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02-09-2009, 09:41 AM
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#1
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Dryer sheet aficionado
Join Date: Aug 2005
Posts: 26
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Universal life
My father is 84 with a whole life from a large company with a cash value of 38000 and diminshing each year, $2600 per yr premium with life insurance value of
$116,000. The $116,000 goes to ZERO at age 92. So if he lives into about the 3rd month of 92 - nothing. He is upset becasue he says he was never told about the sunset or expiration.
He went to one of the banks in Florida and they want to sell him a Universal Life - put up the $38800 in full by a 1035 exchange, pay $2600 per year, and have life insurance of $73000. Surrender value $22000 first year which dimishes and also early redemption fees that fade out.
Six % charge on premium, a monthly administrative charge of 1% on $73000 for the first six years.
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02-09-2009, 10:02 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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You didn't mention your father's needs for life insurance. Does he still have dependents counting on him for income? Is he trying to do estate planning with life insurance? Hopefully, he isn't thinking of it as an "investment."
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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02-09-2009, 10:10 AM
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#3
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Dryer sheet aficionado
Join Date: Aug 2005
Posts: 26
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No dependents. The 1% of $73000 comes out of the cash vaule.
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02-09-2009, 10:17 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Does he want to leave any money to beneficiaries?
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Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
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02-09-2009, 10:18 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by nellieb
No dependents. The 1% of $73000 comes out of the cash vaule.
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Is that 1% annualized (i.e. 0.0833% per month) or 1% per month? $730 per month sounds pretty horrific for an "administrative charge."
My gut feeling is that if he has no dependents counting on the money, he should probably get out now, but you'll want to know the tax ramifications of doing so (i.e. if the cash value exceeds the premiums paid, the excess is likely to be taxable).
Of course, my gut feeling might also be influenced by his general health and family history of longevity. If he's still very healthy and his family history indicates longevity, I'd be more inclined to get out of it.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-09-2009, 10:26 AM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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How long has he owned the policy? I think the bank's idea is a terrible one.......
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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02-09-2009, 10:29 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by FinanceDude
How long has he owned the policy? I think the bank's idea is a terrible one.......
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Agreed. Depending on his specific circumstances and health I *might* keep the existing policy, but there's no way I take the bank's offer. If the existing policy isn't worth keeping given his specific situation, it should probably be cashed out. The 6% commission PLUS admin fees PLUS surrender charges make that option sound like a non-starter to me.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-09-2009, 10:43 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by ziggy29
Agreed. Depending on his specific circumstances and health I *might* keep the existing policy, but there's no way I take the bank's offer. If the existing policy isn't worth keeping given his specific situation, it should probably be cashed out. The 6% commission PLUS admin fees PLUS surrender charges make that option sound like a non-starter to me.
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$2600 a year seems a lot for a $116,000 face that GOES away.......
Time to ask about non-forfeiture options......
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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02-09-2009, 11:10 AM
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#9
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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I think that if he has no dependent it makes no sense to pay $2,600 a year for a life insurance policy he doesn't need. Can he cash in his current policy at minimal costs? If the policy was opened many years ago, he probably could cash it in without paying surrender charges and, at this point, I bet that he wouldn't have to pay taxes on the proceeds either.
The bank suggestion to do a 1035 exchange into a variable life policy is downright criminal IMO. Bunch of vultures if you ask me.
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02-09-2009, 11:21 AM
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#10
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
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Sounds like he could cash it in any time before he hits 92, when it disappears? Does it increase in cash value each year, beyond the $2600 premium? If so, and if he doesn't need the money now, he could keep it and cash it in just before he's 92 if he lives til then, couldn't he?
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“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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02-09-2009, 11:30 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Oct 2005
Location: North Oregon Coast
Posts: 16,483
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Quote:
Originally Posted by Bestwifeever
Sounds like he could cash it in any time before he hits 92, when it disappears? Does it increase in cash value each year, beyond the $2600 premium? If so, and if he doesn't need the money now, he could keep it and cash it in just before he's 92 if he lives til then, couldn't he?
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It sounds to me that the cash value steadily declines and goes to zero when he's 92. That's why I'd be inclined to cash it out now if he's healthy and especially if he has a family history of longevity. If, on the other hand, he wasn't very healthy and didn't seem likely to live another eight years, keeping the current policy in force would be a defensible position.
What isn't defensible is doing a 1035 into that bank's fleecing alternative. Those fees and surrender charges are brutal for anyone, especially someone who is 84...
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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02-09-2009, 11:40 AM
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#12
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Moderator Emeritus
Join Date: Sep 2007
Posts: 17,774
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Ah, I missed that "cash value of $38,000 and diminishing each year"--sorry.
I think Nellieb's father needs to be protected from the bank. That's terrible.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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02-09-2009, 12:17 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by FIREdreamer
The bank suggestion to do a 1035 exchange into a variable life policy is downright criminal IMO. Bunch of vultures if you ask me.
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probably has a 10 year surrender and other things. I can't imagine a Compliance Department signing off on that...........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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02-09-2009, 12:20 PM
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#14
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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02-09-2009, 02:42 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,674
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Why does an 84 year old man need permanent LI or any LI? Is there an estate issue?
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02-10-2009, 08:47 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Feb 2008
Location: Indialantic FL
Posts: 1,330
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Also might want to see about taking a loan on existing policy vs cashing out, then not repaying it.
Jim
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JimnJana
"The four most dangerous words in investing are 'This time it's different.'" - Sir John Templeton
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02-10-2009, 11:48 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,895
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Quote:
Originally Posted by mickeyd
Why does an 84 year old man need permanent LI or any LI? Is there an estate issue?
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Even if there is an estate issue, you need to evaluate it as an investment.
What is the likely benefit of the insurance, versus other uses of the money? Those premiums could be gifted (up to $11,000 per individual is the current limit I think), with zero estate tax impact and no forms to fill out.
Note that for estate purposes, the insurance needs to be held outside the estate. Just naming beneficiaries is not enough. That is, as I understand it, but I don't even pretend to be a lawyer anywhere.
-ERD50
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