by Mary J Dubois » Mon Oct 25, 2010 08:38 am
I have a 20 yrs. paid up policy on my son, he is ill and have no insurance and could use the money to fray medical expences. I have another larger polkicy on him as well. The policy has been paid up for nearly 10 years.
Posted: Tue Oct 26, 2010 05:32 pm Post Subject:
Despite the fact that the policies are "paid up" you may not have as much cash available as you think. You can contact the insurance companies involved and ask them what the loan or surrender values are. If your son is "terminally ill" (expected to die in the next 12-24 months), then a larger portion of the death benefit may be available to you compared to a loan or surrender of the contracts.
Posted: Thu Oct 28, 2010 10:16 am Post Subject:
Despite the fact that the policies are "paid up" you may not have as much cash available as you think.
What could be the reason for this? I used to believe that all our "paid up" policies would fetch good cash values.
Posted: Mon Nov 08, 2010 04:12 am Post Subject:
If your son is "terminally ill" (expected to die in the next 12-24 months), then a larger portion of the death benefit may be available to you compared to a loan or surrender of the contracts.
Is this the same with all WL policies?
Posted: Mon Nov 08, 2010 05:47 am Post Subject:
What could be the reason for this? I used to believe that all our "paid up" policies would fetch good cash values.
Sorry . . . did not see this question until today.
Cash value policies such as yours, which is now "paid up", were issued under the 1980 mortality tables which established the age of "ultimate" mortality as 100 (policies in the last 4-5 years have been issued under the 2001 mortality tables, with ultimate mortality at age 121).
The maturity -- the point at which the cash value and the face amount might be equal -- of the policy does not occur until age 100. Being "paid up" simply means no additional premium payments are required to keep the policy in force to age 100.
The cash value in such policies grows at an internal rate of about 4%-5%, steadily over time. A paid up policy will have a higher cash value at almost any point in time prior to age 100 compared to a policy which is being paid for annually/monthly to age 100, simply because all those years of premium payments have been compressed into just the first 20 years of the policy (with a discount for the faster accumulation of interest in the remaining years).
Some people mistakenly believe that a PAID UP POLICY is worth as much as the death benefit and may be cashed in for that amount. This is simply a misunderstanding. However, in your policy, if you still have it, you will find a TABLE OF GUARANTEED VALUES (usually at the very front of the policy -- typically within the first three or four pages) that will tell you EXACTLY how much your cash value is at the END of any policy year.
If you no longer have the policy, contact an agent of the insurance company and ask them to order you a replacement policy. If you call the company directly, you can also get a replacement policy, but they will probably charge you $25 for it. The agent can get a copy for you at no cost.
Posted: Mon Nov 08, 2010 05:57 am Post Subject:
To give you an example of a PAID UP POLICY that may not be worth as much as you think, the typical "Gerber Baby Life Insurance" policies ($5000-$10,000 face amounts) is sometimes sold via marketing materials that state, "This policy has cash value your child could use for college . . . ."
The policies may even be PAID UP after 20 years of paying premiums. So a policy purchased for a newborn child might be paid up -- will stay in force to age 121 these days -- at age 20. The premiums for a newborn (Age 0) are about $2 per month. In 20 years, the total premium paid will be a bit less than $500. At age 121, the policy might be worth $25,000 - $50,000. (Death benefits in these policies often "jump" by 2-5 times at age 21 or 25. The face amount and the cash value will be the same at age 121 if no loans are taken before then.)
How much will your child be able to use for college? A close reading of the contract states, "At the time the policy is paid up, the cash value will not be less than the total of premiums paid." So at age 20, your child could go to college with about $500, courtesy of Gerber Life Insurance Company and mom/dad/grandma who paid those premiums for 20 years.
Not sure at what college that would cover four years of expenses. My 20 year old nephew recently paid $750 for this semester's books for four classes at the University of La Verne here in SoCal.
Posted: Mon Nov 08, 2010 06:11 am Post Subject:
Is this the same with all WL policies? [regarding terminal illness riders]
No, it is not.
However, almost all term and cash value policies (those written since the early-mid 1990s) DO have a terminal illness provision included (or rider attached) in the contract. Many companies added them by endorsement to their older policies to make them equivalent to the newer policies (easier and less costly than making folks apply for new policies just to get the benefit). I don't know of any insurance companies that charge extra for this benefit -- it costs them nothing to include it because it does not affect a person's mortality, it is simply recognition that mortality might be impending, possibly sooner than expected.
But I don't believe that all companies have added such a benefit to all of their policies. It's not required to be included by law in any state.
The terminal illness rider owes its existence mostly to the outbreak of HIV/AIDS in the 1980s, and was first seen in term life policies which never have any "loan value". The cash value policies began to include them soon after, simply because it was the right thing to do (but mostly to keep their products competitive with term policies on that basis).
Today, some riders have now included language that allows the benefit to be used if the insured suffers a chronic illness that impairs them two or more Activities of Daily Living (aka, the need for Long Term Care), rather than merely diagnosed as being terminally ill. Or it is available as a separate Long Term Care rider.
Either way, these riders are of tremendous value because the only other way to extract as much money from any policy with less available case value is to sell it to a third party . . . now called a life or viatical settlement . . . for 30-50 cents on the dollar of death benefit. The new owner becomes the beneficiary, and anyone the insured might have wanted their life insurance proceeds to go to will see nothing.
With the terminal illness rider, at least 50% of the death benefit will still be paid to the insured's beneficiary.
Posted: Mon Nov 08, 2010 07:20 pm Post Subject:
Am I the only one that finds it weird that someone comes to an internet forum to post about this rather than calling the insurance agent or company to inquire about doing this?
Posted: Mon Nov 08, 2010 08:42 pm Post Subject:
I wouldn't call it weird, necessarily, just an unnecessary step in the right direction. What's weird is some of the stuff people post about themselves on Facebook, as if no one else can see it (kind of like the driver who picks his nose in the car -- apparently believing no one can see him through the window).
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