Mixing term and WL for married professionals

I’ve been trying to learn about life insurance online and discovered this board today. The posts I’ve read and the links they contain have been ten times more informative than anything I’ve come across online. I have some questions specific to my situation but I hope that the thrust of my inquiry will be of interest to a wider audience as well.

My wife (30) and I (31) are expecting our first child. We are so early in the process that we haven’t told many people but I am trying to get a handle on the new life and disability insurance needs this change will create. I’ve met with a NWM agent whom a coworker recommended and have a follow-up scheduled in a few weeks. At that meeting he’ll provide some options but I wanted to educate myself in the mean time. My over-arching question is what is the best way to structure a mix of term and whole life policies to meet our needs?

Our particulars: My wife is an attorney and I will start my medical residency in July. Our combined income is around 150k and we have about 100k in retirement accounts (~70% Roth IRA). My wife will max out her 401k (no matching) to ensure that we can contribute the max to our IRAs next year. I just found out that I will have access to a Roth 403b so in the near future I may switch her contributions to a Roth 401k. We each have about 20k in federal student loans locked in around 3% as well as a 330k mortgage and a 25k car loan. The poor public schools in our area make it likely that we’ll be paying for private school before college. In the interest of being conservative let’s assume that in five years our combined salary will be ~200k and will never exceed 300k in today’s dollars.

I’ve more or less decided against VUL because I don’t think we’ll have the earning power you normally think of when you hear “doctor/lawyer,” I prefer the guaranteed aspect of whole life and to the limited extent our insurance will be an “investment” I’d like to use it to supplement or replace the conservative part of our portfolio. If anyone thinks that’s short-sighted definitely let me know. Based on my reading so far there would seem to be a number of strategies for mixing term and whole life:

1. Get WL from NWM or another strong mutual and find the cheapest 30-year level term available from a carrier with good ratings. Overfund the whole life if there’s money left over after maxing retirement contributions.
2. Get both the term and WL from NWM with the option to convert the term as our circumstances allow. I assume to make this feasible the term portion would have to be broken into smaller (more expensive?) chunks so we could afford to convert it bit by bit. I also don’t like that the longest level term they offer is 20 year.
3. Get what I believe is termed a blended product like NWM’s Adjustible CompLife or NYL’s DOT as discussed in seanm’s thread. Opinions on that thread were mixed but I would think I’d need additional term anyway.
4. Some combination of the above or other strategies of which I haven’t heard or thought.

I have other questions but this post has rambled on so I will stop there. Thanks.

99, i think your overarching plan is appropriate. instead of addressing all the issues, let me add a couple of points i think are relevant for additional consideration for you.

1. Congratulations on working with a professional. Remember, one of the greatest benefits FROM the advisor is to get a great education and to help shepherd you through the implementation. Make sure you get this from the advisor with whom you are working.

2. I would personally stay away from the CompLife and The NYL DOT. Mixing multiple products in the same wrapper are always problematic. That said, I believe NY Life has a straight term product whereby it can be converted within 10 years to its Custom Whole Life product. When this is done, every penny you paid over the previous 10 years for the term is credited to the new Custom WL product. For conversion, I think this offers you both the segregation of product with the linkage you would want for convertability.

3. NWM (or NYL) are great companies and if they are great enough for the permanent insurance, get your term there too. It will make things much easier on you administratively and you can keep the term beyond the 20 years if you really want it. Most mutual companies realize that term is a loser for clients, and moreso for the longer periods. While the market likes the 30 year product, it is usually not best for the clients and as such, they dont like to offer them.

4. Though I am not a big fan of VUL, your post leads me to believe that it may in fact be a product for you to look into. At your income levels, you are not going to benefit from a mortgage write off on your taxes so you should kill that thing relatively quickly. When the extra dollars are available, consider the VUL. Unless you are spending like crazy, it may be a very effective way to defer other dollars for retirement and it may be beneficial for the estate planning needs you are likely to experience into the future.

5. Overfunding the WL is also a great idea to use it as a separate cash account ... one helluva lot better than typical cash accounts to be sure.

I'm not sure what familiarity with NWM's Adjustable Complife you may have, but in a nutshell, the product works like this: You purchase a certain amount of whole life and a certain amount of term. Each year when the company pays dividends, the dividends are used to convert the term insurance to permanent insurance. Once all of the term is converted to whole life, the dividends purchase paid up additions (unless otherwise instructed).

I'm not saying whether this is a good idea for you (talk to your advisor), but that is how the product works.

TIAA CREF makes a phenomenal VUL that will blow the doors off of anything you'll find a NWML or NYL, or any other loaded cash value insurance policy. It's a no-load product, one of very few that are available in the industry today. If you decide to go that route, that's the way I'd go.

It's a no-load product, but I've learned they have a capable staff. And if you need/want professional advice, you can always hire a fee-only insurance advisor. For a few hours time (maybe $600?), you'll have a much more efficient product.

For the record, I'm not a TIAA-CREF rep or affiliated with that company in any way. I have begun advising clients on insurance purchases on a fee basis, and this is one of the solutions where my research has led me.

Very difficult for me to recommend a term period longer than 20 years. The average duration of term ownership is less than 5 years, by some studies. Would you do a 30 year fixed mortgage if you KNEW FOR CERTAIN that you'd be selling your home in 5 years? Of course not, you'd do a 5/1 arm or maybe a 7/1 or a 10/1 if you wanted to be ultra conservative.

Too many things can change with your insurance needs/desires to go buying a 30 year level term policy. What are the odds you'll still have that policy in 10 years? Highly unlikely: you'll convert, or replace it. And in the mean time, you'll have overpaid by about 40%.

If you're going to buy a 30 year term policy, what you should do is take the equivalent premium and purchase a no load UL or VUL. That way, if you bail in year 10, at least you'll walk with some cash because instead of paying all that extra premium to the insurance company's reserve accounts, you'll let that access go into your separate account. In the meantime, if you're situation changes such that you want to continue the same coverage through 30 years, like you think you might (but won't, almost assuredly), you'll have a plan for that and the flexibility to amp up the funding to keep the policy even longer, if you need to do so.

Thanks for the thought-provoking advice. I considered using quoted text to frame the issues that arose from your comments but decided to paraphrase and organize things by topic.

USING AN ADVISOR
Do I owe it to myself to talk with a NYL person as well? I’m not sure if I’ll use policy loans as a strategy but I read on this board that NWM has a less advantageous treatment of dividends when loans are used. Also, if 1MO is right about that term conversion deal that would be a very compelling reason (however, the pdf for 20YLT on the NYL site says they apply all of the first year premium if you convert in the first 5 yrs and 50% of it if you convert between 5-10). How would I find a person (eg take whoever they assign or request certain experience)?

On the fee-only front how would I find someone good without a recommendation? At least with the big mutuals there is a minimum standard of training you can count on. I only know about the CFP credential but perhaps there are others to look for in a fee-only advisor.

TERM INSURANCE
20 yr vs 30 yr: The mortgage argument doesn’t resonate with me because I was certain we’d move out of our condo when I finished school so we got an ARM. We did move to a house but couldn’t sell the condo and got screwed by the ARM. The lesson I took from that was to carefully consider risk and return (the spread with fixed rates wasn’t huge at the time). I would have trouble signing up for a product that would lapse before my first child (of two, God willing) would be halfway through college. It could be palatable if the rates of the guaranteed renewable clause were based on just on age (as NWM’s appear to be) and not medical status (in case I get HIV from a needle stick or have a more conventional medical problem at age 52). I also don’t identify with “most people” but if you guys said “even among my disciplined clients almost none stick with their term policies beyond x years” that might convince me.

Choice of carrier: I can see the benefits of the conversion option for a NYL or NWM term policy even if I don’t have a clear sense on the costs involved. However, is it worth paying 20 or 30% more to get a policy with them (A++/AAA) rather than with someone else who’s “only” A+/AA? Would that extra few hundred dollars be better spent on PUA’s in my whole life policy?

VUL
They often say don’t ask a question if you don’t want to hear the answer. I was a bit afraid of that when I mentioned VUL in my post but since two people have brought it up I fight the knee-jerk reaction to bolt when if advisor presents it as an option. If I understand correctly 1MO mentioned it as a consideration for down the road when our income rises (although I didn’t follow the mortgage/tax comment, did you mean mortgage insurance?). Would that be as an adjunct to a WL policy I would get now? NA raised the possibility of a no-load UL or VUL policy in place of term. Would the lower cost structure mitigate the need to overfund the policy from the outset? I confess to continued hesitation about the balance of risk against reward compared to WL but I will try to keep an open mind as I go forward.

NWM ACL
Thanks to JG for the explanation; it was definitely more helpful than the website. In the end I’ll try to weigh the cost, convenience and flexibility of ACL versus keeping the term and WL separate and using OPP or conversion to increase the permanent amount.

Thanks again to everyone for their comments.

I've been trying to read further about whole life policies and wanted to see if I am understanding the ramifications of OPP riders and direct vs non-direct recognition for policy loans.

1. NYL OPP vs NWM's Adjustible complife??
This board pointed me to Rich Franzen's Visible Policy site in which he describes his use of NYL's OPP rider to boost cash values in his policy. Based on NYL's website it appears this is a standard option which must be exercised once to the tune of $100 or more within two years of opening the policy and a second time within three years of that first OPP payment (http://www.newyorklife.com/cda/0,3254,6544,00.html). Mr Franzen indicated that the OPP is not necessarily a common feature for WL policies.

NWM's website mentions an "additional purchase benefit" available "at specified dates without evidence of insurability" for which I am unable to find details online except for an SEC filing which seems to have some couples entire contract (http://sec.edgar-online.com/1998/09/23/09/0000950124-98-005151/Section24.asp). They seem to charge 9% for scheduled additional premiums but I'm not sure if that's the same thing. Does anyone happen to know if NWM allows purchase of PUA with extra premiums in small increments at yearly intervals? I thought I saw a list of several defined ages at which this option is available but maybe it was for some other company.

In thinking about NWM's Adjustible complife and Glenn Daily's article on blending (http://www.glenndaily.com/documents/blending.pdf) this seems analogous to mandatory extra premiums for PUAs plus the option make voluntary additional payments on top of it. Please jump in if I'm thinking about this incorrectly. I know that opinions vary on the cost/benefit for this type of blending, but what efficiencies are gained by the blended product versus just overfunding a smaller whole life policy and carrying an independent term policy for that extra amount.

2. Direct Recognition NWM vs Indirect NYL
Based on several posts here it seems that NYL doesn't alter dividends if you take out policy loans. NWM, by contrast, has a direct recognition system by which dividends are reduced. The claim seems to be that this is more fair to participants who aren't leveraging their cash values and that it results in overall higher dividends being paid out. This table (http://www.nmfn.com/contentassets/pdfs/NM_Dividend_Interest_Scale.pdf) shows dividend rates greater than or equal to 7.15 throughout the period when Mr Franzen was getting around 4%. It seems like a very large spread so I was wondering if that an apples to apples comparison. I know that many variables contribute to those rates and maybe NWM's portfolio was just better, but the spread is consisent with a benefit of direct recognition (as opposed to a non-direct mutual having dividends of 6-7% during the same period).

I fear that I have started to muddle things in my mind so I would appreciate feedback if I'm on the right track. Thanks.

Great job on your concerns for your family and financial needs,no question is the wrong one,just getting the right one to fit your needs might be a chore.My personal experience on clients with two or more policies basically was not nessecary,let me explain.I dont defamate,coercion or twisting(lying to replace),with that said choose a company that will explain IN DETAIL(key)the chioces that you feel might benefit you/family both present/future earnings must be included,your finances as you mentioned will also play its roll.Have whom ever you deside to go with show consideration(something of value)in a customize policy.Then make your decision.
Good luck

Great job on your concerns for your family and financial needs,no question is the wrong one,just getting the right one to fit your needs might be a chore.My personal experience on clients with two or more policies basically was not nessecary,let me explain.I dont defamate,coercion or twisting(lying to replace),with that said choose a company that will explain IN DETAIL(key)the chioces that you feel might benefit you/family both present/future earnings must be included,your finances as you mentioned will also play its roll.Have whom ever you deside to go with show consideration(something of value)in a customize policy.Then make your decision.
Good luck
That clears it up!

i can't deside, has Mr. Gary Sphinks roled back in upon us (you and me)?

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i swear to God above, it pains me to know end when a financial "professional" posts here and can't use the english language. ;)

it pains me to know end when a financial "professional" posts here and can't use the english language. ;)
Ah, to know the end but not no what to do about it.

I suspect an ESLer. Either that or it is Leon Spinx after too many punches to the head.

I appreciate the sentiment from Mr Sphinx. I spent a number of years in a research lab with very bright people from all over the world and I was always struck by how much better they spoke English than I spoke Chinese, etc.

I was wondering how similar the big mutuals are in terms of their treatment of family history in setting the underwriting class. I have a clean profile except for my father who had two coronary artery stents at age 58. He presented with chest pain but did not suffer a heart attack. In shopping for term it looks like this would put me in the second best class with the vast majority of insurers but that a few may still rate me in the best class even with this history. I feel comfortable with NWM but does anyone know if NYL or Mass Mutual would look more favorably on this family history? Thanks so much.

When underwriting, family history is a universal consideration for every company, and the three mutuals you mentioned use medical conditions prior to age 60 for a parent or sibling. Yes, this includes NWM.

However, there are instances where the condition may have been brought on by habit, not genetics. If this is the case, your rep can include comments eluding to this fact and it will be taken into consideration. For example, if a parent passed away at age 58 because they had a history of smoking/drinking, etc. that you yourself do not partake in, the underwriters may attribute the condition to habit, not a genetic disposition to inherit the disease or condition.

With that said, there is no reason to have to choose...underwrite with two or more of the companies that you desire to approach and see who comes back with the best offer. Make your decision AFTER they have made a bonafide pricing decision. I say this because underwriting is human-driven and can be fickle indeed. Many times getting a better rating can be as simple & silly as having a different, more agressive underwriting staff look at your particular case. At least with a couple of offers on the table, you will able to eliminate the guesswork. It will also provide your reps with negotiating leverage by creating a competitive situation between the offering companies. It is possible for an underwriting decision to be "upgraded" if it means gaining or losing the new client.