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Life Insurance Question
Old 03-15-2023, 01:19 PM   #1
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Life Insurance Question

Not looking to get flamed here, just looking for some advice.

I have had a $1m Universal Life Policy for the last 15+ years. Got it when the kids were young. Kids are grown and gone.

My DW and Kids donít need the insurance if I die, itís only a luxury at that point. A nice thing when I do die. Cash value is $82k, and will boarder line self fund the policy.

Do I take the $82k now, and use it, or just let it ride for a nice thing for the family when I do pass on? Ultimately the $82k would eliminate 100% of my debt, and allow for $15k per year additional savings after the debt is eliminated.

Seems as if I take the cash value now, and kill the policy, and then I die next week, I was foolish. If I donít die for 30 years, probably not a bad thing.

TD
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Old 03-15-2023, 01:49 PM   #2
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What is your age now ?
Basically if you are going to live to roughly 80, it could be a long time.

There are possible issues in actually collecting the insurance payout sometimes. I saw it with my best friends father, his ~25 old policy refused to pay, claiming since he died of a heart attack, he lied when he got the policy by saying he didn't have heart issues
Eventually the company offered to pay 1/2 the benefit, or see you in court.
They can drag out a court case for decades.

I also worked with an ex-insurance worker, it was not her case, but she sat with the folks how handled it. An old man died, the ins company delayed, requested more documents, delayed, etc, until the old wife died.. now the children took up the case and fight with the insurance company. Why would the insurance company delay so much, partially because the workers got BONUS pay for all the extra savings from not paying out quickly or even simply not paying.

Will you heirs want to pay legal fees for years to "win" the case.
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Old 03-15-2023, 02:02 PM   #3
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We cashed out our universal life policy several years prior to retirement, while we were still working. Kids were grown, out of school, we had a decent balance in our IRAs and both of us had a good pension payout if either one died. We no longer needed it for financial help if one of us passed early.
That was basically why we had insurance in the first place, and foolishly, years ago did not buy term
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Old 03-15-2023, 03:44 PM   #4
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Quote:
Originally Posted by topdawg4ever View Post
Not looking to get flamed here, just looking for some advice.

I have had a $1m Universal Life Policy for the last 15+ years. Got it when the kids were young. Kids are grown and gone.

My DW and Kids don’t need the insurance if I die, it’s only a luxury at that point. A nice thing when I do die. Cash value is $82k, and will boarder line self fund the policy.

Do I take the $82k now, and use it, or just let it ride for a nice thing for the family when I do pass on? Ultimately the $82k would eliminate 100% of my debt, and allow for $15k per year additional savings after the debt is eliminated.

Seems as if I take the cash value now, and kill the policy, and then I die next week, I was foolish. If I don’t die for 30 years, probably not a bad thing.

TD
Since you don't need the insurance I would kill it and cash it in. UL is like a marriage of a CD and term insurance, as you age the monthly cost of insurance charges will increase, especially if you have the option B where the death benefit is a fixed amount plus the account value. For option A where the death benefit is a fixed amount the increase in mortality charges as you age is partially offset but lower net amount at risk so you're buying less coverage.
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Old 03-15-2023, 04:09 PM   #5
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57 years old

Quote:
Originally Posted by Sunset View Post
What is your age now ?
Basically if you are going to live to roughly 80, it could be a long time.

There are possible issues in actually collecting the insurance payout sometimes. I saw it with my best friends father, his ~25 old policy refused to pay, claiming since he died of a heart attack, he lied when he got the policy by saying he didn't have heart issues
Eventually the company offered to pay 1/2 the benefit, or see you in court.
They can drag out a court case for decades.

I also worked with an ex-insurance worker, it was not her case, but she sat with the folks how handled it. An old man died, the ins company delayed, requested more documents, delayed, etc, until the old wife died.. now the children took up the case and fight with the insurance company. Why would the insurance company delay so much, partially because the workers got BONUS pay for all the extra savings from not paying out quickly or even simply not paying.

Will you heirs want to pay legal fees for years to "win" the case.
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Old 03-15-2023, 04:11 PM   #6
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My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.
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Old 03-15-2023, 04:23 PM   #7
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Quote:
Originally Posted by topdawg4ever View Post
My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.
hmmmm..... sounds like she has a plan
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Old 03-15-2023, 04:24 PM   #8
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Quote:
Originally Posted by topdawg4ever View Post
My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.
It will probably 'blow up' before then based on increasing insurance costs so cash it in before those drain the cash value.

I had a couple of UL policies which did the above which is why I think they should be banned by law...I didn't pick them but got stuck paying for them.
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Old 03-15-2023, 07:05 PM   #9
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Checklist before surrendering. Deciding whether to surrender an old inforce policy is different from buying a new. The upfront commissions you paid are sunken costs.

1. Are you still healthy and insurable? If not, prob keep the policy.
2. Get an updated illustration based on various funding levels youíd like to see. See what the projected returns are. Compare that to the alternative investments youíd otherwise put the money in. I guess you said pay off debt, so that sounds pretty compelling of a reason to surrender.
3. What guarantees are you giving up? Your policy might be old enough to have a 3% or 4% minimum crediting rate.
4. What are the loan provisions in the policy? Can you take a loan instead of surrendering to pay off the debt, then pay yourself back by paying off the loan over time?
5. Do you have gains in the policy and what would be the tax implications of surrendering?
6. Are you eligible for a Roth? Either way if you will have significant excess cash flow you can stuff it into the UL and use it as your Roth in retirement.

A UL policy can be a powerful financial tool if you know how to use it. if I was in your shoes Iíd keep it if I had lots of excess cash to fund it , using it like a Roth. If itís being minimally funded and used like term, Iíd probably surrender, otherwise your cash value will just drain over time prob before you die. But there is a lot to consider as I noted above, so I advise taking the time to decide and not rushing the decision.
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Old 03-15-2023, 07:24 PM   #10
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Quote:
Originally Posted by topdawg4ever View Post
My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.

Just to be clear. Actually you arenít forfeiting $920kÖ..because, uh, you arenít going to see any of it.
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Old 03-15-2023, 07:34 PM   #11
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Originally Posted by topdawg4ever View Post
My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.
I guess we're going to see who the real top dawg is ....
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Old 03-16-2023, 04:58 AM   #12
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Quote:
Originally Posted by topdawg4ever View Post
My wife views this as we are forfeiting $920k. Keeping in mind the policy is void once I hit 75 in 18 years.
Consider that the insurance company considers it in their financial favor for you to keep the insurance. That's why they sell it.
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Old 03-16-2023, 07:09 AM   #13
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In considering whether to dump the UL, I would list simplification of your busy retirement life as one of the reasons to dump.
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Old 03-16-2023, 04:56 PM   #14
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I'm a (mostly) a Dave Ramsey follower. I hate and avoid all debt for periods longer than 30-days. If cashing the policy will get you debt free and save $15k per year then I say do it. if you still want to have a bit of LI then shop for a 10-20 yr level term LI.
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Old 03-20-2023, 07:42 AM   #15
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I really appreciate all the detailed responses. Being almost 58, and my DW almost 55 and being comfortable at this point in retiring, I think my fear is always going to be ruining out of money and leaving my family stuck. Now, that being said, I still have a $1m term that expires in 2032 (I'd be 68), and as I said being the $1m UL expires when I am 75.
Again, the $82k now would be handy. I just don't want to be foolish.
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Old 03-20-2023, 06:40 PM   #16
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Quote:
Originally Posted by topdawg4ever View Post
I really appreciate all the detailed responses. Being almost 58, and my DW almost 55 and being comfortable at this point in retiring, I think my fear is always going to be ruining out of money and leaving my family stuck. Now, that being said, I still have a $1m term that expires in 2032 (I'd be 68), and as I said being the $1m UL expires when I am 75.
Again, the $82k now would be handy. I just don't want to be foolish.

What was the original purpose for the UL, given you have a term?

If youíre reluctant on making a decision, there is no rush to surrender it, take your time. In the meantime what are the loan provisions? Maybe take a loan out of it to pay off the debt and then pay your self back. It works kinda like home equity. Also how much gain do you have in the policy should you surrender?

You can use the UL as a Roth if you heavily fund it. It can also be an efficient way to pass down wealth. If you have extra cash flow to stuff the UL, I would keep it. But if you plan to let it ride for the insurance itís prob better to surrender it, assuming you donít have a large tax consequence.
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Old 03-20-2023, 06:58 PM   #17
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I also just retired and donít need the 1 M policy. Mine is whole life and does not end. Wife want to keep it or cash out for 130,000. Right now we keep it, but stopped paying premium. In 6 years it will start reducing cash and we will cash in.
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Old 03-20-2023, 08:43 PM   #18
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I also just retired and donít need the 1 M policy. Mine is whole life and does not end. Wife want to keep it or cash out for 130,000. Right now we keep it, but stopped paying premium. In 6 years it will start reducing cash and we will cash in.
I have an old 1977 whole life policy that I'm still paying $19/mo of premium. Why you might ask.

Well, even ignoring the potential death benefit the cash value is growing by about 3% plus the $228 that I pay in premiums, so I view it as a bond substitute and up until recently the growth rate was better than many bonds.

Plus if I die my beneficiaries get a nice tax-free death benefit and can throw a nice memorial party for me.
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Old 03-21-2023, 11:24 AM   #19
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Quote:
Originally Posted by topdawg4ever View Post
I really appreciate all the detailed responses. Being almost 58, and my DW almost 55 and being comfortable at this point in retiring, I think my fear is always going to be ruining out of money and leaving my family stuck. Now, that being said, I still have a $1m term that expires in 2032 (I'd be 68), and as I said being the $1m UL expires when I am 75.
Again, the $82k now would be handy. I just don't want to be foolish.
Do you know what you get when the policy matures at age 75?
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