Author Topic: Advice on existing whole life policy  (Read 1812 times)

ueatpants

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Advice on existing whole life policy
« on: February 19, 2016, 08:32:31 PM »
Hi-

I've been lurking in the forum and the googler and haven't been able to find any advice that isn't from an insurance salesman on my particular question: I have a whole life policy purchased for me about 30 years ago with a death benefit of about $25,000 and current cash value of about $5,500, with a tax basis of just $750 (I believe because I took out a loan on the policy to help pay for graduate school).  The premiums are about $135 a year.  It's not unaffordable or anything, but the cash would be nice (I figure it would be at least $4000 after taxes) to bulk up my savings account and for projects on the home I recently purchased.  I don't have a spouse or children, and I have sizeable savings and a retirement account that would enable my parents to pay expenses and my mortgage at least until the house can be sold, in the event of my untimely demise. I also have a significant life insurance policy through my employer.

So, I'm pretty much sold on cashing in this policy, BUT- a ton of articles and my parents (who are very big into over-insuring, and not super financially savvy) insist on the following:

-with a whole policy that is so old, you've "turned the corner" and it's now accruing more value than the premiums- I fail to see why this is a benefit to me, since I would have to die or cash it in to get that benefit

-It's a good idea to have some life insurance that isn't associated with your job, incase you lose it- I have a VERY stable job that I really like, and the chances of me getting fired are slim to none

Are there any good reasons to maintain this policy?

Thank you so much in advance for any insights you have!

GrowingTheGreen

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Re: Advice on existing whole life policy
« Reply #1 on: February 20, 2016, 08:51:40 AM »
Cash it out and invest it via your 401k or a Roth. 

If you have dependents, just get a term policy.  If you don't want to get one through work, you can purchase one via a million other insurers.

BrickByBrick

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Re: Advice on existing whole life policy
« Reply #2 on: February 20, 2016, 09:25:45 AM »
Ignoring the whole "now accruing more value than the premiums" falsehood (as compared to index investing?) there is a simple reason to cash out:

You don't have any dependents.

And it sounds like you have enough in assets to cover burial expenses if required, even if you happened to pass away right after losing your job's life insurance.

If you really want some additional insurance just get a $100K term life plan, if you're in decent health it will be cheaper than $135 a year.

Edit: Didn't see GrowingTheGreen's reply - what he said.

Capsu78

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Re: Advice on existing whole life policy
« Reply #3 on: February 20, 2016, 10:33:36 AM »
I'm more with your parents on this- you have "turned the corner" on a policy that old.  Even with adequate assets, I consider my "rookie mistake" purchase represents a check that me or my wife can get our hands on 3 days after presentment of a death certificate- It would cover final expenses and allow for a more thoughtful period to figure out how to unwind the rest of your estate...it's a gift to the survivors.
Also, since it sounds like your parents helped you set it up, it is what I consider a legacy purchase that your parents considered important.  I let the policy my parents bought for me lapse and then cashed it out and now that they are gone, I regret not having one last connection to my parents desires.  My dad kept asking me "what ever happened to that policy?" every time I visited (we lived in different time zones).  YMMV

Another Reader

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Re: Advice on existing whole life policy
« Reply #4 on: February 20, 2016, 10:50:27 AM »
It's probably paying 3 percent or more at this point if it is that old, maybe net of premiums.  Do the math and figure that out.  That's more than any savings account or CD. Since it can be cashed in at any time, I would probably hold it as cash savings until I needed the money.  Now if you are paying high credit card interest rates on the home renovations, I might agree it would be beneficial to cash the policy out.

Goldielocks

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Re: Advice on existing whole life policy
« Reply #5 on: February 20, 2016, 01:21:18 PM »
There are a few benefits to this policy...

1.   You may be able to increase the life insurance value in future, without a medical reassessment.   Needs that endorsement, but that is great if you become uninsured in future and can't buy term insurance for some reason.

2.  If the premiums end after, say 10 years, then you have an amount of life insurance prepaid, and this amount may be nice for liquidity for heirs before the remaining $'s come in or to pay income taxes on death, if that is important to you.

3.  As you discovered, you can borrow against the cash value,  and have fast access to the extra monies, but the interest tends to be high.

4.  If you lose your job and are no longer part of the "group" this coverage does not automatically end.  Most of us don't think to rush out and reacquire term insurance when we suddenly lose our employment.

That all said,  if you are in decent health and do not expect to have trouble getting insurance, then this is super-expensive.  The benefits are low.  I would rather that you take the annual premium and buy group or individual term insurance that is not tied to your employer.   Put the cash value into a fixed investment (if you are attracted to the security of a whole policy), or invest it....or put it into your spouse's name only, so it never is tied up with a possibly frozen joint bank account upon your death, etc.