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whole life insurance
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Rapid Robert
Dec 23, 2011, 5:27:25 PM12/23/11
to
Almost 25 years ago, my wife and I each took out a whole life policy for
$50K each. We paid the annual premiums of $360 each for twenty years,
building up cash value. Then, for reasons I don't want to get into, we
stopped making premium payments about five years ago. During that time,
the annual earnings on the cash value (now about 4.5%) have been more
than enough to pay the premiums, but we are just now at the age (late
50's) where the premiums have risen enough to make that no longer true.
So what makes sense?
1. cash in the policies now (each one about $7K, which is just slightly
more than the total amount of premiums actually paid since beginning)
2. continue to use earnings and cash value to pay the premiums until
there is no more cash value and the policy terminates some number of
years down the road for lack of premium payments.
3. start paying the premiums again (can I pay additional money in for
investment purposes? I don't understand the section of my policy
document that mentions "additional premiums").
While 4.5% sounds like a great return, I'm not clear on how this would
work as an investment. Can we just let the cash value grow (by paying
scheduled or full amount of insurance premiums), and then cash it out
when a better return is available elsewhere? I think for tax purposes,
the taxable amount is everything we get out, less all the premiums that
have been paid in.
I don't feel like we really need any life insurance at this point
(neither spouse would be destitute if the other died, children are all
adults), yet the cost under this policy is going to rise steeply over
the next 10-15 years. There is also a $36 each annual "expense charge",
plus a 2.5% "premium expense charge", although I don't recall ever
seeing that one actually show up.
I have a call into the agent who sold me the the policy, but am
interested in a less biased viewpoint.
$50K each. We paid the annual premiums of $360 each for twenty years,
building up cash value. Then, for reasons I don't want to get into, we
stopped making premium payments about five years ago. During that time,
the annual earnings on the cash value (now about 4.5%) have been more
than enough to pay the premiums, but we are just now at the age (late
50's) where the premiums have risen enough to make that no longer true.
So what makes sense?
1. cash in the policies now (each one about $7K, which is just slightly
more than the total amount of premiums actually paid since beginning)
2. continue to use earnings and cash value to pay the premiums until
there is no more cash value and the policy terminates some number of
years down the road for lack of premium payments.
3. start paying the premiums again (can I pay additional money in for
investment purposes? I don't understand the section of my policy
document that mentions "additional premiums").
While 4.5% sounds like a great return, I'm not clear on how this would
work as an investment. Can we just let the cash value grow (by paying
scheduled or full amount of insurance premiums), and then cash it out
when a better return is available elsewhere? I think for tax purposes,
the taxable amount is everything we get out, less all the premiums that
have been paid in.
I don't feel like we really need any life insurance at this point
(neither spouse would be destitute if the other died, children are all
adults), yet the cost under this policy is going to rise steeply over
the next 10-15 years. There is also a $36 each annual "expense charge",
plus a 2.5% "premium expense charge", although I don't recall ever
seeing that one actually show up.
I have a call into the agent who sold me the the policy, but am
interested in a less biased viewpoint.
ps56k
Dec 24, 2011, 12:24:06 AM12/24/11
to
I thought that whole life policies had a flat premium, and didn't escalate
with age like term policies.
Not sure on your "extra charges" -
again, my knowledge of whole life was a single flat premium payment that
never changed over the years...
with age like term policies.
Not sure on your "extra charges" -
again, my knowledge of whole life was a single flat premium payment that
never changed over the years...
FranksPlace2
Dec 24, 2011, 9:48:13 AM12/24/11
to
>
> So what makes sense?
>
> 1. cash in the policies now (each one about $7K, which is just slightly
> more than the total amount of premiums actually paid since beginning)
>
> 2. continue to use earnings and cash value to pay the premiums until
> there is no more cash value and the policy terminates some number of
> years down the road for lack of premium payments.
>
> 3. start paying the premiums again (can I pay additional money in for
> investment purposes? I don't understand the section of my policy
> document that mentions "additional premiums").
>
My suggestion is to do # 2 and then consider # 3. Calculate the
> So what makes sense?
>
> 1. cash in the policies now (each one about $7K, which is just slightly
> more than the total amount of premiums actually paid since beginning)
>
> 2. continue to use earnings and cash value to pay the premiums until
> there is no more cash value and the policy terminates some number of
> years down the road for lack of premium payments.
>
> 3. start paying the premiums again (can I pay additional money in for
> investment purposes? I don't understand the section of my policy
> document that mentions "additional premiums").
>
return to your estate ($50k) compared to the premiums to be paid until
your death. There may be an attractive ROI.
Frank
Bill Woessner
Dec 27, 2011, 1:57:30 PM12/27/11
to
On Dec 23, 5:27 pm, Rapid Robert <spa...@nohow.com> wrote:
> I don't feel like we really need any life insurance at this point
> (neither spouse would be destitute if the other died, children are all
> adults)
I think that's your answer right there. Whole life insurance is,
> I don't feel like we really need any life insurance at this point
> (neither spouse would be destitute if the other died, children are all
> adults)
first and foremost, insurance. The fact that there is an investment
component does not change this. If you no longer need life insurance,
I would cash in the policies and do something more useful with that
money. Pay down debt or put it in a simpler investment that you fully
understand.
I don't say that to be snarky. I certainly don't know all the ins and
outs of whole life insurance. But I do know that it can be extremely
complicated. And when you say there are sections of your policy that
you don't understand, I see that as an immediate red flag. I would
rather be in a sub-optimal investment that I understand than an
optimal investment that I don't understand.
That's my 2 cents.
--Bill
Don
Dec 27, 2011, 7:36:04 PM12/27/11
to
On Dec 27, 10:57 am, Bill Woessner <woess...@gmail.com> wrote:
> I would > rather be in a sub-optimal investment that I understand than an
> optimal investment that I don't understand.
That is good advice. There are all kinds of people in the investment
> I would > rather be in a sub-optimal investment that I understand than an
> optimal investment that I don't understand.
world who will say: "Don't worry. You don't need to understand my
plan. Just follow my instructions, and you will do a lot better. Now,
my first instruction is: Give me 5% of the amount you are investing.
But don't worry; that 5% is small compared to the amount of money you
are going to make."
Even if it is not an out-and-out scam, that optimal investment usually
goes right along with optimal risk.
Gene E. Utterback, EA, RFC, ABA
Jan 30, 2012, 7:16:38 PM1/30/12
to
<"Rapid Robert" wrote in message news:jd2jjt$sj8$1...@dont-email.me...
First and foremost, don't think of life insurance as an investment. Either
it isn't or the rate of return can be beaten elsewhere. So start to think
differently, especially for the dollar amounts you're working with. If you
want to talk about the investment possibilities of a $10Million Permanent
Policy, that's different.
Second, I noticed you said you don't feel like you need any life insurance
at this point. To this I'd ask "what about in the future?" Remember, with
all else being equal, as you age your premium will increase. AND to get a
new policy, either perm or term, you'll have to jump though some
underwriting hoops. So if you THINK there is ANY possibility that you MIGHT
NEED insurance in the future you need to carefully consider whether you'd
qualify for it then and whether you could afford the premiums.
I'm also curious about your increasing premiums. Most perm policies have a
fixed premium that does NOT increase as we age. Most term policies have a
fixed premium for the initial term, then they become Renewable Term Policies
and the annual premium is adjusted to account for your age. So I have to
ask, are you SURE you have a perm policy here?
You have another option - that is to swap the cash value policy for a paid
up policy of some kind. Ask your agent what he can do for you and its
likely he may be able to give you a paid up policy for the cash value in
your current policy. It won't have as much coverage, but you won't need to
make any more premium payments.
If you cancel the policy you have to report it on your tax return. The
difference between your basis (what you paid in over the years) and the cash
value received (the amount you get out) will determine any gain or loss.
Generally if you have some cash value you could easily have a gain. Getting
that taxed now while the long term rate still caps at 15% may be the way to
go if you're sure you won't need the insurance later.
I cannot stress that point enough - you cannot consider just what you need
today, you have to gaze into your crystal ball and try to see what you'll
need tomorrow. Keep in mind that insurance is NOT just for replacing your
income. If you've done well with investments your survivors may not need
the income replacement that life insurance is usually sold around.
Do consider whether you've set aside enough for your burial and any final
expenses your survivors may be obligated for. And while your heirs are not
usually liable for your debts, the assets of your estate MUST first be used
to settle any debts before anything gets distributed to your heirs. Life
insurance passes outside of probate and is NOT subject to the claims of
creditors.
Good luck,
Gene E. Utterback, EA, RFC, ABA
it isn't or the rate of return can be beaten elsewhere. So start to think
differently, especially for the dollar amounts you're working with. If you
want to talk about the investment possibilities of a $10Million Permanent
Policy, that's different.
Second, I noticed you said you don't feel like you need any life insurance
at this point. To this I'd ask "what about in the future?" Remember, with
all else being equal, as you age your premium will increase. AND to get a
new policy, either perm or term, you'll have to jump though some
underwriting hoops. So if you THINK there is ANY possibility that you MIGHT
NEED insurance in the future you need to carefully consider whether you'd
qualify for it then and whether you could afford the premiums.
I'm also curious about your increasing premiums. Most perm policies have a
fixed premium that does NOT increase as we age. Most term policies have a
fixed premium for the initial term, then they become Renewable Term Policies
and the annual premium is adjusted to account for your age. So I have to
ask, are you SURE you have a perm policy here?
You have another option - that is to swap the cash value policy for a paid
up policy of some kind. Ask your agent what he can do for you and its
likely he may be able to give you a paid up policy for the cash value in
your current policy. It won't have as much coverage, but you won't need to
make any more premium payments.
If you cancel the policy you have to report it on your tax return. The
difference between your basis (what you paid in over the years) and the cash
value received (the amount you get out) will determine any gain or loss.
Generally if you have some cash value you could easily have a gain. Getting
that taxed now while the long term rate still caps at 15% may be the way to
go if you're sure you won't need the insurance later.
I cannot stress that point enough - you cannot consider just what you need
today, you have to gaze into your crystal ball and try to see what you'll
need tomorrow. Keep in mind that insurance is NOT just for replacing your
income. If you've done well with investments your survivors may not need
the income replacement that life insurance is usually sold around.
Do consider whether you've set aside enough for your burial and any final
expenses your survivors may be obligated for. And while your heirs are not
usually liable for your debts, the assets of your estate MUST first be used
to settle any debts before anything gets distributed to your heirs. Life
insurance passes outside of probate and is NOT subject to the claims of
creditors.
Good luck,
Gene E. Utterback, EA, RFC, ABA
ps56k
Jan 31, 2012, 3:35:12 PM1/31/12
to
"Rapid Robert" <spa...@nohow.com> wrote in message
news:jd2jjt$sj8$1...@dont-email.me...
During that time, the annual earnings on the cash value (now about 4.5%)
have been more
than enough to pay the premiums, but we are just now at the age (late
50's) where the premiums have risen enough to make that no longer true.
Are you sure these are "totally" whole life ?
There are a couple of items that don't seem right
compared to my $100k whole life policy from NW Mutual
for which I pay $2000 - for the past 20 years.
SO -
A - the premium seems too low for total whole life vs a combo term + whole
life policy
B - the premium should be fixed for the duration of the policy... as mine
is...
again, unless you have a combo with some Term + some Whole Life
stevenricherd
Feb 8, 2012, 1:02:45 PM2/8/12
to
'Gene E. Utterback, EA, RFC, ABA[_2_ Wrote:
> ;737587']"Rapid Robert" wrote in message
insurance,as you have this facility to pay premium with ease. Look for a
cheap life insurance plan and save money.
--
stevenricherd
======================================= MODERATOR'S COMMENT:
Please trim and quote carefully rather than quoting an entire article
Rapid Robert
Feb 8, 2012, 2:05:55 PM2/8/12
to
I have recently talked with the agent who sold the original policy. To
clarify, this policy was not a traditional "whole life" policy, but
something called "Universal life", which is essentially a term policy
with a side investment account. So yes, the actual cost of insurance is
indeed going up each year. The feature of the account is that if you
pay the fixed annual premiums without fail, then the contributions plus
earnings are supposed to cover the increasing payments for a very long
time. (no increase in annual cash outlay despite increasing age).
Sorry for the inaccurate description in my original question.
I do not regret buying the policy, and I'm sure I clearly understood
what I was getting at the time I bought it (speaking also for my
spouse). It's just been on auto-pilot for so long, that I needed a
self-administered kick in the butt to review it.
I'm pretty clear on the tax implications (almost zero in my case, as
present cash value just about equals all payments made over time to the
present).
Converting to a paid-up permanent policy of to cover funeral expenses is
one option I'll check into. But most likely we'll just cash it out.
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