Whole Life vs. Universal Life

[Dave020]

NML is kind of like the Terminator of whole life. It is virtually impossible to kill off one of their perm policies. I tried, I could never get one to implode on it's own. Now, if you tried to do the old "use dividends to pay another policy premium" or took out loans, then naturally there was potential for adverse effect. But by themselves, the CompLife and EOL policies they have were designed to perform even at the guaranteed level. You would not enjoy those richer returns and great values under the corridor effect, but they would last out to age 100 with minimum performance. Very strong product line.

NML never had UL products and I believe the reason is exactly why their WL products are so strong. UL can be killed off.

 

[Newby]

Great info Dave!

I've never understood HOW dividends were actually figured on an individual policy. I knew it was the return of overcharged premiums if the company keeps expenses down and investments up in a given year but I could never follow how they figured the credited amount to each individual policy.

Begining cash value + premium - insurance costs = policy value then they multiply that value X the credited interest rate and subtract the year end cash value.

I actually understand that.

It is a little decieving though because to compare it to an actual "investment" return you would need to divide the dividend by the actual premium dollars you had actually paid (plus previously reinvested dividends) into the policy since day one. That would give you the actual rate of return on your money for the current year wouldn't it?

Um, I don't recall it that way with NML. I used to run a ton of CompLife and ExtraOrdinary Life illustrations back in the day and as I remember it, the base guarantee on the blended was always sufficient to at least maintain the total death benefit. At that time dividend was around 8.8% and base guaranteed column was I believe 3 or 3.5%. You'd end up with something like this:

Blended Plan $20,000 Base $80,000 Term $95/Mo Premium

Age Guaranteed At Current
40 100,000 100,000
50 100,000 125,000
60 100,000 225,000
65 102,500 312,000
100 210,000 750,000

I don't recall ever seeing or running a CompLife or EOL illustration that did not survive the guaranteed base crediting rate intact. I am talking about NML here, so it could be different with another carrier.
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Here is NML's explanation of how dividends are calculated and paid.

"For any policy year, the dividend is equal to the difference between the policy value at the end of that year and the guaranteed cash value at that time. Any paid-up additions in force for the entire policy year are included in determining the policy value and the guaranteed cash value."

It's all broken down here:

NMFN: LC, AL, LI, How We Determine Dividends

Also, NML is 6.5% for 2009.

 

[bluemarlin08]

Newby, your thoughts about it being somewhat deceiving are my thoughts exactly

 

[Newby]

Newby, your thoughts about it being somewhat deceiving are my thoughts exactly

I'm not negative against participating policies. If a dividend is going to be paid out, I'd rather have it go to my clients as policy holders than wall street. And I've seen great things from old participating policies when people do use the dividends to purchase additional paid up insurance.

BUT, when people throw around percentages without the clients understanding WHAT it is a percentage of...I don't find that to be good business.

If you just tell people they have paid out a 7% dividend, many will think you mean 7% of what they have paid in...similar to figuring interest on a CD.

But participating policies are a great thing. As long as people's expectations are realistic.