Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Another life insurance question
Old 07-19-2011, 03:32 PM   #1
Recycles dryer sheets
 
Join Date: Dec 2010
Location: Tequesta
Posts: 279
Another life insurance question

This is probably one of those repeating threads, but you retired people need the mental stimulation, so here it goes.

I've got a 20 or so year old Whole Life Policy. Turns out it wasn't represented exactly correctly, but such is life.

I'm 61 and FI, trying to figure out exactly when to quit work.

The policy amount is $227,000, and there is an old $10,000 loan we used for a kid's college. The premium, after dividends, this year is around $1200. The cash value is right at $70,000.

What are the options with these policies? We paid the loan down by $10,000 this year and have $10,000 to go. Frankly, while getting $217,000 when I die would be nice for my wife and/or kids, it wouldn't make very much difference to her life style. In other words, she doesn't need it.

I haven't had an agent for years because they just kept trying to sell me more life insurance that I didn't want.

What I can figure out is: 1. Cash out and probably pay some taxes; 2. pay off the loan and let the cash value pay the premiums, probably forever; or 3, just keep paying it. I rather think there are other options, but I'm not savvy enough to know what they are.

Thanks!
__________________

__________________
67walkon is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-19-2011, 03:40 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Here is a link to a recent similar discussion.

Life Insurance After Retirement?
__________________

__________________
chinaco is offline   Reply With Quote
Old 07-19-2011, 03:52 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,726
At this point how much does the cash value increase every year compared to the premiums? Also is it participating? I.E. are dividends payed or not? If you find that the increase in cash value is about the same as the premiums then its not really costing you much at this stage. A third alternative would be to convert the policy to a paid up policy using the cash value (likley detailed in the policy, i.e. stop paying the premiums, and convert to a paid up policy that the cash value would pay.
__________________
meierlde is offline   Reply With Quote
Old 07-19-2011, 04:09 PM   #4
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,244
Quote:
Originally Posted by 67walkon View Post

What I can figure out is: 1. Cash out and probably pay some taxes; 2. pay off the loan and let the cash value pay the premiums, probably forever; or 3, just keep paying it. I rather think there are other options, but I'm not savvy enough to know what they are.

Thanks!
Check your policy to see if there is some "floor" interest payment on your cash value. I believe many policies have such in them. If taken out 20 years ago, and if there is a guaranteed minimum, you just might find that (by a fluke of timing) you can make more interest on your cash value in the policy than you can anywhere else (with safety that is arguably almost as good as a bank - depending upon the health of your Ins. Co., of course). Obviously, you could find investments with higher potential pay-out (more potential risk), but you indicated you don't depend upon the money - so why not keep it "safe"? At some point in the future (if banks' CD rates ever recover) reevaluate your keeping cash value in the policy. Just my $.02 worth and, of course, YMMV. Sounds like a nice problem to be dealing with.
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 07-19-2011, 04:21 PM   #5
Thinks s/he gets paid by the post
73ss454's Avatar
 
Join Date: Oct 2004
Location: LaLa Land
Posts: 4,378
67walkon, I also have a whole life policy that I've been paying on for the last 23 years or so. It was also sold to me by an agent who lied to me about the length of time I'd have to pay the premium. I was told 10 years and that would be the end of my payments. Turns out the payments are due till the age of 99. There was a class action against this company and I was awarded 31.5K. I'm 62 and still hold the policy but not real sure why.

You said that you don't need the insurance so I think you should cancel it and take the cash or buy a SPIA. With the SPIA you won't have to pay the tax on the amount of the policy that is profit, at least that's what I was told.

As to you pulling the plug on your job, what are you waiting for? If you are FI and 61 years old you should enjoy what time you have left on this earth.
__________________
Work is something you do to get enough $ so you don't have to....Me.
73ss454 is offline   Reply With Quote
Old 07-19-2011, 08:18 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,464
I have a similar situation and have found that the increase in the cash value compared to the cash value at the beginning of the policy year and the minor premiums I pay ($20/mo) is currently about a 6% return - much better than I am getting in other fixed income so I'm just letting the policy plug along.

You could see what options are available (using dividends to pay premiums if it is a par policy, converting to reduced paid up or whatever) to avoid having to pay premiums and let 'er ride.

My point is that at this point it is probably earning a pretty good return and if that is the case then take advantage of it.
__________________
pb4uski is online now   Reply With Quote
Old 07-19-2011, 08:29 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,577
Does the policy have a maturity date? The Whole Life Policy I have pays full value on the earlier of (i) my death or (ii) when I turn 55 (originally 65, but I had the maturity date lowered to 55 some years ago). I only get the much lower cash value if I surrender the policy before I turn 55.
__________________
Budgeting is a skill practised by people who are bad at politics.
traineeinvestor is offline   Reply With Quote
Old 07-19-2011, 08:37 PM   #8
Recycles dryer sheets
 
Join Date: Dec 2010
Location: Tequesta
Posts: 279
I think the maturity age is 99 or something. I need to check all the other suggestions. It is participating, so I get dividends that reduce the premium; the SPIA is an interesting idea I had not considered.

73ss, mine was similar. It was supposed to pay for itself forever after about 10 years. But I didn't get any class action settlement, just a bill of goods when I bought it.

Thanks for all the ideas. Probably I can't get much other than the case, but hey, you never know!
__________________
67walkon is offline   Reply With Quote
Old 07-20-2011, 06:04 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by 67walkon View Post
... just a bill of goods when I bought it.

...


Maybe. But it sounds like you really don't know much about the details or have a good comparison against other products.... it helps to do comparative shopping (many quotes for products/companies that are similar).


Nevertheless. You have to think back about your primary goal. It was to insure against a financial loss to your family if you died young and they were left without your income. It is easy to dismiss that value after the fact (because you did not die). While, I do not know all of the details... chances are that was a good decision.

If you are going to dump it... a 20 yr term policy may have been your best option. But, the agent dangled the self sustaining carrot.


But that was then and now is a different time and you face different problems. What might go wrong financially where the policy might help. You have to look at the negative side of things to figure that out.

You should create a financial plan and figure out how this asset fits into it.... and determine if it can provide some benefit.

Those policies have certain tax benefits.

Are you from a family of men that live into their 90s or in their 70's? Would $227k of benefit (with its tax benefit) help your DW if you experienced a big financial loss? For example, is there a chance you could lose some of your assets? What might go wrong? How can the policy help you if something goes wrong financially?
__________________
chinaco is offline   Reply With Quote
Old 07-20-2011, 04:28 PM   #10
Recycles dryer sheets
 
Join Date: Dec 2010
Location: Tequesta
Posts: 279
Chinaco,, you're absolutely right. I don't know enough about the product. The primary purpose at the time was to protect my kids. I was a single dad, had (and still have) some good insurance through work and worked the numbers based on the kids receiving social security benefits and the various insurances if I died early. Between SS, 2 policies through work and this one, my kids would have been fine; not rich, but enough to support them and get them through college. It was good for that purpose.

I married again, about 22 years ago, and together we managed to save enough to become FI; my wife inherited a piece of income producing property that certainly helped tremendously, by the way, but we did well even without that. And every year, I kept paying the policy and kept refusing to talk to the agents when they called, so they gave up. This whole subject just came up in a review by our investment guy. We did cash out of an old, fairly small, policy my wife had and she got a new kitchen out of the deal!

It did work as forced savings in those early years, so it was good for that, too. The way I'm looking at it now is that we could take about $70,000 out with me alive or $217,000 if I should die; that is only a $147,000 spread. $147,000 wouldn't make all that much difference to my wife at this point. However, I do think my wife wouldn't mind getting the full amount if I were to die soon.

The guy that handles our investment stuff is looking at it for us. When we understand the options, my wife and I will decide what is best, but I will certainly check back here as the information here is outstanding.
__________________
67walkon is offline   Reply With Quote
Old 07-20-2011, 04:36 PM   #11
Thinks s/he gets paid by the post
73ss454's Avatar
 
Join Date: Oct 2004
Location: LaLa Land
Posts: 4,378
67, now you just have to quit work and enjoy your life.

Maybe read a few investment books and ditch the investment guy. This should give you more money to spend in the time you have left.
__________________
Work is something you do to get enough $ so you don't have to....Me.
73ss454 is offline   Reply With Quote
Old 07-20-2011, 05:02 PM   #12
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
If you no longer need the life insurance and taxes are a concern you may want to consider exchanging the policy for a better investment. For example, you could look at a plain vanilla, low cost variable annuity at places like Fidelity or Vanguard. Using a 1035 exchange, you can replace the policy without tax consequence. You can select from several different underlying investments (from conservative to growth) and avoid all sales commissions and surrender charges. You can also 1035 into long-term care insurance, if that's something you need.
__________________
panacea is offline   Reply With Quote
Old 07-21-2011, 08:03 AM   #13
Moderator
Sarah in SC's Avatar
 
Join Date: Sep 2005
Location: Charleston, SC
Posts: 13,456
Some first post, eh?
__________________
“One day your life will flash before your eyes. Make sure it's worth watching.”
Gerard Arthur Way

Sarah in SC is offline   Reply With Quote
Old 07-21-2011, 08:34 AM   #14
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
Yep- first post. Saving money by eliminating unnecessary insurance is great.
__________________
panacea is offline   Reply With Quote
Old 07-21-2011, 08:40 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by CFPMatt View Post
If you no longer need the life insurance and taxes are a concern you may want to consider exchanging the policy for a better investment. For example, you could look at a plain vanilla, low cost variable annuity at places like Fidelity or Vanguard. Using a 1035 exchange, you can replace the policy without tax consequence. You can select from several different underlying investments (from conservative to growth) and avoid all sales commissions and surrender charges. You can also 1035 into long-term care insurance, if that's something you need.
Probably have to go through underwriting on the LTC, OP did not mention what kind of health he was in..........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 07-26-2011, 10:52 AM   #16
Recycles dryer sheets
 
Join Date: Dec 2010
Location: Tequesta
Posts: 279
If I am the OP, I'm in good health.

I got a bunch of illustrations from Prudential. I'm leaning toward keeping it in place for 2 to 5 years, then cashing it out and putting it into some kind of income producing asset. I looked at the SPIA, but right now you can get fairly close to that return on tax sheltered municipals, and the little bit of income difference won't matter. My wife will be fine without the insurance.
__________________
67walkon is offline   Reply With Quote
Old 07-26-2011, 06:00 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by 67walkon View Post
Chinaco,, you're absolutely right. I don't know enough about the product. The primary purpose at the time was to protect my kids. I was a single dad, had (and still have) some good insurance through work and worked the numbers based on the kids receiving social security benefits and the various insurances if I died early. Between SS, 2 policies through work and this one, my kids would have been fine; not rich, but enough to support them and get them through college. It was good for that purpose.

I married again, about 22 years ago, and together we managed to save enough to become FI; my wife inherited a piece of income producing property that certainly helped tremendously, by the way, but we did well even without that. And every year, I kept paying the policy and kept refusing to talk to the agents when they called, so they gave up. This whole subject just came up in a review by our investment guy. We did cash out of an old, fairly small, policy my wife had and she got a new kitchen out of the deal!

It did work as forced savings in those early years, so it was good for that, too. The way I'm looking at it now is that we could take about $70,000 out with me alive or $217,000 if I should die; that is only a $147,000 spread. $147,000 wouldn't make all that much difference to my wife at this point. However, I do think my wife wouldn't mind getting the full amount if I were to die soon.

The guy that handles our investment stuff is looking at it for us. When we understand the options, my wife and I will decide what is best, but I will certainly check back here as the information here is outstanding.

exactley what the insurance company hopes. for ...

they over charged you for decades just in case you wanted life insurance to death at old age . you payed far more than any term policy for that right.

mostly everyone takes the tiny cash value instead leaving the insurance company the big winner.
__________________
mathjak107 is offline   Reply With Quote
Old 07-26-2011, 06:09 PM   #18
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 719
If you are retired, why do you need life insurance? Insurance is for replacing your income if you die. If you are retired, you don't have any income that needs to be replaced.

The amount of true insurance you have is the face value MINUS the cash value and MINUS the loan amount. So you have 147K of insurance for which you are paying $1200/yr.

Really? Is that enough insurance? A couple of years salary? I would think that if you need insurance, you'd need around $500k.
__________________
rayvt is offline   Reply With Quote
Old 07-26-2011, 07:49 PM   #19
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 510
Quote:
Originally Posted by 67walkon View Post
This is probably one of those repeating threads, but you retired people need the mental stimulation, so here it goes.

I've got a 20 or so year old Whole Life Policy. Turns out it wasn't represented exactly correctly, but such is life.

I'm 61 and FI, trying to figure out exactly when to quit work.

The policy amount is $227,000, and there is an old $10,000 loan we used for a kid's college. The premium, after dividends, this year is around $1200. The cash value is right at $70,000.

What are the options with these policies? We paid the loan down by $10,000 this year and have $10,000 to go. Frankly, while getting $217,000 when I die would be nice for my wife and/or kids, it wouldn't make very much difference to her life style. In other words, she doesn't need it.

I haven't had an agent for years because they just kept trying to sell me more life insurance that I didn't want.

What I can figure out is: 1. Cash out and probably pay some taxes; 2. pay off the loan and let the cash value pay the premiums, probably forever; or 3, just keep paying it. I rather think there are other options, but I'm not savvy enough to know what they are.

Thanks!
Sounds like you've done quite well if what you've stated and my calculations are correct. Investing $100.00/mos compounded monthly for 20 years would reward you with $70,000.00 at a return of apprx 9.5% (and you paid for insurance out those monthly payments).
__________________
fritz is offline   Reply With Quote
Old 07-27-2011, 04:51 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by rayvt View Post
If you are retired, why do you need life insurance? Insurance is for replacing your income if you die. If you are retired, you don't have any income that needs to be replaced.

The amount of true insurance you have is the face value MINUS the cash value and MINUS the loan amount. So you have 147K of insurance for which you are paying $1200/yr.

Really? Is that enough insurance? A couple of years salary? I would think that if you need insurance, you'd need around $500k.

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
__________________

__________________
mathjak107 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Health Insurance in W Europe Whisper9999 Life after FIRE 24 08-01-2011 09:47 PM
Life Insurance After Retirement? Tree-dweller FIRE and Money 28 07-17-2011 05:22 AM
Massachusetts Individual Health Insurance inquisitive Health and Early Retirement 9 06-28-2011 09:22 AM
Early withdrawal rules question bizlady FIRE and Money 2 06-23-2011 02:09 PM

 

 
All times are GMT -6. The time now is 08:05 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.