by John Darer CLU ChFC MSSC CeFT RSP CLTC
Trial lawyers on the mailing list recently received Milestone Consulting’s FeeMaster attorney fee deferral brochure. FeeMaster Option 2 presents a low-cost but misleading sales pitch designed to promote the purchase of permanent whole life insurance.
The Milestone sales pitch is this: “Keep more of your total contingency fee and work within an existing financial framework that can return historical dividends as high as 6% or greater. This is a long-term wealth accumulation strategy that significantly outperforms fixed annuity returns and is designed with certain attorneys in mind”.
“The most groundbreaking option relies on one of the greatest existing wealth accumulation tools—permanent whole life insurance.
“By becoming a policy holder of one of these large mutuals, you reap the benefits of their financial strength and dividend-paying histories”
But that’s not the shocking part. This Milestone Consulting page header from the FeeMaster brochure, is a classic case of baffling them with this BS: “Where else have you seen historical dividends of 6% or greater?”. Well I’ll answer the question, because I have!
- I have been in the life insurance industry for 37 years as of May, beginning my career with Northwestern Mutual, one of the leading mutual insurance companies in the United States. For three decades,
- I have held the professional designations of Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) for three decades. I own whole life policies purchased in my 20s, during a period when dividend interest rates exceeded 11%.
- The distinction between portfolio and new money investments has contributed to maintaining higher dividend rates compared to policies based on new money rates; however, portfolio rates have declined as long-term bonds with higher yields mature and cannot be reinvested at comparable rates.
- This has been a phenomenon all across the board. Historical Whole Life Dividend Rates 2020 by Top Whole Life proves the point.
That being said, focusing solely on the historical dividend rate, as Buffalo-based Milestone Consulting did, without considering costs and projecting that rate or higher, was misleading at best. Evaluating actual policy performance is crucial, and historical results have, in fact, varied over time.
Actual performance will also vary by underwriting class
Here is what Northwestern Mutual says about its dividend interest rate
“In regard to Northwestern Mutual’s dividend payout and dividend interest rate (DIR), comments in this document pertain generally to life insurance policy dividends.
The company’s DIR for unborrowed funds for most whole life insurance policies reflects the investment performance of the applicable managed assets net of taxes and any contribution to surplus. This rate is used for the determination of the interest component of a policy’s dividend. The rate is applied to unborrowed funds for most whole life insurance policies after mortality and expense charges have been deducted from policy values. Depending on the terms of a particular policy, a different rate may be applied. For example, either a different rate is credited on borrowed funds to reflect individual policy loan activity, or all funds, both borrowed and unborrowed, are credited with a single rate that reflects the average level of borrowing for all similar policies.
The Dividend Interest Rate (DIR) is not the rate of return on a policy and is only one factor for determining the life insurance dividend– Northwestern Mutual
- The majority of our life insurance dividend payment is a result of our industry-leading persistency, favorable mortality costs and diligent expense management.
- Decisions with respect to the determination and allocation of divisible surplus are left to the discretion and sound business judgment of the company’s Board of Trustees.
- There is no guaranteed specific method or formula for the determination or allocation of divisible surplus.
- Accordingly, the company’s approach is subject to change.
- Neither the existence nor the amount of a dividend is guaranteed on any policy in any given policy year.
- Some policies may not receive any dividends in a particular year or years even while other policies receive dividends”.
MassMutual, the life insurance company believed to be used with Milestone FeeMaster Option 2, states in a November 4, 2019 press release announcing its 2020 dividend scale
- “The dividend and dividend interest rate (DIR) are determined annually, subject to change and are not guaranteed.
- Dividends for eligible participating life insurance policies primarily consist of investment, mortality and expense components.
- The DIR is used to determine the investment component of the dividend. It is not the rate of return on the policy and should not be the sole basis for comparing insurers or policy performance.
- Dividends are not guaranteed and will vary over time.
- As a result, the income payments that you receive may be more or less than the dividends that were illustrated when you bought your policy”.
- Despite this statement by MassMutual, Milestone Consulting wants to “leverage the history”.
But both Northwestern Mutual and Mass Mutual have paid dividends since the 19th Century. Both companies have experienced declining dividends over the last 20 years.
” Gain access to cash without triggering taxation through traditional policy loans”
- You can access cash value without triggering taxation through traditional policy loans, but Milestone fails to account for the impact of loans on the actual policy performance.
- If you borrow too much from a whole life policy and the policy lapses due to non payment of premium or otherwise lapses, there is a taxable event if the outstanding loan exceeds your cost basis.
“The short-term internal rate of return yields are low, but contract years 11-20 credit at greater than 6%”
The December 2018 upload of a prior rendition of the Milestone Consulting brochure, contained the disclosure and said the 6% was based on 2013 market trends, but the new one doesn’t. If known, I doubt this would ever get past any life insurer’s or regulatory compliance. One wonders if any client is shown an illustration of what happens if the dividend scale is reduced.
What MassMutual actually said in a footnote to a November 4, 2019 press release announcing its 2020 dividend scale:
- “1 The dividend and dividend interest rate (DIR) are determined annually, subject to change and are not guaranteed.
. Dividends for eligible participating contracts consist of investment, mortality and expense components
- The DIR is used to determine the investment component of the dividend. It is not the rate of return on the policy and should not be the sole basis for comparing insurers or policy performance”.
“Unrivaled” , ” A home run for a select few” ” The most groundbreaking option” are superlatives used by Milestone to would-be FeeMasters