Author Topic: What to do with this whole life policy?  (Read 1872 times)

Zee

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What to do with this whole life policy?
« on: September 27, 2013, 09:27:53 AM »
Good morning.  I have been sitting on a whole life policy my parents took out on me when I was young.  It was a 20 year policy taken out in 1980.  I would like to simplify my financial house a bit more and am considering cashing in this policy.  I have term policies on me and my wife and don't see the need for this small policy. 

How would I determine the potential tax implications (if any) if I were to cash this in? 
Are there other factors that I should consider when evaluating whether or not to cash in this policy?  There is loan interest due each year but my parents and now I haven't paid.

Please advise if additional information is required.

Type: Limited Pay Whole Life
Total Death Benefit / Net Death Benefit: $ 30,312.12
Cash Value / Net Cash Value: $ 2,890.94
Policy Date: 1980
Policy Status: Paid-Up
Outstanding Loan: $12,360 (as of May 2013) - I believe taken out by my parents to help pay for High School tuition years ago.
Current interest on contract loan of 8%
The policy statement noted that since 1995, $7,882 in unpaid interest has been added to principal.

Cash Value $ 9,899.77
Cash Value of Paid-up Additional Insurance $ 6,328.62
Dividend Accumulations + 418.07
Total Cash Value $ 16,646.46
Policy Debt - 13,755.52
Net Cash Value $ 2,890.94


Other relevant info on portfolios:
Vanguard taxable account: $38K, ETFs
Vanguard Roth IRA: $75K (me), max annual contribution via backdoor Roth conversion
Vanguard Roth IRA: $18K (wife), max annual contribution via backdoor Roth conversion
401K: $80K (wife), contribute approx $11K annual.
401K: $267K (me), max annual contribution
Cash: $44K
28-30% tax rate (estimate)

Debt: $163K home mortgage, approx $1,500 P&I per month, 3.25%, 15 year.  Home value is $255K per Zillow. 
CC balance paid in full each month.

Thank you in advance for any advice you may have.

lackofstache

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Re: What to do with this whole life policy?
« Reply #1 on: September 27, 2013, 10:24:37 AM »
It depends how much $ was paid into the policy. Just like other "investments" you're only taxed on the gains, not the entire cash surrender amount. Since the net here is $2890 & I"m sure the premium paid has been much, much more, I doubt you'll have anything to worry about.

lackofstache

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Re: What to do with this whole life policy?
« Reply #2 on: September 27, 2013, 10:25:31 AM »
Also, I'd cash it out, eventually that loan will eat away the entire cash value if not paid back.

footenote

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Re: What to do with this whole life policy?
« Reply #3 on: September 27, 2013, 11:25:04 AM »
You could also do a tax free exchange and annuitize it.

chasesfish

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Re: What to do with this whole life policy?
« Reply #4 on: September 28, 2013, 08:34:40 AM »
Also, I'd cash it out, eventually that loan will eat away the entire cash value if not paid back.

Can you pay off the loan?  If so, keep the policy.  If not, cash it out, the 8% interest rate is killing the cash value