Advice on cashing out a whole life policy

[Eastfolk]

Inspired by another thread that was started on a similar topic, I wanted to see if anyone could give me some advice on what I believe is a bit of a unique situation.

The long story short is that I am the owner and beneficiary of a whole life insurance policy that has been in place for almost two decades. The insured was a former family friend. "Former" is relevant here as that is what I believe creates the unique situation - more on that in a bit.

My understanding is that the current policy has a cash surrender value of about $64K and a death benefit of $127k. There is also about $17k of a remaining dividend balance that has been used to pay the annual premiums. Last I checked, the policy receives about $1k/year in dividends with an annual premium of $1.5k/year. Doing high-level math would suggest that the policy could continue on for another 34 years before being at risk of being cancelled when the dividend balance is exhausted at $500/year.

My dilemma, as the title indicates, is whether I should simply cash out the $64k CSV now, which would be subject to tax, or if it makes sense to wait to receive a tax-free death benefit. I don't need the money now and would prefer to receive the larger amount tax free down the line. BUT the problem is no one in my family is or has been in contact with the insured for several years. To be frank, I'm not sure where the individual is located or whether he is even still alive. And without a death certificate, my understanding is that the insurance company will not release the death benefit. So do I just bite the bullet and pull the lesser CSV now, or is there any way I can receive the death benefit later on? Assuming he's even still alive, the insured would be about 70 years old now. Not sure if insurance companies have a mechanism in place in these situations where if the insured is let's say, older than 100, they are presumed deceased.

Appreciate any thoughts or advice.

 

[jgrdarrash]

Might be worth spending a few hundred dollars to hire a private detective to see if person is still alive. The tax hit on the early withdrawal is what has kept me from taking the benefit early.

 

[Sunset]

Surely, OP or friends and family know someone that is closer to the subject person ?
How does OP know the beneficiary has not been changed ?

 

[badatmath]

Not sure if insurance companies have a mechanism in place in these situations where if the insured is let's say, older than 100, they are presumed deceased.

Um, no.

In my state you would have to prove you are the beneficiary and pay a fee to get the death certificate. Then once you got it you would submit it to the insurance company.

 

[misanman]

I believe the insurance companies monitor the social security death index and should contact you if the insured dies. MIL had a"lost" policy that we didn't know about but the company made an effort to contact us when she passed.

 

[Act2]

If OP is both the owner and beneficiary, it would seem only OP could change the beneficiary. It’s the owner who usually has that option.

When my Dad died, he had multiple paid up life policies. One insurance company insisted on a certified death certificate. Another insurance company told me they didn’t need one because they already got that info electronically from the death database. Don’t know if it was Social Security’s death database or the state’s death certificate database, but of course the state database feeds info to the Social Security database.

I don’t know why one insurance company needed the certificate from me when the other did not. The claims were made at the same time so the same info should have been available to each.

 

[JoeWras]

This is real money versus the tiny stuff I discussed in the other thread ($5k at most).

I think the first thing you should do is ask for an in-force illustration. Your math may or may not be correct. The illustration will give you a better answer.

Then, armed with that, you can move forward with your decision.

 

[rmorris50]

I would NOT consider surrendering any life insurance policy until I confirmed the insured was still alive. You could be owed the death benefit now and not even know it.

Once you’ve confirmed the insured is alive, the next question is how is the insured’s health. If insured’s health has deteriorated significantly or can no longer be insured, again I would not surrender.

If the insured is healthy then you may want to consider surrendering. But the policy is 20 years old and may be earning a nice dividend. Get an in force illustration and see how much it is projected to earn going forward. Also understand how much gain is in the policy and what the potential tax is upon surrender. Then you can make an informed decision.

 

[rmorris50]

Also, this is the 21st century. If adopted people can track down birth parents, someone can surely help you determine if the insured is alive. Unless the insured is a survivalist living 100% off the grid or this is a Tiger King situation and Carol Baskins fed the insured to her tigers.

 

[pb4uski]

I would not surrender. The $63k excess of the $127k tax-free death benefit over the $64k CSV (which may result in a taxable gain) is significant enough to spend some effort in trying to track down the insured.

Insurers do have mechanisms in place to identify insured that have died just like they have mechanisms in place to identify annuitants that have died (which are to their benefit).

Have you googled the insured's name? name and last known state of residence?

I had a friend who was a "skip tracer" and was hired by lenders to track down people that owed the lender money.

https://www.boscolegal.org/blog/what-is-skip-tracing/ (this is not my friend, but just what came up in a google search for skip tracers).

What is Skip Tracing?
In a general sense, skip tracing is the process of tracking down people who are missing, unresponsive, or hard to find. Skip tracing is an investigatory practice that’s commonly deployed to pinpoint an individual’s whereabouts due to unpaid debts or unfulfilled financial responsibilities. The person who tries to locate people like this is known as a skip tracer.

The term ‘skip’ was derived from the idiom ‘to skip town,’ which means to depart from a place hurriedly, with very few clues as to where the person went. ‘Trace’ refers to the act of tracking down the location or whereabouts of the person.

 

[Eastfolk]

Appreciate everyone's advice. Looks like my action items are to request an in-force illustration to confirm my math and to look into potentially hiring an investigator/tracer or some sort to track down the individual. Thanks for this as I wasn't aware that this type of service existed. It would be great if I could just ask the insurance company to look up the SS database, but my inkling is that they wouldn't be incentivized to do this as their best interest is for the policy to lapse.

And to respond to one commenter, Yes I am the policy owner and the beneficiary so it's not possible that someone (the insured) could have changed it.

 

[pb4uski]

Appreciate everyone's advice. Looks like my action items are to request an in-force illustration to confirm my math and to look into potentially hiring an investigator/tracer or some sort to track down the individual. Thanks for this as I wasn't aware that this type of service existed. It would be great if I could just ask the insurance company to look up the SS database, but my inkling is that they wouldn't be incentivized to do this as their best interest is for the policy to lapse.

And to respond to one commenter, Yes I am the policy owner and the beneficiary so it's not possible that someone (the insured) could have changed it.

I would call them and explain that you have lost touch with the insured and would not know if he is still alive or not and ask how you would know that you should file a claim and see what they say.

Just curious... what your relationship with the insured was/is? Care to explain?

 

[Eastfolk]

I would call them and explain that you have lost touch with the insured and would not know if he is still alive or not and ask how you would know that you should file a claim and see what they say.

Just curious... what your relationship with the insured was/is? Care to explain?

I'd rather not get into the details as it's a bit complicated. I'll just say that the insured was a former family friend and we had a falling out of favor. I had thought about just calling the insurance company as you suggested and explain my situation, but I'm afraid it may look a bit suspicious (watched way too many dateline specials haha). Kidding aside though, I'll probably just do that as I'm sure they must have encountered similar situations before, rather than me trying to play Sherlock Holmes.

 

[braumeister]

In the (probably unlikely) chance that he died and nobody claimed the insurance, it may have gone to the state where he lived at the time. If so, you might be able to visit the unclaimed/missing money sites to look for it. If you find it, you would just have to prove ownership and they would send it to you.

 

[pb4uski]

I'd rather not get into the details as it's a bit complicated. I'll just say that the insured was a former family friend and we had a falling out of favor. I had thought about just calling the insurance company as you suggested and explain my situation, but I'm afraid it may look a bit suspicious (watched way too many dateline specials haha). Kidding aside though, I'll probably just do that as I'm sure they must have encountered similar situations before, rather than me trying to play Sherlock Holmes.

I don't think that it will be suspicious at all. You are the owner and beneficiary. The only thing that might be a bit odd is that the insured is not a relative and that you have lost touch with the insured, but I'm not sure that is terribly unusual.

 

[rmorris50]

I typed into Google “how to track if someone is alive” and a bunch of great useful sites with great ideas popped up. Maybe with an hour of sleuthing online you might find something out.

Insurance companies have an incentive to do social security sweeps for annuities, but not so much for life insurance. Some companies have started doing social security sweeps for life policies, so a call is prob worth it to the company. But I think they would have contacted you if they indeed had that info. But then again, maybe not.

 

[pb4uski]

I typed into Google “how to track if someone is alive” and a bunch of great useful sites with great ideas popped up. Maybe with an hour of sleuthing online you might find something out.

Insurance companies have an incentive to do social security sweeps for annuities, but not so much for life insurance. Some companies have started doing social security sweeps for life policies, so a call is prob worth it to the company. But I think they would have contacted you if they indeed had that info. But then again, maybe not.

Somewhat old news. More and more states are requiring that life insurers do periodic sweeps of the SSA Dead Master File (DMF) for deceased life insurance insureds the way that they routinely use the DMF to identify annuitants that have died.

In 2011, the National Conference of Insurance Legislators (NCOIL) created the Unclaimed Life Insurance Benefits Act, also known as the NCOIL Model Act, as a standard to govern state unclaimed property policies. Among other elements, the model act requires insurers to make periodic searches of the DMF to identify deceased policyholders and their beneficiaries.

Numerous states have adopted their own versions of the NCOIL Model Act since its inception. In April 2016, for instance, Florida approved legislation changing the beginning of the dormancy period to the actual date of death. This legislation also requires insurers to check the DMF against their life insurance clients annually.

At present (June 2017), at least 25 states have adopted legislation requiring insurers to search the DMF at varying intervals...