Surrender Universal Life Policy?

[SoaringEagle]

Or like I suggested:



I think what logan is suggesting is to just stop paying premium and let the monthly cost of insurance/mortality charges (like term insurance within the IUL) and administration fees slowly eat away at the $22,000 account value.



I think what he suggests makes sense as you would, at least in a backwards way, avoid the onerous $10,000 surrender charge and avoid the need to pay out cash for term insurance coverage and who knows, there may be some money left at the end once the surrender penalty expires. Minnesota Life should be able to do an in-force illustration of what would happen if you stopped paying premiums.

I will definitely call Minnesota Life and see what my options are to stop paying full premiums and to pay solely the insurance cost from the cash value of the policy. I'll compare that option to a full surrender option before I make the final decision.

Thanks everyone for your help.

 

[Scuba]

Okay. I see what you are suggesting now. Paying simply the insurance cost with cash value of the policy. Intriguing thought.

The policy is confusing to read and it written in a way that only an insurance broker would understand. Is that option available on all Indexed Universal Life policies? If so then how would I set that up? The broker was my CFP that I fired 2 weeks ago. Can I contact the insurance company directly?

In addition to your calculations that you described above, I would also have to consider calculations of the surrender value invested over the next 10 years. $12k surrender value invested over 10 years at 6% returns would be worth $22k which is another $10k in my pocket. That alone probably seals the deal of dumping this policy

Another consideration is the $800+ per year in fees with this current Universal Plan. Just because I'm only paying the insurance cost on this policy, I'm guessing that I still have to pay those rediculous fees right? That again seems to make a good argument to dump this thing.

Another issue that I see is that even if I use the cash value to pay the insurance cost until the surrender period ends (10 years from now), then that leaves me at an age where purchasing a term policy may be prohibitive but I may still need another few years of insurance for my younger wife.

One more thought is that if I have to pay a professional to help me decipher the language of this Universal Policy then that is just one more expense and hassle to deal with.

I'm open to digging myself out of this ditch at the lowest possible cost, and so I appreciate your insight

Your situation may be different than mine was, but for me it was better to cut my losses, get my net proceeds out and invest in the market ASAP. Fees were so high that they were eating up most of my returns. And we didn’t need the life insurance.

 

[Mulligan]

I got a few quotes for $30K policy 20 year term and all came back at around $400 per year. That may be overkill and so I might lower that term amount a bit. I also have another term policy through my work for $800k but that only covers me while I'm still employed.

SoaringEagle, oh another joy of being young! Im mid 50s and just bought a 300k term policy and I have to pay $1200 a year. I guess they think that I have a better shot of dying during the coverage years than you do! Well, and admitting I suck on nicotine mints all day didnt help my price either. . But my BP is 104/68 so screw them I aint quitting!

 

[SoaringEagle]

Thanks everyone for the insight and comments and suggestions. Just an update. I had Minnesota Life run an in force illustration on my policy if I stopped paying premiums and used the current cash value to pay only the insurance cost of the policy going forward.

The cash value of my current policy would indeed pay my insurance cost for 20 years with a full death benefit of 500k. If the market had really good years then the best case scenario might potentially leave a surrender value of 10k in 10 years and a surrender value of zero in 20 years and absolutely zero surrender value is guaranteed beyond 8 years.

If I surrender the policy now then I could invest the $12k surrender value now and with a convervative return of 5% I could have $20k in 10 years and $32k in 20 years. I can get a 500k 20 year term policy for $600 per year and so subtracting the premiums on that term policy from my potential returns, I could be ahead somewhere between $4k and $14k in 10 years and ahead 20k in 20 years with the term policy.

One of the real killers of the life policy that it is has fees greater than $1000 per year and those fees would eat into my cash value faster than the actual insurance costs.

It seems like the best option is to secure a term policy, surrender the life policy, invest the difference, and walk away with my tail between my legs.

Let me know if I missed anything.

Thanks again everyone.