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Old 08-31-2013, 07:53 AM   #21
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The underwriting risk is real but is usually remote for health teenagers. While it is real I don't see it as being a "big" concern.

Dividends are typically declared each year based on how the company (actually how that block of policies) have done. With the current low interest rate environment dividends have been declining and if interest rates improve they would likely increase over time.

At this point the agent probably isn't getting anything from the policies so I suspect that he believes his own BS.

It sounds like the policy has been set up so dividends accumulate with interest, hence the separate CSV on the base policy and the accumulated dividends. One question that you might ask is what interest rate the accumulated dividends earn.
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Old 08-31-2013, 08:25 AM   #22
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And the two together currently have enough to pay for about 30 years of premium-it is a fixed amount for premium and will not go up. If in the current low interest rate environment the dividend pays half, then there is enough to pay 60 years before depleting the internal cash and requiring external cash to pay the premium. With a flat premium, in 60 years that will be a tiny amount given inflation.
But this is something that I don't think you're realizing: I'm thinking that the whole life policy is being charged a certain rate for your children's insurance coverage based on their age. At their current age, it'll be miniscule. But as they get older, the cost of the insurance that is charged to the policy will be higher! (I think most whole life policies work that way).

That means that while the current dividend rate and cash value can pay 60 years of premiums before being depleted, that is based on their cost of insurance at age 18! As they get older, the higher insurance costs charged to the policy will deplete that cash value much more quickly than in 60 years time. Which means additional premiums will be likely due well before they turn 80.

But let's say somehow that isn't the case, and the cash value magically pays the premiums for another 60 years. That means when they're 80, they have to pony up additional premiums for the rest of their lives. And don't forget again - those premiums at age 80 will be MUCH, MUCH, MUCH higher than the cost of the insurance now. Think of how much a term life policy would cost an 80 year old, and that's how much it will cost your children!

I honestly can't see this ending in a good way if you keep the policy, regardless of which angle you look at. I would simply roll the cash value into an investment and let it grow.
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Old 08-31-2013, 09:12 AM   #23
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MB, whole life does NOT work the way you are thinking. Universal life works the way you are thinking in that cost of insurance charges assessed against the policy account value increase with age, but whole life is very different.

With whole life, it is all built into the premium, which is fixed and cannot change.

You're giving bad advice based on your misunderstanding of how these policies work.


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But this is something that I don't think you're realizing: I'm thinking that the whole life policy is being charged a certain rate for your children's insurance coverage based on their age. At their current age, it'll be miniscule. But as they get older, the cost of the insurance that is charged to the policy will be higher! (I think most whole life policies work that way).

That means that while the current dividend rate and cash value can pay 60 years of premiums before being depleted, that is based on their cost of insurance at age 18! As they get older, the higher insurance costs charged to the policy will deplete that cash value much more quickly than in 60 years time. Which means additional premiums will be likely due well before they turn 80.

But let's say somehow that isn't the case, and the cash value magically pays the premiums for another 60 years. That means when they're 80, they have to pony up additional premiums for the rest of their lives. And don't forget again - those premiums at age 80 will be MUCH, MUCH, MUCH higher than the cost of the insurance now. Think of how much a term life policy would cost an 80 year old, and that's how much it will cost your children!

I honestly can't see this ending in a good way if you keep the policy, regardless of which angle you look at. I would simply roll the cash value into an investment and let it grow.
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Old 08-31-2013, 03:19 PM   #24
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MB, whole life does NOT work the way you are thinking. Universal life works the way you are thinking in that cost of insurance charges assessed against the policy account value increase with age, but whole life is very different.

With whole life, it is all built into the premium, which is fixed and cannot change.

You're giving bad advice based on your misunderstanding of how these policies work.
This is correct as I was told, anyway. the premium is the same every year forever. It never goes up. Now, more and more of it is likely to be used to buy the term until probably all of it will be just buying term and not invested, but the cost each year is fixed and therefore actually in real dollars goes down over time. Again, the kids would have been better off with a term policy if insurance were the issue and invest the difference in an index fund within a 529. 529 was a relatively new thing when my second son was born, so I get that it was not apparent at the time of the policy sale. That is all history. The question is what to do now. And I am still not sure. Adding to the complexity is my upcoming retirement. (December 1!!!) So next year with only my wife's salary we will be in a lower tax bracket. Until I know the tax liability it is hard to know how much that is likely to make a difference. I suspect this is the least important aspect over all.
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Old 08-31-2013, 04:27 PM   #25
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It seems like the questions of whether to buy whole life insurance or whether to cancel a long held whole life policy are very different.

For example, my mom bought a whole life policy, face value $5k, on me 50+ yrs ago. I now own it and DW is beneficiary. I have no doubt that this has NOT been the best use of the premium money that was paid in and would NOT recommend it.

OTOH, today the death benefit is about $30k, the dividends have been paying the premium for many years so there is no longer an annual bill coming in. (We reinvested dividends for many years until they were large enough to pay the premium.) Today, the policy sits in the safe deposit box and if I predecease DW, she grabs it and collects (the insurance company says they pay within 2 weeks of receiving the death certificate) to cover funeral expenses and immediate needs. The death benefit is slowly growing in value because the dividends exceed the premium. So, I've decided to leave it as is. I could collect the cash value and invest it in some other way but it seems like there is no low risk investment alternative that would yield enough additional to make it worth while.

Bottom line = wouldn't recommend buying WL but I'm not cashing in this policy. The negatives are water under the bridge at this time.
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Old 08-31-2013, 04:50 PM   #26
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I may already have ENOUGH for each kid. If neither goes to grad school, I have it covered. If both go beyond 4 years of college, I may be a little short depending on length and cost and aid and stipends, etc.
You are a seriously generous parent.
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Old 08-31-2013, 06:30 PM   #27
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It seems like the questions of whether to buy whole life insurance or whether to cancel a long held whole life policy are very different.

For example, my mom bought a whole life policy, face value $5k, on me 50+ yrs ago. I now own it and DW is beneficiary. I have no doubt that this has NOT been the best use of the premium money that was paid in and would NOT recommend it.

OTOH, today the death benefit is about $30k, the dividends have been paying the premium for many years so there is no longer an annual bill coming in. (We reinvested dividends for many years until they were large enough to pay the premium.) Today, the policy sits in the safe deposit box and if I predecease DW, she grabs it and collects (the insurance company says they pay within 2 weeks of receiving the death certificate) to cover funeral expenses and immediate needs. The death benefit is slowly growing in value because the dividends exceed the premium. So, I've decided to leave it as is. I could collect the cash value and invest it in some other way but it seems like there is no low risk investment alternative that would yield enough additional to make it worth while.

Bottom line = wouldn't recommend buying WL but I'm not cashing in this policy. The negatives are water under the bridge at this time.
One other possibility would be to convert to a paid up policy which essentially means that the dividends would go to buying more paid up insurance.
Once one of my policies reaches paid up status in 2016 (paid up at 65) I intend to convert the other that is paid up at 85 to a paid up policy. If you have the original documents they can tell how much the base policy paid up amount is.
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Old 08-31-2013, 07:08 PM   #28
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You are a seriously generous parent.
No, my wife is seriously generous. I feel like 4 years of college in this day and age is generous enough. I have been outvoted.
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