Author Topic: Universal Life Policies: Keep, Cash out, Cancel?  (Read 3563 times)

tthree

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Universal Life Policies: Keep, Cash out, Cancel?
« on: January 23, 2016, 07:55:39 AM »
We are finally dealing with our Universal Life Policies.  We opened these in 2007, before Canada introduced TFSAs, and we were looking for another way to invest tax-free.  We did make a couple of large lump sum payments in 2007/2008, and have largely ignored the policies since then, only paying the yearly premium a couple of times (and the other years letting it come out of the cash value in the policy).

Both UL policies are level cost.  Guaranteed payout of $200,000.  Mine is ~$45/month and DH is ~55/month.  Right now the cash value of each policy is approximately $5,500.    We each have term policies for $500,000. Only debt is mortgage of ~$190,000.

As I see it there are a few options:
(1) Keep the policy.  Don't make any additional payments until balance is $0.  And then make start to make premium payments, keeping the cash value at $0.

(2) Keep the policy.  But cash out the $11,000 and put in our not yet maxed out TFSAs, paying way less in fees.  Make premium payments keeping the cash value at $0.

(3) Cancel the policy.  Take the $11,000 and put in our not yet maxed out TFSAs.  Take the $1200/year premium payment and invest.

Please advise:)

CowboyAndIndian

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #1 on: January 23, 2016, 09:02:39 AM »
#3 would be the way to go.

Also, buy term life insurance to replace the policy you are cancelling.

GGNoob

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #2 on: January 23, 2016, 09:09:50 AM »
Agree with number 3 as well. If you need the additional $200k in insurance, just get a term policy to cover it.

tj

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #3 on: January 23, 2016, 09:11:08 AM »
#3 would be the way to go.

Also, buy term life insurance to replace the policy you are cancelling.

According to their post, they already have term insurance.

There isn't enough information here for us to help you. I would request in force illustrations and if you can't interpret them, post them here without any confidential info.

tthree

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #4 on: January 23, 2016, 12:42:23 PM »
There isn't enough information here for us to help you. I would request in force illustrations and if you can't interpret them, post them here without any confidential info.
I am going to show my ignorance here....I have an 11 page Summary of Policy in front of me, what will an in-force illustration tell me that a summary wouldn't?

Cassie

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #5 on: January 23, 2016, 01:37:44 PM »
#3. We did that years ago and only have term. Put the $ in investments.

tj

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #6 on: January 23, 2016, 04:34:58 PM »
There isn't enough information here for us to help you. I would request in force illustrations and if you can't interpret them, post them here without any confidential info.
I am going to show my ignorance here....I have an 11 page Summary of Policy in front of me, what will an in-force illustration tell me that a summary wouldn't?

i have no idea what would be on a summary. everything you need to make a decision will be on the illustration.

tthree

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #7 on: January 24, 2016, 11:10:51 AM »
i have no idea what would be on a summary. everything you need to make a decision will be on the illustration.
I requested an in-force illustration.  I am not sure what it is going to tell me beyond the summary, as this particular UL policy is pretty straight forward (I think).  Perhaps I am over simplifying things here, but since the policy is level cost, if we cash it out and just make premium payments we are essentially using the UL policy as 65 year term insurance (we are both ~35).  Since we opened the policy when we were young the premium of the UL policy is cheaper than 65 year term insurance (but I doubt anyone would ever buy 65 year term insurance).

If we take the $100/month and invest @ 7% return we reach $200,000 in the 37th year.  So is the real question here, is DH going to die before age 72??

tj

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #8 on: January 24, 2016, 11:22:53 AM »
i have no idea what would be on a summary. everything you need to make a decision will be on the illustration.
I requested an in-force illustration.  I am not sure what it is going to tell me beyond the summary, as this particular UL policy is pretty straight forward (I think).  Perhaps I am over simplifying things here, but since the policy is level cost, if we cash it out and just make premium payments we are essentially using the UL policy as 65 year term insurance (we are both ~35).  Since we opened the policy when we were young the premium of the UL policy is cheaper than 65 year term insurance (but I doubt anyone would ever buy 65 year term insurance).

If we take the $100/month and invest @ 7% return we reach $200,000 in the 37th year.  So is the real question here, is DH going to die before age 72??

72 is fairly young by today's standard, I can't imagine you would need life insurance at that age though as you should be FIRE'd by then easily.

arebelspy

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #9 on: January 25, 2016, 01:33:26 AM »
Here's the caveat to everyone's "cancel" advice:
WL/UL policies often have cash out penalties that phase out/disappear after a certain amount of time (often a decade).

If this is the case with yours, you may be much better off keeping it (and paying the premiums) for one more year before cancelling them--it could net you more money overall, even counting the extra premiums you'll pay and the opportunity costs.

Check into it.

If this isn't the case, cancel ASAP.  Otherwise cancel at the point where it's maximally mathematically efficient to do so.
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tthree

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Re: Universal Life Policies: Keep, Cash out, Cancel?
« Reply #10 on: January 26, 2016, 07:10:16 PM »
Here's the caveat to everyone's "cancel" advice:
WL/UL policies often have cash out penalties that phase out/disappear after a certain amount of time (often a decade).

If this is the case with yours, you may be much better off keeping it (and paying the premiums) for one more year before cancelling them--it could net you more money overall, even counting the extra premiums you'll pay and the opportunity costs.

Check into it.

If this isn't the case, cancel ASAP.  Otherwise cancel at the point where it's maximally mathematically efficient to do so.
The policy only has a $50 to cancel.  This fee does not change over time.