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Whole life policy
Old 02-25-2008, 09:30 PM   #1
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Whole life policy

I'm holding a whole life policy and thinking of cashing it in. I retired over a year ago and see no need to keep it but concerned about taxes. Called the company Mass Mutual and if I cash it in by the end of this year it has a cash value of 148K. 60K in dividends would be taxable. It's a 500K policy and I've owned it for 21years. The yearly cost is $6875.00 most of which at this point is paid by the dividends but I still have to put about 2 to 3K in a year.

What do you guys think I should do with it? Also are the dividends taxed as earned income?
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Old 02-25-2008, 09:39 PM   #2
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Whoa, slow down.

Whole life policies aren't a great deal when you're starting out, but you're well past that. Talk to your agent (or directly to the company) and ask them to see if dividends will cover the premium.

Has the death benefit been going up in recent years? My guess is that part of the dividends are going to buy paid up additions (more coverage) when they could be used to pay the premium.

Part of the hard fought battles by the insurance industry means that dividends aren't taxed as income.
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Old 02-25-2008, 09:39 PM   #3
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Careful on the tax side: I had a left-over cash value of $30K in an old policy I didn't need. Thinking it was all cash value since that is how it is listed by the insurance company, and since dividends over the years had been used for add'l insurance, payment of premiums, etc. I thought it would have minimal tax implications.

Turns out the whole thing would have been reported as income, per the carrier. My accountant contested that but to no avail. Decided it to leave it in there until I'm in a lower tax bracket. It may have been contaminated by a policy loan decades ago.
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Old 02-25-2008, 09:53 PM   #4
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Quote:
Originally Posted by saluki9 View Post
Whoa, slow down.

Whole life policies aren't a great deal when you're starting out, but you're well past that. Talk to your agent (or directly to the company) and ask them to see if dividends will cover the premium.

Has the death benefit been going up in recent years? My guess is that part of the dividends are going to buy paid up additions (more coverage) when they could be used to pay the premium.

Part of the hard fought battles by the insurance industry means that dividends aren't taxed as income.
Yeah, I know I screwed up but what can I do. My agent died and I wouldn't doubt someone offed him. The ins. company is no help and they just double talk me when I speak to them. I'm not smart enough to figure out what they are doing. I think you are right that I'm paying for additional ins.. I was originally told I would only have to pay the $6875 for 10 years, but we all know how that scam works, at least now I do.
The dividends are not enough to pay the $6875 but maybe I should ask about the additional ins. thing. Then maybe the dividends would cover the premium.

So how are the dividends taxed if not as income?
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Old 02-26-2008, 02:14 PM   #5
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Every time I see my insurance agent around town, he ducks down some ally or hids behind a tree. These guys make a good living scamming fast talking young couples just starting out, me included. But that was then. Here is my plan now.

After 33 years of paying monthly for this whole life policy, I'm going to hang on to it until the end, my end. It's buying additional insurance every year, and it only costs me about $100 per month. When DW, or DD, takes the policy to the allusive insurance agent for the big pay day, my hope is that it will cover either, 1) wife's loss of my mega corp pension & part of the SS check, or 2) if I survive DW, will take care of DD's estate taxes. The rate of increase of the death benefit is quite a healthy return on the $100 each month. I've decided to hold on, cheat Uncle Sam of ANY of the taxes, now or later.
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Old 02-26-2008, 07:26 PM   #6
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Originally Posted by tightasadrum View Post
Every time I see my insurance agent around town, he ducks down some ally or hids behind a tree. These guys make a good living scamming fast talking young couples just starting out, me included. But that was then. Here is my plan now.

After 33 years of paying monthly for this whole life policy, I'm going to hang on to it until the end, my end. It's buying additional insurance every year, and it only costs me about $100 per month. When DW, or DD, takes the policy to the allusive insurance agent for the big pay day, my hope is that it will cover either, 1) wife's loss of my mega corp pension & part of the SS check, or 2) if I survive DW, will take care of DD's estate taxes. The rate of increase of the death benefit is quite a healthy return on the $100 each month. I've decided to hold on, cheat Uncle Sam of ANY of the taxes, now or later.
What does buying additional ins every year mean. If you just stay with the face value of the policy Saluki says you/me may not have to pay any money toward the premium.

Confused!
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Old 02-26-2008, 09:13 PM   #7
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Well, I read it this way.....

With whole life policies, you can apply dividends to either go towards premium payments, accumulate at interest or buy additional paid up insurance. Your annual statement should tell you clearly what your're doing and it's your choice.

With policies a couple of decades old, like yours, the dividend, if applied towards paying the premium, might have grown to be large enough to pay all or most of the premium.

Go look at your last annual statement and see how your dividend was applied.

edit: btw, in tight's example, it looks like he's paying the premium with his own cash and applying the divident to the purchase of additional paid up insurance.
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Old 02-26-2008, 11:42 PM   #8
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Quote:
Originally Posted by 73ss454 View Post
I'm holding a whole life policy and thinking of cashing it in. I retired over a year ago and see no need to keep it but concerned about taxes. Called the company Mass Mutual and if I cash it in by the end of this year it has a cash value of 148K. 60K in dividends would be taxable. It's a 500K policy and I've owned it for 21years. The yearly cost is $6875.00 most of which at this point is paid by the dividends but I still have to put about 2 to 3K in a year.

Have the premiums been flat at $6875 for 21 years?

It's my understanding that if you take your total premiums paid, that amount is considered to be your taxable cost (less any loans outstanding).
Usually, there's a variety of fees/costs built-in to your cash value amount, so just because your policy has created $60k in dividends doesn't guarantee that you'll pay taxes on $60k - it depends on the total premiums you've sent to the life insurance company vs what the current cash-out cash value is.
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Old 02-27-2008, 08:49 AM   #9
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Yes the permium is $6875 till the age of 100 but the dividends are paying most of the premium at this point.

Mass Mutual did all the calculations last month for me and said that my taxable end would be just about 60K if I cash it in by Sept. of this year.
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