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Insurance Question - Kinda Long/Convoluted
Old 06-21-2011, 02:59 PM   #1
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Join Date: Jul 2008
Location: Leeward Oahu
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Insurance Question - Kinda Long/Convoluted

Selling family bidness to next generation. One asset is a Flexible Premium Variable Life insurance policy on my life (kept in force by the business). It was purchased to fund a buy/sell agreement between siblings. When my sister died several years back, her policy was a god-send to her family (and, not-so-indirectly, to the remaining family members, aka shareholders).

Right now, the 3 options I see are 1) the business keeps the policy in force (a type of living-lotto on my life), 2) cash in the policy which has 20K cash value, or 3) sell the policy to me at something near the cash value, allowing me to pick up some insurance without underwriting.

In situation 1, I am more likely to "pay off" now that I have accumulated some extra cholesterol points (and a few other things). I qualified for "standard" premiums many years ago when the policy was taken out. I would be "rated" now by underwriters. Cash wise, to me, it's a wash. I could "buy" the policy and then cash it in myself (or keep it in force by paying premiums) or else I could get the cash value as increased stock price if the new owners want to keep the policy on me. Only real question is whether I trust the next generation not to try to collect early (heh, heh, heh).

Situation 2 is a wash to all concerned. The cash value goes directly to stock price whether it is cashed in or sold to me or kept by the business. It's just trading one asset for another of equal value.

Situation 3 is sort of the reverse way of looking at #1. I now have a "bargain" insurance policy available to me. It was bought at standard rates, but now it's insuring a "rated" person (old guy with "issues"). I could not buy this coverage for the current premiums. I have relatively little insurance although DW would get all the marbles if I die. I did short-change her on my pension survivor benefits to get a bigger monthly check. I count waiting until 70 to collect SS as my way of ameliorating this "slight" (she DID have to sign off on it!). Still, I have to live to 70 to make my plan work completely. With over 5 years to go, it might be a good idea to pick up the "cheap" insurance. (Oh, and the salesman has already been paid, so premiums go to cash value and insurance cost now instead of 3-5 years of payments to a salesman.)

All in all, I suppose this is not the worst "problem" to have. I solicit the thoughts of the smartest folks I know. (Maybe there is an option 4, 5, ....) What would you do? By the way, the relative merits of SPVLI vs other types are (hopefully) for another discussion.

Thanks and Aloha
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