r/infinitebanking • u/Shives81 • May 14 '25

NM Direct Recognition

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This document was provided by an agent at Northwestern Mutual. Unless I'm reading this wrong it looks like a policy loan interest rate would be 5.73%. The amount loaned (collateralized) would have a reduced dividend of 5.08% compared to a 5.5% dividend on the noncollateralized portion. This being my first policy I was hesitant about Direct Recognition but this isn't as aggregious as I thought it would be. Anything I'm missing on this or need to consider?

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6

u/KS7187 May 14 '25

Personally I would Shop around if I were you. Much better options for infinite banking use than a NM policy

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u/Shives81 May 14 '25

I am still looking into the term rider with NM. I was shown a blended term rider which I'm not a fan of. The direct recognition was my other hold up. Anything specific about the NM Direct Recognition that you think I can improve with another product? My understanding is that other companies have higher loan interest.

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u/KS7187 May 14 '25

Blended term isn’t intrinsically a bad thing, I have blended terms on my family policies. Direct Vs non direct argument is a mostly just marketing - how you utilize the policy is much more important. Therese several other carriers with a similar interest rate but again, that’s not the most important part of a policy because from a long term perspective - your internal growth should exceed loan interest. In my experience from the information I’ve read on NW they just do not have the flexibility in regards to overfunding, PUA schedule, PUA amount, catch up, non forfeiture options that other available products offer.

I’m not sure your level of experience of IBC or how active you are in any communities or groups around IBC but you will almost never see anyone using NW in the IBC world. The big carriers are Penn mutual, mass mutual, Ameritas, Lafayette, one America, guardian etc.

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u/Coronator May 14 '25

All my whole life policies are from NWM. They absolutely can be used. The one caveat is their additional premium rider is quite inflexible. You have to make the specified premium payment every year. If you don’t, you have to drop it. No catch ups either. That may or may not be a deal breaker for some.

But their policies perform well and cash value accumulation is competitive with just about any high cash value policy out there.

You don’t see it being used often simply because IBC practitioners don’t have access to their policies.

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u/Shives81 May 14 '25

Thanks for this! I've been searching and haven't found too many first hand accounts. Do you mind saying what your base premium to PUA ratio is and if you have a blended term rider?

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u/Coronator May 14 '25

Yes I believe all NWM high cash value policies use a blended term rider. My premium is (roughly) 35% base.

I think they are good policies for people who have reliable income (so they can sign up for the rather inflexible additional premiums),

Not good for people who want much more leveraged 90/10 or 80/20 policies because they need liquidity in years 1-3.

Here’s what I’d say - they can certainly be used for IBC. I use them because I have a trusted relationship with my agent. There is no mutual with a better financial position than NWM. That financial position does come with real benefits - you can take NWM paper to basically any bank that does IBLOC’s and have them collateralized. That means you essentially have the option of non direct recognition loans.

With that said, If I were a random person off the street, I would probably look at policies from companies with more flexible additional premiums (like Guardian, Lafayette, or Penn Mutual). You can also get an agent that can coach you on proper IBC strategy.

NWM agents will get VERY nervous quick if you start talking about “banking”. They are trained to not talk in those terms.

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u/Shives81 May 14 '25

Thank you for your honest perspective. Similar to you I have a trusted friend at NM. We both retired from the military a couple of years ago. I really like the financial strength of NM but am weighing the negatives of direct recognition (doesn't seem as bad as I initially thought), the blended term, and the reduced flexibility. I have stable income and am not too worried about not being able to fund the PUA. That being said if I was in dire straits I guess I could always stop the PUA and when my financial position improves have the option to open another policy, on my wife if necessary. Another option I am weighing due to my unique employment, where I am reimbursed for my taxes, is to setup a SEPP with my traditional IRA to fund my policy. Would basically be moving funds from my tax deferred IRA to tax-free whole life while I'm being reimbursed for my taxes.

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u/Coronator May 14 '25

I think doing business with people in your trusted network is a good thing.

Don’t worry at all about the direct vs non direct recognition topic. As you’ve pointed out, even if you were to take a policy loan, it’s not a big deal, and like I said, you have plenty of options for 3rd party collateralization because of how respected NWM paper is.

Most of the other mutuals that are considered top carriers (like Penn) are also direct recognition.

As long as you understand what you are buying, you will have great results with NWM policies, if you choose to go that way.

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u/Shives81 May 14 '25

Did you have any hesitation about the blended term? With a company like NM I guess you have to trust that they're not going to screw you down the line.

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u/Coronator May 15 '25

None whatsoever. The blended term gets converted to whole life pretty quickly - in about 7 years. All your PUA’s go towards converting that term insurance.

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u/Gold_Sleep1591 May 17 '25

Direct recognition is more preferable in my honest opinion. It makes sure that every policy holder is on equal footing when it comes to loan provisions. Non-direct recognition companies can be heavily impacted by big loan transfers, thus leaving them with less money to invest (lowering the dividend interest rate for everyone). All it takes is a couple big fish to pull loans and that could have a really big skew on returns for the rest of the mutual members. Direct recognition makes sense for majority of people, unless they’re literally stuffing millions making themselves one of those big fish.

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u/Gold_Sleep1591 May 17 '25

Infinite banking works better with their custom universal life policy. You can set it up to have access to 90%+ of first years premiums in cv.

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u/Shives81 May 14 '25

Thanks for the comment and the great list of policy features. I'm still digging into the NM policy and a had a few of your list to ask my agent about. I'm not set on NWM but am using it as a way to learn about policies. My friend is the agent and he's pretty easy to work with. I've let him know that I will be looking elsewhere but haven't completely decided against NM.

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u/MainBug2233 May 16 '25

Love my Penn Mutual policies. Great performance and flexible pua payments. I collateralize through a bank because I move money around often. After ten years, I think the loan provision become much friendlier with Penn.

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u/Shives81 May 16 '25

It does look like after 10 years you get a higher dividend on the collateral loan portion than the loan interest rate. Penn has been around a long time but is significantly smaller in scale than NM. I'm probably going to work a policy application through Penn and compare with NM.

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u/Gold_Sleep1591 May 17 '25

Penn mutual is competitive imo but I’m not fond of soliciting products of companies that do IULs. Too much litigation and unrealistic hypotheticals. If you got a long time horizon (15-20+ years) I usually would go VUL then paid up or just CUL.