"Cheryl" <cherylfdgm[at]yahoo.com> wrote in message news:8c15415c.0409031050.64ea3d8f[at]posting.google.com...
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Cheryl, I would suggest that you BEWARE. Although Northwestern
is an excellent company, either he explained it wrong, or you heard
him wrong.

A Whole Life policy has a Guaranteed premium for the life of
the policy. A portion of that premium is applied to the "Risk Cost"
(the insurance) and the balance is placed into the RESERVE of
the polcy, called The Cash Value. There is NO INVESTMENT portion
in a Whole Life Policy. The Company pays a Guaranteed Interest Rate
on that Reserve (and they could also pay an additional "current interest",
NOT GUARANTEED in addition), as REQUIRED by LAW.
The PRIMARY purpose of a Whole Life Policy is to provide a contract
that can be in force as long as you live, with a LEVEL PREMIUM (as
contrasted by Term Insurance, which has an increasing premium risk cost).
That Cash Value RESERVE is REQUIRED by LAW, in order to maintain
that Level Premium for LIFE.

As to the .07% Loan discussion, that is absolutely true (some companies
offer a 0% loan, called a WASH loan). The way it works, is that they charge
you a regular loan fee (let's say 6%) on the amount that YOU BORROW
from the company, and then they CREDIT you with 5.3% on the money
that is still IN the contract being used as collateral for that loan.
(6% -5.3% = .07%)

Please alow me to re-iterate that one should NEVER purchase any
Life Insurance policy for it's potential INVESTMENT value. They are
designed to provide money at DEATH. There are inherent costs
involved with "the risk of death", refered to as the Cost of Insurance.

IF there is a NEED for Life Insurance, then whether you or your
heirs get to use that money, it could turn out to be the very best
"investment" that you ever made.

Cal Lester CLU

Cheryl wrote:
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Well, there is one extremely important catch--in order to keep this
cash flow "tax free" you *have* to keep the policy in force until
you die. Fail to do that and at the time the policy collapses (it
doesn't earn enough to cover its expenses) you are treated as
receiving all of the amounts previously borrowed as payment in that
year. If those payments exceed your basis (and they'd better or you
would have been better off stuffing dollars in a mattress if saving
for retirement was your only point), then you have taxable income on
that excess, even though you likely no longer have the cash.

Other issues--you need to be very careful of the illustrations you
are shown. It is extraordinarily likely that what you seeing
illustrated is *NOT* guaranteed, but rather based on assumptions
about policy performance. Depending on the type of policy, a number
of different variables may be in play--but it's important to
understand both what they are *AND* what the impact would be if
those variables are changed. Because the one thing I can tell you
for sure about such an illustration is that it is a virtually
certainty that you will *NOT* see that exact set of results. It may
be better (we won't worry as much about that--that's not going to
generally cause problems), it may be worse (this could be a real
problem if it's enough worse), but it won't be that <grin> .

As well, since you have to keep the policy in force, the entire cash
value is *not* going to be available to you unless you are willing
to trigger the tax bill.

Now a key question--do you need life insurance? If not, then the
mortality charge you are being hit with has to be compared against
the tax cost of investing outside the plan. Depending on how you
invest, it's very possible that the tax cost may be less than the
costs involved with the insurance.

Maybe you do need insurance--well now we have another potential
problem. You mentioned that this policy is being biased towards
cash value and against a death benefit. Now that's great if you
live, but if you were to die in the early years of the policy that
lower death benefit might leave your heirs short of funds.

Is this policy right for you? Tough to say--but I will say that
life insurance is a complex enough product that *NO* product exists
that is a "no brainer" for all (or even most) buyers. If your agent
has a "one size fits all" philosophy, I would be *very* skeptical
about whether an impartial analysis would conclude that this product
makes sense for you.

In the end, though, be sure *you* understand the product if you buy
it, including what can go wrong. A policy being used in this manner
generally needs careful monitoring to assure it's performing well
enough to accomplish the stated goal.

--
Ed Zollars, CPA
Phoenix, Arizona

Northwestern has told me that buying their whole life policy (with
more of the premium going toward the "investment" portion and less to
the "death benefit" portion ) is a great way to save for retirement,
due to the tax free nature of distributions of the cash surrender
value. I am confused about the "loans" he said I can take against my
cash surrender value at (.07% interest) What he says sounds a little
too good to be true. Any information would be helpful.