 

[DHK]

A couple of observations:

1) Why did you buy the policy in the first place?

2) This is a WL paid up at age 65, so there is an advantage there over a base whole life that you pay until age 100.

3) Why aren't you talking to your current agent about your concerns? Is there a feeling of a lack of trust there?

4) Ultimately, you would want to contact an agent and/or advisor that is licensed in Arizona.

5) Life insurance - especially WL - will never be cheaper for you than it is right now. I wonder if you could increase your contributions to the current policy to really maximize it? It's minimally funded right now. My personal litmus test is if you have 75% or more of your premiums paid as available cash value in year 5. Your illustration shows only 66% by year 5 (non-guaranteed column), so there's a little more room to really maximize it as a cash accumulation policy, but you may have to qualify again medically for the additional rider to do that. It's not bad as it is now, but it's not maximized.

6) Nothing says "I love you" to a fiance or spouse quite like having life insurance to feel safe & secure.

 

[LGilmore]

"I'm not quite sure a WL policy is in my best interest currently -"

As someone who has owned WL for decades I can understand your feelings. You're just getting started, somebody out there tells you it's bad and you should do something else. Yada yada yada. Whole is purchased for what it does for your whole life, not just currently.... You're 8 months into a product that works best when held for decades.

You've established a safe foundation to your financial plan, one with a locked in price, a safe return on your money, growth of the death benefit, with a quality company. "Currently" because it's so new there is nothing there.

That won't always be the case. What's the saying? it gets better. It definitely does. As a man in my mid 50's I am so glad I purchased WL in my 20's. In my 20's I was strong as an OX, active and feeling good. In my 50's I've spent the last 21 months with major health issues requiring so much hospitalization I expected a W2 from the hospital for last year. I am uninsurable at this time. Never saw it coming when I made my original purchases, I was a preferred risk, but I liked the idea of "owning" my policy as with WL, you own the policy. They can't change it on you.

How it became important later is when I first returned from what amounted to many visits to the hospital in these past 21 months I had no worries about my insurance going up in price or ending before I did. Of the many things I had to deal with, life insurance wasn't one of them. I did something smart in my 20's.

The other smart thing I did was purchase disability insurance.

There's going to be many things in life where you have to look ahead and not worry about only taking care of the "currently" in your life. You're off to a good start, you're going to do more and different things. Locking down your coverage costs now open the door for more things as you go.

There are people here who will explain it better than me. I just know I've owned WL for some time and it is the most boring product on the market. Why? cause it does what it says it will. It's consistent, which always pales against the "what ifs" because the "what ifs" don't actually have to produce and that's what makes them sound so good when compared to something that simply does it's job.

 

[scatteredRubbish]

A couple of observations:

1) Why did you buy the policy in the first place?

2) This is a WL paid up at age 65, so there is an advantage there over a base whole life that you pay until age 100.

3) Why aren't you talking to your current agent about your concerns? Is there a feeling of a lack of trust there?

4) Ultimately, you would want to contact an agent and/or advisor that is licensed in Arizona.

5) Life insurance - especially WL - will never be cheaper for you than it is right now. I wonder if you could increase your contributions to the current policy to really maximize it? It's minimally funded right now. My personal litmus test is if you have 75% or more of your premiums paid as available cash value in year 5. Your illustration shows only 66% by year 5 (non-guaranteed column), so there's a little more room to really maximize it as a cash accumulation policy, but you may have to qualify again medically for the additional rider to do that. It's not bad as it is now, but it's not maximized.

6) Nothing says "I love you" to a fiance or spouse quite like having life insurance to feel safe & secure.

1 & 3) My SO's uncle is a managing partner of a NWM branch, so I'm inclined to trust to him. I never set out to buy a WL policy and at the time of purchasing it I bought the pitch for it based on trust and feel somewhat uncomfortable questioning his advice.

2) I do like that it is paid up at 65, however I worry that if I encounter an emergency that exhausted our emergency fund I would miss payments and the policy would lapse.

5) Could you expand on how this works/what this means? How would I go about adjusting my policy to do such a thing?

In response to LGilmore: I definitely agree that I am biased in thinking "currently in life", I'm definitely not trying to jump the gun and make an irrational decision (which could be arguably how I ended up with the policy in the first place). My main concerns are that "currently in life" I don't particularly value the death benefit (I also have a term 80 policy for ~850k that can convert chunks to WL) and if because of that I'd be better of contributing to a IRA.

 

[1963]

First, I applaud your recognizing the importance of life insurance. Not many in your age bracket do!
There are probably some varied opinions you will receive from the forum. Here's mine:
Fundamentally, this coverage plan is likely to come in at values higher than guaranteed. It will accumulate a lump sum of cash value that can be used for various things from retirement income to establishing a trust fund. It is also well-designed, though it can use a little more funding.
It is paid up at 65; you don't pay anymore, and cash values will be almost $35 grand more than the amount paid (guaranteed column), not accounting for the time value.
Overall, I think it is solid enough that I would keep it. You will never be that young again! Don't know what health issues may arise later in life!
Talk to your agent for clarity and understanding of your coverage; seems to me you may be dealing with buyer's remorse. Don't beat yourself up!

 

[AboutThatLife]

I would keep it. If you want faster accumulation go for a UL. UL's are faster up front but the WL has the potential to grow like crazy in the later years. The biggest question is whether you want access to your money now or later?

 

[pfg1]

I think you did a great thing...kudos to you. I agree its probably not maxed out, but certainly a good policy. If we (collectively) as insurance agents and advisors could get more young people to understand the power of putting life insurance in place early, it would be a great thing.

If you look at your policy... after the first few years it is growing (cash value) by almost what your premium is. Good stuff. These policies just get better and better every year, and the great thing is...no worries about "what if". Obviously its an illustration, but lets say it plays out close to what it shows... at 65 you have a policy with $800k+ death benefit, and $400k+ in cash value - that you have no payment on from then on. Good stuff

 

[BNTRS]

This policy should have been designed and implemented differently if savings vehicle was the primary objective. Paid up at 65 at least mean's you'll accumulate slightly more cash than their 90 Life product. But Adjustable Comp Life was the product from NML that you really wanted for your intended purposes.

As far as where you go from here, I'd keep it if I were you (I have a serious bias towards insurance, though). Unfortunately, I believe you're stuck with the current policy as is unless you completely replaced it internally at Northwestern, might be worth considering nonetheless. But before that, I'd ask Northwestern about exchanging to ACL since you're inside a year (some companies allow this; some don't). Don't drag your feet, though, you've only got four months left if they say yes.

Thoughts about alternatives.

First, you can't make contributions to an ESOP. The company will make contributions on your behalf and you will accumulate company stock based on a formula they use from cash accumulated on your behalf and from forfeitures from non-vested employees who terminate employment. It's usually a great thing.

You might achieve a higher annual return on other investments in other savings vehicles, but you have to give some consideration to what you'll ultimately be able to do with that money. Just because you have a higher rate of return with one investment, doesn't mean it will generate more income (for example) than another. See this for more information.

On the 401k side, if available to you, I'd make Roth contributions to it. At your current and soon-to-be new income, I imagine income taxes are annoying, but still pretty tame. The $6,800/year tax deduction only saves you around $1,700, possibly less. You're likely to be far happier long term when not faced with an acrobatic tax feat to access money when you need it.