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Universal life
Old 02-09-2009, 10:41 AM   #1
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Universal life

My father is 84 with a whole life from a large company with a cash value of 38000 and diminshing each year, $2600 per yr premium with life insurance value of
$116,000. The $116,000 goes to ZERO at age 92. So if he lives into about the 3rd month of 92 - nothing. He is upset becasue he says he was never told about the sunset or expiration.
He went to one of the banks in Florida and they want to sell him a Universal Life - put up the $38800 in full by a 1035 exchange, pay $2600 per year, and have life insurance of $73000. Surrender value $22000 first year which dimishes and also early redemption fees that fade out.
Six % charge on premium, a monthly administrative charge of 1% on $73000 for the first six years.

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Old 02-09-2009, 11:02 AM   #2
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You didn't mention your father's needs for life insurance. Does he still have dependents counting on him for income? Is he trying to do estate planning with life insurance? Hopefully, he isn't thinking of it as an "investment."
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Old 02-09-2009, 11:10 AM   #3
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No dependents. The 1% of $73000 comes out of the cash vaule.
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Old 02-09-2009, 11:17 AM   #4
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Does he want to leave any money to beneficiaries?
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Old 02-09-2009, 11:18 AM   #5
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No dependents. The 1% of $73000 comes out of the cash vaule.
Is that 1% annualized (i.e. 0.0833% per month) or 1% per month? $730 per month sounds pretty horrific for an "administrative charge."

My gut feeling is that if he has no dependents counting on the money, he should probably get out now, but you'll want to know the tax ramifications of doing so (i.e. if the cash value exceeds the premiums paid, the excess is likely to be taxable).

Of course, my gut feeling might also be influenced by his general health and family history of longevity. If he's still very healthy and his family history indicates longevity, I'd be more inclined to get out of it.
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Old 02-09-2009, 11:26 AM   #6
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How long has he owned the policy? I think the bank's idea is a terrible one.......
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Old 02-09-2009, 11:29 AM   #7
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How long has he owned the policy? I think the bank's idea is a terrible one.......
Agreed. Depending on his specific circumstances and health I *might* keep the existing policy, but there's no way I take the bank's offer. If the existing policy isn't worth keeping given his specific situation, it should probably be cashed out. The 6% commission PLUS admin fees PLUS surrender charges make that option sound like a non-starter to me.
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Old 02-09-2009, 11:43 AM   #8
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Agreed. Depending on his specific circumstances and health I *might* keep the existing policy, but there's no way I take the bank's offer. If the existing policy isn't worth keeping given his specific situation, it should probably be cashed out. The 6% commission PLUS admin fees PLUS surrender charges make that option sound like a non-starter to me.
$2600 a year seems a lot for a $116,000 face that GOES away.......

Time to ask about non-forfeiture options......
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Old 02-09-2009, 12:10 PM   #9
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I think that if he has no dependent it makes no sense to pay $2,600 a year for a life insurance policy he doesn't need. Can he cash in his current policy at minimal costs? If the policy was opened many years ago, he probably could cash it in without paying surrender charges and, at this point, I bet that he wouldn't have to pay taxes on the proceeds either.

The bank suggestion to do a 1035 exchange into a variable life policy is downright criminal IMO. Bunch of vultures if you ask me.
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Old 02-09-2009, 12:21 PM   #10
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Sounds like he could cash it in any time before he hits 92, when it disappears? Does it increase in cash value each year, beyond the $2600 premium? If so, and if he doesn't need the money now, he could keep it and cash it in just before he's 92 if he lives til then, couldn't he?
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Old 02-09-2009, 12:30 PM   #11
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Sounds like he could cash it in any time before he hits 92, when it disappears? Does it increase in cash value each year, beyond the $2600 premium? If so, and if he doesn't need the money now, he could keep it and cash it in just before he's 92 if he lives til then, couldn't he?
It sounds to me that the cash value steadily declines and goes to zero when he's 92. That's why I'd be inclined to cash it out now if he's healthy and especially if he has a family history of longevity. If, on the other hand, he wasn't very healthy and didn't seem likely to live another eight years, keeping the current policy in force would be a defensible position.

What isn't defensible is doing a 1035 into that bank's fleecing alternative. Those fees and surrender charges are brutal for anyone, especially someone who is 84...
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Old 02-09-2009, 12:40 PM   #12
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Ah, I missed that "cash value of $38,000 and diminishing each year"--sorry.

I think Nellieb's father needs to be protected from the bank. That's terrible.
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Old 02-09-2009, 01:17 PM   #13
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The bank suggestion to do a 1035 exchange into a variable life policy is downright criminal IMO. Bunch of vultures if you ask me.
probably has a 10 year surrender and other things. I can't imagine a Compliance Department signing off on that...........
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Old 02-09-2009, 01:20 PM   #14
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probably has a 10 year surrender and other things. I can't imagine a Compliance Department signing off on that...........
One would hope...
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Old 02-09-2009, 03:42 PM   #15
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Why does an 84 year old man need permanent LI or any LI? Is there an estate issue?
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Old 02-10-2009, 09:47 AM   #16
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Also might want to see about taking a loan on existing policy vs cashing out, then not repaying it.

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Old 02-10-2009, 12:48 PM   #17
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Why does an 84 year old man need permanent LI or any LI? Is there an estate issue?
Even if there is an estate issue, you need to evaluate it as an investment.

What is the likely benefit of the insurance, versus other uses of the money? Those premiums could be gifted (up to $11,000 per individual is the current limit I think), with zero estate tax impact and no forms to fill out.

Note that for estate purposes, the insurance needs to be held outside the estate. Just naming beneficiaries is not enough. That is, as I understand it, but I don't even pretend to be a lawyer anywhere.

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