Cancelling a small whole life policy

[ky-mike]

Hanging on to ours until the annual cost of insurance exceeds the annual premium. Will consider cashing out at that time. Don't need it, but some tax-free money for spouse or kids when I die.

 

[richardf]

I've had a $50,000 whole life policy for about 30 years. I pay $600 a year (Auto pay and forgot about it) and have a $34,000 cash value. Cash value increased about $2000 last year. I don't see any need to keep this going as I can probably get the same term policy for a 1/3 of the cost.

I'll be taxed on the difference in contributions. $34,000 minus the $18,000 in contributions?

I'm thinking my income will be low enough this year to take this on without a problem.

Anything I'm missing here?

Be careful of IRMAA. I would not cash it in unless I really needed the cash. The policy has a decent return and why give up 20%.

 

[davidfin]

Do you need insurance at all? I had term insurance until the kiddos were on their own and DW had her own career with a good salary and benefits. From that point there was no need for additional protection. I think I was done with life insurance in my early 40s.

0

 

[rkser]

I want to learn about Life Insurance (Universal or the other permanent kinds), I am 68 & DW 63, retired, I had a 20 yr Term Policy when our family was young, it ended many years back, & that was that.
Now, children have left home & doing well on their own, what interests me now is that life insurance proceeds/death benefit goes to kids without any tax implications, that is the reason I want to know about Life insurance.
I know it has lots of costs going to the sales persons & into building those huge Insurance buildings. We have enough funds to last our lifetimes.
What kind of Life Insurance would anyone recommend in my case, if any ?

 

[badatmath]

IMO the point of life insurance is to provide for people depending on your income, which your children are not apparently doing.

If you want to leave them money you'd likely have better returns investing it yourself.

 

[youbet]

Yeah, I have considered that, and at some point we may just cash out the policies. But right now we are both worth more dead than alive

I don't think it works that way. With my WL policies, the premium is constant and the dividends increase along with the cash value.

 

[youbet]

IMO the point of life insurance is to provide for people depending on your income, which your children are not apparently doing.

If you want to leave them money you'd likely have better returns investing it yourself.

LI can be a good tool for certain estate planning situations.

 

[youbet]

What kind of Life Insurance would anyone recommend in my case, if any ?

That is a good question for your estate planning attorney. Would LI be a useful tool for you regarding estate planning? If so, what kind and how much and when purchased? Probably not a question to be answered by an Internet discussion group since not many of us here are concerned about estate taxes.

 

[skipro33]

I helped my dad cash in his life insurance policies when he was 86. The difference between cashing in and collecting at his death was very little, around 3%. It sure made it easy when he passed, not to have to collect on an insurance policy since he and I were on his bank account where the funds remained until he passed

 

[timbervest]

I had a whole life policy I took out when DD was born. 33 years later it had accumulated a substantial cash value. I converted it to paid up insurance which means permanent coverage with premiums paid by the cash value. No more premiums. Ask the company/agent to look into this.

 

[Lewis Clark]

LI can be a good tool for certain estate planning situations.

I read a book on estate planning that discussed this issue. If a person's estate will be subject to estate taxes, the author recommended life insurance as a way to pay those taxes. The idea is to pay the taxes at a discount by having a life insurance policy in place to provide the funds. The insurance premium would likely be less than the estate tax bill.

The author also suggested life insurance could be a way to "even things up" if the kids (or other heirs) had been given gifts of very different amounts while the person was alive.

I thought it was an interesting discussion to read about.

Title: Beyond the Grave revised edition: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others)
Author: Jeff Condon

 

[Kings over Queens]

What kind of Life Insurance would anyone recommend in my case, if any ?

I couldn't and wouldn't recommend anything without knowing a whole lot more about what you are trying to achieve. It is true that life insurance death benefits pass income tax free (generally speaking) and is arguably the most cost effective (cheapest) way to develop instant wealth (assuming you can wait until you die) for a family.

 

[Kings over Queens]

IMO the point of life insurance is to provide for people depending on your income, which your children are not apparently doing.

If you want to leave them money you'd likely have better returns investing it yourself.

At its core, the replacement of lost income was always my first question, but there are other reasons that are equally important. Creating an instant inheritance, or a large charitable donation, funding estate tax's.

I disagree that anyone would likely have better returns investing themselves. what other investment can turn a few dollars into x thousands, tax free? granted, life insurance isn't an investment, and I groan when people talk of it as one.

 

[pb4uski]

... What kind of Life Insurance would anyone recommend in my case, if any ?

None.

 

[CardsFan]

I don't think it works that way. With my WL policies, the premium is constant and the dividends increase along with the cash value.

When we were paying into the policy, excess dividends bought additional life insurance. So, right now, the death benefits are close to double the cash values (roughly $140k vs $70k). Also, right now, the dividends pay the premium, plus a little more to add to cash value. Should we get to the point that the dividends do not cover the premium (which is constant as you state), then we might make a change.

 

[Koolau]

Just to put a fine point on my previous post: IF you have a policy as OP does, the question becomes: Keep or cash out?

In the limiting case that you find you have a terminal case of something and you have days or weeks to live, you wouldn't cash out, right? If as in my case, you have medical issues that no insurance company would cover, you might consider keeping the policy. Even if you don't need the money (for spouse/family) it's still like a "bet" you are making with the odds now shifted in your favor.

Otherwise, it's a situation of "do you prefer to have the cash value - which you can spend or re-deploy - or do you want the coverage to help spouse/family cover final expenses or cover estate taxes, etc.?"

The concepts are simple though not always easy to calculate. Most of us don't know when we will die, so YMMV.