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You are here: Experts > Money > Personal Insurance > Life & Health Insurance > bank on your self - company choice
Expert: Willard R. Brumbaugh, LUTCF, CSFP - 11/6/2009
Question
Hi Willard,
Thanks for answering my question. I was wondering could I use northwestern mutual for Bank On Yourself? Do they pay the dividend on the CV loan the way it needs to be paid?
Answer
Dear Matt,
You can use Northwestern Mutual. However, as a responsible company working to treat all it's clients fairly, they do apply "direct recognition" to dividend distributions. As I understand Nelson Nash's book, you are told to buy from a company that does not do "direct recognition".
Here is the problem that I have with this expectation. The company (any mutual company) determines its dividend distributions on the basis of its mortality experience and investment earnings. These earnings include policy loan interest, which is expected to be less than the anticipated earnings of the investment portfolio. When a person who has borrowed against his policy accumulation value is given the same rate of dividend distribution as those who have not borrowed, he is getting a greater rate of return on the money he has in the policy than the others.
In a sense, this is stealing, since he has taken his money out of the investment pool, he has reduced the money at work for everyone, causing less return on the investments to be shared with all the policyholders. Meanwhile, he has gotten the return on investment that the company had expected to gain on those funds.
In my opinion, for those who understand this, to engage in this practice is unethical. At some point, to counter the unfairness of this procedure, companies must eventually go to "direct recognition" to be fair and to remain competitive.
Willard R. Brumbaugh, LUTCF
www.willardbrumbaugh.com
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