Financial advisor is encouraging me to sign up for perm life insurance with northwestern mutual as an investment. His charts look good, but most of what I'm reading is negative regarding this as an investment.

I'm 36, no kids. Max out 401K, 457.

I'm not really intelligent with financial stuff.

I've never been able to see value. To me, life insurance needs to be insurance. I'll handle investments on their own. Consequently I only pay for term life insurance.

I'm sure someone can sell it though.

My personal advice would be to take all of your money from your guy & run far, far away.

To answer your question... No, you don't want it.

Edited to add: You say you aren't intelligent w financial stuff. Why not try & change that? There are tons of books to read & good info online. Lots of bad info as well. Personally, I think www.bogleheads.org is really all you need to get you started. Look through the wiki & browse the forums. You will soon realize that investing & "financial stuff" isn't rocket science & can actually be very simple & straight forward.

/rant over

[This message has been edited by POW (edited 6/19/2014 9:52p).]

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My personal advice would be to take all of your money from your guy & run far, far away.

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Agreed! Sounds like you have a salesman on your hands. Some of the "best" advisors used to do stuff like sell used cars.

No, term life is all you need. Done.

Read up on fiduciary responsibility vs the suitability doctrine, regarding why he might be pushing a certain product. Maybe see if he is willing to answer the following:

If you earn commissions, approximately what percentage of your firm's commission income comes from?
___________% Insurance products
___________% Annuities
___________% Mutual funds
___________% Limited partnerships
___________% Stocks and bonds
___________% Coins, tangibles, collectibles
___________% Other: ________________________________
___________% Other: ________________________________
100 %

Perm life can make sense in some cases, but it doesn't look like your case (from the limited info). Cases where you would want to set up a trust for a special needs family member, or if you have a high earning couple (Doc, Atty, Sales etc...) maxing out all other tax deferred options AND still wanting further retirement\tax deferred options.

Also note usually the 'cash value' goes to the insurance company when you die. You just get the death benefit (same as term), minus any outstanding loans.

Lastly--if you change your mind down the line and realize you do need whole life, most term policies have a conversion option you can execute if needed.

Oh one more thing--what are the monthly premiums? I assume at least a few hundred bucks...if that's the route you want to go, why not shop around? If it's the same as a car payment, or comparable to something else you would research or shop around--why not this too? Insurance salesmen usually do NOT have people come to them requesting whole life insurance, so they would welcome the opportunity for your business. If you go through other advisers they might take the opportunity to advise against the first adviser (despite a very large commission for whole life), in an effort to get your business and the referrals for the same people who's information you passed along to the NW agent.

It can make sense, but it is heavily oversold to people who have no business having it, due to the high commissions they generate.

[This message has been edited by FinMick (edited 6/20/2014 12:05a).]

The answer to your question is that yes it sometimes can make sense. But not for you.

Permanent insurance in my experience is almost always used in cases where estate planning comes into play.

Or when a person has already exhausted all other tax efficient means of saving and want to set up a LIRP

Are you planning on having kids or do you have a bunch of debt? If not, why are you wanting life insurance?

There's the lightning rod we haven't seen for a few months around here!




It's like just about any other financial product; if purchased for the right reasons, from the right company, in the correct scenario, it can be a good thing to have in the portfolio. If bought for the wrong reasons, from the wrong company, in the wrong scenario, it can still have it's benefits, but your money will likely do better elsewhere.

If a person is in a relatively high tax bracket, has maxed out his other retirement buckets, and/or has a long term need on the insurance (like FinMick's example of special needs trust or Nac's example of estate planning) it can absolutely be a fantastic product.

The problem is too many guys in the insurance industry (Northwestern included) sell it to people that have no business buying it, or buy it before they should buy other things. I'm not saying that's happened to the OP, because he did say he's maxed his 401K and 457, but asking a few more questions of the adviser wouldn't be a bad thing. It may be perfectly appropriate for him to recommend it, or he may be trying to sell you something you don't need.....there's honestly not enough info in the OP to be able to tell clearly.


@FinMick, regarding the company keeping the cash value, one thing to keep in mind is that on most permanent life insurance policies (Universal life, whole life, variable life, etc) the death benefit grows over time. Very often, the growth in death benefit outpaces the amount of cash value in the policy for a number of years, meaning that if the insured dies, their heirs would receive a larger amount of insurance than they first purchased....often that larger amount exceeds the original benefit plus the cash value. Just food for thought. Otherwise, what FinMick said is pretty much spot on.

Personally, I don't care what percentage of income a firm makes on a certain product line. Some firms might have more of a niche market, or focus on one area of planning or sales over another....doesn't necessarily mean they're always wrong with selling a client something or recommending one thing over another; I think that's more of an adviser-to-adviser question. If I'm talking to a car salesman I know he's going to try to sell me a car. I expect him to get paid on it....I honestly don't care if they make more money at that particular dealership off of new cars, or used cars, or servicing, leasing to fleets, etc.



[This message has been edited by Stive (edited 6/20/2014 10:46a).]

Full disclosure, I derive about 15% of my income from the sale of life insurance (mostly business owned, estate planning focused, or 'gasp' the occasional accumulation focused policy.)

You aren't going to find that mainstream media or popular opinion favors the idea of utilizing the intentional buildup of cash value inside a LI policy because it's not a mainstream solution. Most people don't make enough money to necessitate further tax advantaged investing.

If you are indeed maxing out your qualified plan and the 457 then take POW's advice and educate yourself.

Fin made some good points but the part about the cash value going to the LI company may be true if you have a crappy policy and/or a crappy advisor but a good accumulation focused policy pays both the cash value and the death benefit out upon your death, to the exact dollar. I see this criticism a lot but it's completely untrue.

Lastly, whole life is a particular, somewhat antiquated type of cash value LI policy. For large mutually held insurers it's still their flagship product but the industry has evolved away from it. If you find yourself in a conversation with someone continuously referring to permanent/cash value LI as whole life, they either don't know what they are talking about or have an agenda.

Again, educate yourself. This is a big topic.

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Most people don't make enough money to necessitate further tax advantaged investing.

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AginKaty gets it.

And this comment is spot on. I'd say less the 5% of the population (maybe 3% or less) fit the need for the product in an accumulation market. It's definitely not a "don't ever do it" kind of thing....but it's not for everyone that's for sure.

Thanks for replies...

This indeed would be for further tax benefits and another way to invest. I max out 401K, 457, and still save about 10-15K per month. He is basically saying that it is a good option in my case, not in all.

The premiums are very high, to build up cash value sooner? 4K/ mo

I am a guy that thinks that you should leave lots of things up to pros, that is why I haven't spent tons of time researching on my own, but I basically don't know if I really need life ins without kids, debt, etc. I'm sure I know more than the avg person about finances, just not as much as a financial advisor.

Basically, does this make more sense than investing in market / real estate / etc?



[This message has been edited by Jrizzle (edited 6/20/2014 7:52p).]

Do you need life insurance? Sounds like that's a no. Would you benefit from the tax advantages of utilizing a cash value policy for accumulation purposes? Quite probable.

The entire concept is predicated on the idea that paying for the internal mortality costs of a life insurance policy are less than paying taxes on an alternative investment. It's just a math problem.

You almost have to ignore the death benefit because it's not applicable in your scenario. As a matter of fact you should be trying to buy the least amount of insurance for the most amount of premium. Heck, make Kevin Sumlin your beneficiary. Focus your efforts on the relative accumulation and distribution efficiencies. That's the point.

It should be easy to compare the concept to a non-qualified brokerage account with a high level of accuracy. You are going to have a harder time comparing it to real estate. Just too different.

I want to reiterate that whole life doesn't do this very well. It lacks to flexibility to keep the insurance costs suppressed.

Serious Q..why on earth do you think you need life insurance? To me that alone would be reason to get the hell away from this guy. If you don't need it, you don't imo, why is he selling it?

Don't want to brag, but I'm in a similar situation. If I died tomorrow would be a very nice payday for my mother. I've never thought of having insurance for when I die.

[This message has been edited by TXAGFAN (edited 6/21/2014 10:06a).]

This thread demonstrates how misunderstood the concept is. Probably in part by how poorly it's represented by starving financial professionals. And in part by knee jerk reactions to the words "life insurance."

He doesn't need insurance, probably doesn't even want it. Many that use it as an "investment" don't either. But it's a safe haven from otherwise nasty cap gains taxes.

Think about how a Roth works, taxation is similar. But no income or contribution limits. Really, think about that. It's unique. Nothing allows you to save thousands of dollars like that beyond "traditional" retirement accounts.

There are indeed some valid criticisms and concerns surrounding the use of life insurance for accumulation purposes, don't get me wrong but I'm afraid the point is being missed by many.

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Serious Q..why on earth do you think you need life insurance?

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I'm a part owner of an office building and my office isn't located within said building. I didn't need the building. Why on earth did my commercial real estate guy think I needed a building? Because it was a good thing to buy for my balance sheet, the ROI, diversity, tax benefits, etc. I don't regret for one second owning a building that I don't use/need.

Same concept.


First and foremost it's insurance. But just because it's insurance doesn't mean it doesn't have some other aspects that can be REALLY beneficial when the right product is bought by the right person for the right reasons and with the right expectations.

@ the Op....I'm in a similar situation as you. Retirement plans maxed, high tax bracket, so I dump a lot of money into a couple of insurance products similar to what it sounds like you're looking at. I've had one of them for about 13 years now and dollar for dollar it's been one of the best things I've ever purchased.

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Serious Q..why on earth do you think you need life insurance? To me that alone would be reason to get the hell away from this guy. If you don't need it, you don't imo, why is he selling it?

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And just out of curiosity, based on what the OP has stated in this thread thus far, how do you know he doesn't need life insurance? He said no kids, but he said nothing about debt, a spouse, a dependent parent, a business partnership......

Not trying to be a jerk, just curious about this presumption.



[This message has been edited by Stive (edited 6/21/2014 10:28p).]

I think the people above are in agreement is that it's generally not advisable. This doesn't seen like a guy who's a very sophisticated investor which is no biggie, lots of people aren't. Your comparison to real estate above is apples and oranges IMO also. Not going to get into anpissing match about whole life insurance so if you disagree with me...no biggie, whatever works for you.

[This message has been edited by Txagfan (edited 6/22/2014 12:53a).]

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Your comparison to real estate above is apples and oranges IMO also.

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Just curious.....how so?

You said if he doesn't need the insurance he shouldn't buy it and should run away from this guy. My point was simply that many people with excess money laying around after investing in the "normal" things (qualified plans, IRA's, etc.) buy things they don't need: gold, raw land, developed properties (both residential and commercial), limited partnerships....heck some are angel investors and private equity for businesses that they know nothing about. At that point it's not about the need for owning raw land to feed my cattle, or houses to house my family, or gold for jewelry, etc. It's about making a return in diversified markets/products/risks so as to grow net worth, create streams of income, hedge against risks, and utilize loopholes that lower tax burden. For many wealthy people, that's what the insurance is...it's a place to grow money in a tax deferred manor, that utilizes the market with some policies, or the pooled effect of the insurance companies portfolio with others.

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Not going to get into anpissing match about whole life insurance so if you disagree with me...no biggie, whatever works for you.

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I didn't mean for my post to come across as a pissing match at all. So if it did, my apologies. I was simply commenting about the "need" word. Overall I think this has been a fairly civil discussion (especially compared to life insurance discussions in the past on this board). Maybe I'm wrong, but I haven't perceived the tone to be mean spirited at all.

[This message has been edited by Stive (edited 6/22/2014 11:44a).]

I'm going to fade away on this topic but I want to say again that you should not refer to cash value life insurance as whole life every time, unless of course it is really whole life. The terms are not interchangeable. Its like referring to stocks as AAPLs. You can love or hate the stuff til the day is done but let's discuss in accurate terminology.

That said, despite the OP not stating specifically I'd place a small wager that NWM did indeed show him whole life.

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I'd place a small wager that NWM did indeed show him whole life.

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I know lots of guys with Northwestern Mutual, and you could probably safely change that to a large wager and come out ahead.

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you should not refer to cash value life insurance as whole life every time, unless of course it is really whole life. The terms are not interchangeable.

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Completely agree, but good luck explaining the differences or getting anyone to listen long enough to accurately weigh out the positives/negatives of the different kinds of cash value policies. Most people around here know little-to-nothing about how permanent insurance works, much less that there are different kinds of permanent insurance policies.

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I'm going to fade away on this topic

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Stick around! I, for one, have enjoyed your thoughts on this thread. You seem level headed and seem like you know your stuff; this board needs guys that are in your field to weigh in on the question/answer threads about planning and the financial world. It gets really busy from time to time in here but can also be a graveyard for certain stretches.

It's good to have you around!




[This message has been edited by Stive (edited 6/22/2014 11:57a).]

I can't make a habit out of posting or even reading the B&I board. It drives me crazy. I'm mad at myself for chiming in here because I don't think it accomplishes anything other than raise my blood pressure.

There is a big difference between personal opinion and professional reccomendation. Ethically and legally. But that doesn't stop people from dispensing advice as if it were gospel. The irony is we (as licensed advisors) can't and wouldn't make a declaration one way or another in a public forum. If I can share some generic info that may be of use to someone then I will but I fear I'm just going to be shouted down. Perhaps I should try a less polarizing topic.

I do love the spirit of this board though. I make a living helping people with financial matters but also see a glaring need in general for Americans to better educate themselves. I applaud those that are financial DIYers.

Depends.

Wow. Just checked this after a couple of days absent. Good replies. Quite polarizing.

I appreciate the replies. I feel as if I don't need life insurance. I have no kids, no wife, and net worth above zero. I think I'm leaning towards holding off for now and asking my FA about other investments.

If you're maxing out the 401K and are simply looking for another tax-deferred vehicle, try maxing out an IRA too before getting a perm life policy. If you still think you need insurance, at 36 with no kids term would make the most sense because the idea is that by the time term is up you don't need the insurance anymore. A 20 or 30 year policy would put you at 56 or 66 and hopefully by then the things you were insuring aren't an issue(paying of mortgage, debts, maintaining lifestyle for those left behind). The guy is probably pushing perm because the premiums are higher which gives him a bigger pay day. His argument is once your term expires for you to get another policy the premium would be astronomical and with the perm the cash value could eventually cover the premium. Ask the guy exactly how he will get paid. As an FA myself, I have no problem telling my clients exactly how I get paid down to the dollar. Most rational people understand I don't run a charity and expect to be compensated for my services. They pay the cook and waiter to prepare and serve their meal at a restaurant. They pay their mechanic to fix their car and their CPA to do their taxes. If he skirts the question or gives a general answer, take everything and run. Or better yet, give me a call.

Some options that may work for you (I don't know your exact situation) could be a LIRP (Life Insurance Retirement Plan) or even an annuity. Just because you put money in an annuity doesn't mean you ever have to annutize it. In fact, I tell all my clients to never annuitize anything. As soon as you do that, you hand the money to the insurance company and it is no longer yours. However, those choices are expensive and come with fees and restrictions that must be heavily considered.

[This message has been edited by Willis (edited 6/27/2014 4:16p).]

Willis, I try to avoid confrontation on these boards but your post is truly awful. Really bad advice. I will break it down if need be but refrain from describing yourself as an advisor with posts like that.

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Willis, I try to avoid confrontation on these boards but your post is truly awful. Really bad advice. I will break it down if need be but refrain from describing yourself as an advisor with posts like that.

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I read it earlier and thought I'd ignore it but oh well. I agree with AginKaty.....

Willis reminds me of a Primerica guy trying to pomp his services to me when I was in the personal finance section at half price books. I'm not a financial advisor though.

Thanks for the clarifications regarding some of my misconceptions. My experience was anecdotal from a bad policy and a young hungry new college grad trying to make it, so I won't say he was bad...just trying to make it.

I was apparently asleep at the wheel - this one was fun!!

Yeah I've been wondering where you and CJS have been! Kept thinking you guys would stick your heads in here for a good laugh.

[This message has been edited by Stive (edited 6/28/2014 10:55p).]

oh how did i miss this.

Willis i want to take your bait so badly.

I am going back to the golf board.

Stive and Katyag- i appreciate you fighting the good fight. You must have 10x the patience i have. good people.

granted i am biased as i am in the business.



[This message has been edited by jrod05 (edited 7/1/2014 6:23a).]

Just out of curiosity, what line of work are you (op) in?

I think everyone posting on this thread with advice should post their credentials.

And what is a good credential? Some Mickey Mouse certification? An advanced degree? I think its pretty clear there are some good insurance agents out there and a lot of bad ones so do we judge based on that? That's just a pissing match with a bottomless bowl.

[This message has been edited by Txagfan (edited 7/1/2014 2:19a).]