NW Mutal

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Don't be suprised if there is alot of focus on the cash value of permanent life insurance. Most NWM reps seem to build a financial plan centered around life insurance and not mainstream investment vehicles.

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Just finished my second meeting with the advisor and he did focus on the permanent life insurance. Of course he had nothing but pros for this plan:

-Its a policy owner company, no stock owners to pay out
-You can borrow against the life insurance or even take out a "cash value"
-There is a guarantee of around 6-7% return per year
-The premium never changes
-And it is a non taxable strategy

What are the cons of this plan?

Taken from Dave Ramsey's web site. Some may agree, some won't. But if many followed his plans, perhaps we wouldn't be where we are today as a country.

The Truth About Life Insurance

Myth: Cash value life insurance, like whole life, will help me retire wealthy.
Truth: Cash value life insurance is one of the worst financial products available.

Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. Do not invest money in life insurance; the returns are HORRIBLE. Your insurance person will show you wonderful projections, but none of these policies perform as projected.
Example of Cash Value
If a 30-year-old man has $100 per month to spend on life insurance and shops the top 5 cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20-year-level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100.

WOW! If he goes with the cash value option, the other $93 per month should be in savings, right? Well, not really; you see, there are expenses.

Expenses? How much?

All of the $93 per month disappears in commissions and expenses for the first 3 years. After that, the return will average 2.6% per year for whole life, 4.2% for universal life, and 7.4% for the new-and-improved variable life policy that includes mutual funds, according to Consumer Federation of America, Kiplinger's Personal Finance, and Fortune magazines. The same mutual funds outside of the policy average 12%.
The Hidden Catch
Worse yet, with whole life and universal life, the savings you finally build up after being ripped off for years don't go to your family upon your death. The only benefit paid to your family is the face value of the policy, the $125,000 in our example.

The truth is that you would be better off to get the $7 term policy and and put the extra $93 in a cookie jar! At least after 3 years you would have $3,000, and when you died your family would get your savings.
A Better Plan

If you follow my Total Money Makeover plan, you will begin investing well. Then, when you are 57 years old and the kids are grown and gone, the house is paid for, and you have $700,000 in mutual funds, you'll become self-insured. That means when your 20-year term is up, you shouldn't need life insurance at all - because with no kids to feed, no house payment, and $700,000, your spouse will just have to suffer through if you die without insurance.

Don't do cash value insurance! Buy term and invest the difference.

Sounds like you are at the early stages of your earning potential. Start with term and stay with term unless you have met the criteria I discussed earlier (IMO) When you are young and about to get married you generally have a huge need for insurance (Not Cash Value) If, down the road, your financial situation improves to where you are looking for ADDITIONAL ways to supplement your retirement you can convert either all or some of the term to permanent insurance (without any medical underwriting). REMEMBER...What is the primary reason one would buy life insurance?

There isnt a 6% or 7% guarantee. The stuff I see now the guarantee is as low as 2%. They also try the guarantee the same as the SP 500 but never below the standard guarantee. Thats not true either because they cap the returns at about 12%

Come see me. I'll give you a complementary analysis.