Life Insurance Question

[hguyw]

Hi all,

I have a couple of whole life policies that my folks took out on me when I was a kid. I've been mindlessly paying the premiums all these years, but recently have been doing some research on this stuff...and find that all the personal finance gurus say whole life is a rip-off.

So I'm running this by the wise folks on this board just to get additional input. I'm 50, single, no dependents, no debt other than the $16,000 balance on my mortgage. I have nearly 400K in my 403b; some of it's in an annuity.

I'm thinking it's time to cash these two policies in. The cash value, if added to my current EF (which I'm currently rebuilding since paying off the last of my CC debt last October), would pay my bills for 8 months if need be.

Any downside to cashing these in (or whatever the term is) that I may be overlooking?

Thanks!

 

[crazy connie]

If you are not responsible for anyone else like wife or kids... Then cash em out. If you have a wife or kids and some term ins to cover then that is ok too. Look at your obligations and get some term (if needed) first. I cashed in 20K last fall myself.

 

[tightasadrum]

I have a whole life policy I've had for over 30 years. After reviewing the pros and cons, I've decided to hold on to it. The death benefit is growing along with the cash value. I don't need the money from the cash value. I'll let the insurance take the place of a reduced benefit on my puny pension that I could elect for my wife after I'm gone. that way I get to sock it to my old pension fund a wee bit more while I'm around.


If I was starting over today, I'd just get term insurance. But what's done is done, so I might as well get something for my trouble. I have a friend who teaches this stuff in the business school. After explaining broadly what I had going, he agreed with my conclusions. I figure he was about as good a non-biased source as I could come up with.

 

[Coach]

Cashing them out sounds like the right move to me, hguyw.

Coach

 

[REWahoo]

Better check to see what tax liability, if any, you will incur if you cash them out.

 

[hguyw]

Better check to see what tax liability, if any, you will incur if you cash them out.

I think I'd still be money ahead. The total cash value is around $13K. I don't know how things like that are taxed. I would think that most of it wouldn't be taxable since my premiums were paid "after taxes" and I've been paying tax on the interest (1099INT) all these years. But I admit I don't entirely understand how stuff like this works. <sigh>

 

[SecondCor521]

I think I'd still be money ahead. The total cash value is around $13K. I don't know how things like that are taxed. I would think that most of it wouldn't be taxable since my premiums were paid "after taxes" and I've been paying tax on the interest (1099INT) all these years. But I admit I don't entirely understand how stuff like this works. <sigh>

I'm no expert, but when I cashed out some whole life many years ago, you basically pay capital gains taxes on the difference between the cash value and the total of premiums you paid in.

In my case, the insurance company sent me an IRS form of some stripe and I just put the number from that on my tax return somewhere.

2Cor521

 

[UncleHoney]

I dumped three whole life policies two years ago. One was 42 years old and the other two were about 35 years old. The total face value of the policies was $30k ( two 10k for me and one 10k for DW). The cash value turned out to be about $16k. After all those years the taxable amount was $185.

We looked at the cash value as almost equal to the insured value for me and more than the insured value for DW so we cashed them in and bought a CD.

 

[Walt34]

Years ago a good friend loaned my a copy of The Mortality Merchants, a book about the life insurance industry. The purpose of life insurance is to replace your earnings if you have dependents, or at least give them time to educate/support themselves and recover from the financial loss.

Whole life is indeed a rip. So are policies like mortgage insurance, a decreasing term policy is a lot cheaper and fulfills the same function.

You don't have dependents, and if you get hit by a bus there's plenty there to avoid sticking anyone with any bills. You don't need life insurance. JMHO.

 

[Art G]

Look into taking out a loan against the insurance policy. This would avoid any tax ramifications. I've seen policies that pay more out than what you are paying in interest for the loan, thus you are making money to take your money out and do something else with it. Be careful though about taking out too much. I'd suggest talking to your insurance agent. JMO

 

[73ss454]

Art, after being sold a whole life policy 21 years ago and still holding it the last person in the world to speak to is the insurance agent. When I spoke with an agent from Mass Mutual about what to do with my policy he came up with another great idea. An Annuity! Brilliant!

 

[Art G]

Art, after being sold a whole life policy 21 years ago and still holding it the last person in the world to speak to is the insurance agent. When I spoke with an agent from Mass Mutual about what to do with my policy he came up with another great idea. An Annuity! Brilliant!

The old policies tended to give more options than the ones of today. Many were set up purely for the tax loopholes. You need someone from the insurance company to explain to you your options. Call their main office if you don't trust the agent.
BTW, I'm a proponent of variable annuities. The ones today offer some outstanding advantages in my opinion. Switching the money into a good variable product may just be a great idea.

 

[saluki9]

I've been paying tax on the interest (1099INT) all these years. But I admit I don't entirely understand how stuff like this works. <sigh>

Sure about that? If you have been getting a 1099 then it isn't life insurance that you have.

Also, it's pretty reckless for somebody to tell you to just cash it in without knowing more about the policy. Whole life is expensive at first, but check to see what kind of dividends you are getting, you might be shocked.

 

[hguyw]

Saluki,

The statement at the top says, "Plan and Premium: Whole Life" and the policy numbers on the statement and 1099INT match. The other 1099INT refers to "interest earned on life insurance dividends" and the policy number matches that online with my account that states it's a "limited pay whole life" policy.

They're both whole life insurance policies.

 

[OAG]

I have a whole life policy I purchased when I retired from the military (at age thirty eight) just to give a few more bucks to the DW and to dispose of the body when and if necessary. I paid premiums for 17 years and then thought I would just cash the policy in. The issuer said I could keep the policy and just stop paying premiums if I wanted to. The policy still will earn a return and grow in both cash, loan and benefit amount but the growth would be less. I took them up on it and stopped making premium payments. They send me a notice each year telling me how much the values have increased (surrender value, loan value and death benefit value). Seemed like a good deal then and it still does.

 

[innova]

BTW, I'm a proponent of variable annuities. The ones today offer some outstanding advantages in my opinion. Switching the money into a good variable product may just be a great idea.

I'd like you to elaborate on this a bit. I can't think of many situations that a VA is appropriate for anyone, so perhaps you can fill me in.

Only situation that comes to mind would be starting a tax-deferred retirement account for a minor, or if you make so much money that you still need a tax-deferred place to sock it away and its either that or whole/Variable life policy.

 

[RockOn]

I'd like you to elaborate on this a bit. I can't think of many situations that a VA is appropriate for anyone, so perhaps you can fill me in.

Only situation that comes to mind would be starting a tax-deferred retirement account for a minor, or if you make so much money that you still need a tax-deferred place to sock it away and its either that or whole/Variable life policy.

I would like to know why also. I have a chunk in VA's. Why should I be happy about that? What do the new ones offer that I should be looking at?

 

[Art G]

The new ones offer living benefits. Old insurance products were designed to help your loved ones when you are gone. New annuities are designed purely for people who are concerned about outliving their portfolio (and are concerned about the future of the stock market). Show me one other product guaranteed to pay income for as long as you and your spouse live with an opportunity for growth AND a possibility to leave money for your heirs and we'll take it from there.
People who have been down on V.A.'s for years are now lauding the advances the product has made.

 

[RockOn]

The new ones offer living benefits. Old insurance products were designed to help your loved ones when you are gone. New annuities are designed purely for people who are concerned about outliving their portfolio (and are concerned about the future of the stock market). Show me one other product guaranteed to pay income for as long as you and your spouse live with an opportunity for growth AND a possibility to leave money for your heirs and we'll take it from there.
People who have been down on V.A.'s for years are now lauding the advances the product has made.

Can you give me the name of a specific product that you like so I can check it out?

 

[REWahoo]

Show me one other product guaranteed to pay income for as long as you and your spouse live with an opportunity for growth AND a possibility to leave money for your heirs and we'll take it from there.

The above statement can be found on page 137 of "Life and Variable Annuity Sales Techniques", MetLife Edition 27.

 

[Nords]

The above statement can be found on page 137 of "Life and Variable Annuity Sales Techniques", MetLife Edition 27.

The fact that it takes 137 pages to sell an annuity should be the first warning sign...

 

[saluki9]

The fact that it takes 137 pages to sell an annuity should be the first warning sign...

Two years ago if you would have told me I would be promoting a VA I would have laughed at you.

Some of the products have become very attractive in the last couple years as long as you really understand them and their limitations.

 

[RockOn]

Two years ago if you would have told me I would be promoting a VA I would have laughed at you.

Some of the products have become very attractive in the last couple years as long as you really understand them and their limitations.

Can you list a few specific products that you consider very attractive? I'd like to check them out. I have money in VA's.

Do youmean the Fidelity VA with the lower fees, or something else?

 

[Art G]

Can you give me the name of a specific product that you like so I can check it out?

Not without knowing more about your situation. The product that matches your needs is directly dependent on your personal goals.

 

[RockOn]

Not without knowing more about your situation. The product that matches your needs is directly dependent on your personal goals.

How about age 53 married, 1 kid in college and 1 about to go which has been taken care of, nearly retired, still working to provide a safety factor, I need about a 2.5 to 3% SWR to make things work. At a 3% SWR I expect to fully fund my retirement and allow for my assets to build at approximately the inflation rate for my estate. Conservative.

I actually don't see where my situation makes that much difference, I just want the highest rate of return possible with the lowest risk. I place a much higher value on low risk vs high returns. Fee's really don't matter as long as my goal is met.