Our teriyaki restaurant failed, and we now have more than $100,000 of debt, including past payroll, back taxes, debts to family, debts to suppliers, credit cards, etc. We've been paying into three Northwestern Mutual whole life policies for 10+ years. Those policies are now finally starting to provide more cash value than what we're putting into them. (Very bad "investment" overall - we know! Groan!)

Anyway . . . our question: Are we wise (and morally ok) to hang onto these whole life policies and keep putting money into them (about $570 per month), or should we use that cash flow to pay down our debts more quickly?

Several additional pieces of information: Our household income is about $70,000; our two mortgages are $1,850/month; and, we have a Northwestern Mutual term policy (with increasing premiums) for $120/month with $637,000 of coverage. Further, I now have diabetes (I'm 47), so getting new life insurance at this point would be costly and difficult. Also, the three whole life policies are 8 - 11 years old each, provide a combined $363,000 of coverage, and (combined) made $1,300 last year (total added cash value minus premiums), which was an 18% return for that year on what we paid into the policies. We've borrowed $40,000 against our cash value in the past; currently we have $7,400 built up, which we could use to help pay down some debt if we were to surrender these three whole life policies.

Any advice or suggestions here would be GREATLY appreciated. Thanks!

I think my first question would be to your NWM agent. How much LEVEL TERM could these policies be exchanged for? If so, what would be the premium for your medical underwriting? Diabetes well managed might only bump you up one level in premium. NWM would infinitely prefer to keep your business rather than see you drop or go elsewhere; they are making a good profit off your policies.

My preference is for a 20-yr LT, which would carry you to SocSec retirement age. Generally, not always, life insurance can be reduced or eliminated in retirement.

With the answer from NWM in hand, I would then talk to an independent broker. Have him/her float preliminary inquiries for 20 yr LT (or whatever you want) in suitable face amounts, to at least three different insurers. I can tell you that at age 56, rated standard for overweight but nothing else, I got $500K of 20 yr LT for $70/mo from a well-respected insurer who specializes in term life.

With those prelim quotes in hand - remember, don't ever lie on insurance apps, even preliminary inquiries! - you'll be able to do a hard comparison between what NWM can offer vs. other carriers. I wouldn't be surprised if term life carriers could seriously undercut NWM. It's a great company, but I don't believe term life is one of their targeted markets.

I believe someone on this board is an insurance agent, so hopefully he'll chime in and give some advice.

Jaiko's advice is very good. You didn't say if you have kids, but being 47 years old, you definitely need life insurance if your family depends upon your income. An insurance broker will be able to shop around for the best deals for you. Consider pooling all your insurance needs (cars, home, umbrella, etc) into one company so that you can get multi-policy discounts. I bet you can cut that monthly whole life premiums you are paying in half getting 20 year level term.

use term4sale.com to gather quotes. Fast, easy, accurate (as long as you have the correct assumptions) and does NOT require an email or contact info to get quotes out.

bichon, because of the diabetes, I don't think any quote the OP would get on-line could be relied upon if an underwriter has not actually reviewed the OP's medical history. People should NOT be afraid of contacting an insurance broker. If one decides not to make any changes, simply declining to go further and telling the broker not to contact them in the future, will be sufficient to stop any future spam.

Sounds like good advice in general here. But I'd really want to know about kids and their ages. At 47 even if there are kids there might only be a year or two to provide for. That might mean that cashing out the policy, banking cash for a few years, and paying off the debt could make sense.

We need more information!

Why would they need 20 years level term? Assuming there are young kids, they would be out of the house by then.

it should be pointed out, that term4sale does not sell insurance, rather it generates quotes without the input of personal information and THEN gives you the option to connect with insurance agents in your area. It only arms you with information.

I agree that everyone should use a GOOD agent. And there are so many, I wouldn't tolerate one that bothered me in the least bit. And a GOOD one should be able to help one figure out which companies frown upon certain medical conditions less than others. Using an agent will cost you no more.

PHS, you're right, underwriting for a new policy with diabetes may cause an unnatural rise in new premiums. As jaiko suggested, sometimes, providers like NWM are open to exchanging terms and conditions on one type of policy for another. You may be able to work a good deal within the company if you want to convert to level term, but remember, term is temporary, so you can't count on any money coming in for retirement or survival spouse expenses anymore. If you have children or expenses that you'd like to have paid for should something have happened to you, the total combined value of your permanent policies seems just about right for what you'd need (even taking into account the fact that you'd probably want your mortgage and debts paid off). If you look at an aggregator insurance broker website ([SPAM LINK REMOVED] is another one) and get quotes, remember it's not the same as actually being rated. I'm sure it wouldn't hurt to try though, since you already have adequate coverage. Get a quote and then weigh your options. As much as some of us would wince to say this, your whole life policies should start doing more for you in another 5 or more years of accumulation, so you should probably hang tight (unless you are in dire need of monies). Do a life insurance needs analysis online and compare the results with your own financial goals. Good luck!

Pat Cassidy
Disclaimer: I work for [an insurance company] and this is my personal opinion.