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Old 07-29-2011, 12:44 PM   #21
Recycles dryer sheets
 
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Originally Posted by mathjak107 View Post
ooooh lots of creative reasons.

wealth passing to a spouse and making forever taxable money never taxable..

rather than leave my taxable iras to my wife i can use some of the money for a single premium policy of equal value.. that money gets leveraged and my wife gets 100% tax free money instead of taxable ira's with rmds. you almost never pay anywhere near what you get out.

whatever is left from the ira's go to the kids where they can pay the tax over a lifetime.

2nd marriages are another example. my wife and i are leaving everything to each other. but we each leave a small policy to our kids. that way they dont have to wait for the surviving spouse to die to see something from their parents estate.


its all about being creative and thinking outside the box.

maybe i should sell this stuff ha ha ha
Yes, there are plenty of good reasons for folks to own/buy life insurance.

I wonder if the folks that suggest cancelling the policy would put their recommendations in writing? I shudder to think about how confident they might be should the policy holder ever die (oh wait...he IS going to die). It's a slippery slope when it comes to professionally recommending dropping insurance.
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Old 07-29-2011, 04:55 PM   #22
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Sounds like somebody bought the malarky from an insurance agent. There are lots of ways to pass money down other than via an insurance policy. And ways to do so without the (often hidden) fees that are buried in the policy.

Really, think about this. It's called "Life Insurance Policy", not "Transfer Money Policy". That kinda indicates the the primary function is to insure your life, and any money transferring function is a secondary function.

Oftentimes, people spend or lose more money in trying to avoid taxes than the amount that the tax would actually be. And in the OP's case, the policy face value is only $227K -- so amount of tax that can be avoided is trivial.

OTOH, the deal with whole life insurance is that in the early years you grossly overpay to offset the fact that you underpay in the later years. The OP is in this late phase, so the overpaying has already been done.

The OP said:
1) The policy turned out to be mis-represented (quelle surprise!)
2) The actual amount of insurance is $147K. (The $70K cash value is his money, whether he lives or dies.)
3) His wife wouldn't need that $147k when he dies.
4) His premium is $1200/yr
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Old 07-29-2011, 06:20 PM   #23
Recycles dryer sheets
 
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Originally Posted by rayvt View Post
Sounds like somebody bought the malarky from an insurance agent. <snip>

...so the overpaying has already been done.
I similarly continue to hold a whole life policy after about 20 years. At this point, the "malarky buying" and overpaying are in the past - water under the bridge and no longer a factor in deciding whether what I hold *now* is worth retaining, which is really what the OP is trying to decide.

The particulars on my policy are:

1) Current cash value is about $60K on $350K policy.
2) Annual rate of return in cash value of the policy (after subtracting premium for current period) has been running about 7.5%.
3) This year's net premium (guaranteed premium less dividends) is about $1200.
4) Net premiums have been declining (roughly) as originally illustrated and at current rate should zero out in about 10 years.

I continue to hold for several reasons:

Even if I were just looking at cash value, the policy is performing about as well or better than any other bond, CD or similar savings vehicle I can identify (again, at present - the past is gone).

Also, the $350K death benefit (I will die) can serve any of several functions:

1) Help to self-insure for extended care for me if needed (i.e. replenish kitty for DW should I predecease her and need some nursing home or similar home care on my way out), reducing the need to buy LTC or otherwise self-insure.
2) Provide some extra buffer (perhaps not really needed, but reassuring nevertheless) for DW if I predecease her.
3) Offset costs of estate taxes or otherwise provide greater transfer to heirs.

I realize I don't get to exercise all of the above, but any one will suffice.

Also, as I age, any trade off between cashing out early for my needs and awaiting my death for the greater benefit of others will be reduced, and as mentioned above, rate of return on cash value only is respectable. Should I live to 100, the point will be moot. ;-)

So at this point, it doesn't matter what the product is called. Nor does it matter if there are other ways to do these things - only if there are better ways to do them. For *now*, for me, and considering 1) the relatively low (and declining) annual cost, 2) the comparatively good and tax deferred return compared with other savings-like vehicles, and 3) the multiple scenarios in which the insurance proceeds could be of benefit (and the certainty that at least one of them will occur), I guess I'm still drinking the kool aid.
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Old 07-29-2011, 08:03 PM   #24
Recycles dryer sheets
 
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Quote:
Originally Posted by rayvt View Post
Sounds like somebody bought the malarky from an insurance agent. There are lots of ways to pass money down other than via an insurance policy. And ways to do so without the (often hidden) fees that are buried in the policy.

Really, think about this. It's called "Life Insurance Policy", not "Transfer Money Policy". That kinda indicates the the primary function is to insure your life, and any money transferring function is a secondary function.

Oftentimes, people spend or lose more money in trying to avoid taxes than the amount that the tax would actually be. And in the OP's case, the policy face value is only $227K -- so amount of tax that can be avoided is trivial.

OTOH, the deal with whole life insurance is that in the early years you grossly overpay to offset the fact that you underpay in the later years. The OP is in this late phase, so the overpaying has already been done.

The OP said:
1) The policy turned out to be mis-represented (quelle surprise!)
2) The actual amount of insurance is $147K. (The $70K cash value is his money, whether he lives or dies.)
3) His wife wouldn't need that $147k when he dies.
4) His premium is $1200/yr

Sounds like he's got $77K of death benefit in that policy (for a cost of $1,200 a year). Not too bad. And if you don't think there is value in life insurance policies...try to convince a retiree to drop their life insurance policy.

If you plan to have any money left at death, you could do a lot worse than to pass it via a life insurance policy. Especially since putting in other places often creates taxes for folks that don't spend it (banks are full of CD owners that pay taxes for decades on their interest that will never spend that CD money).

I suspect they could look in to a family limited partnership and everything that goes along with that, but that's usually a bit too complicated for most folks.

Always perfect? Nope
Always wrong? Nope
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