by 5gypsy » Fri May 23, 2014 07:09 am
I purchased a whole life insurance policy at age 34 to cover the mortgage note. I am currently 63 and the mortgage is paid. My beneficiary is able to provide for himself at this time.
Consequently, I am undecided about cashing in the policy. The annual premium is $320 and the surrender value is approximately $7,000.
If I surrender the policy, do I need to return the original policy to the insurance company or can I send a copy of the policy? I am skeptical about mailing an original document,
Consequently, I am undecided about cashing in the policy. The annual premium is $320 and the surrender value is approximately $7,000.
If I surrender the policy, do I need to return the original policy to the insurance company or can I send a copy of the policy? I am skeptical about mailing an original document,
Posted: Sun May 25, 2014 01:15 am Post Subject:
Good question. Let me see if I can answer your question with another question.
If you should die in the near future, does anyone need the money from the policy in question?
Instead of cashing it in, what if you were to leave the money to your grandchildren (presuming you have any). Maybe you could establish a scholarship fund which, in some cases, could turn that $320 annual premium into a tax write-off.
I hope another insurance agent hasn't tried to sell you another policy and is trying to get you to cash in your old whole life plan - there are lots of those bad people out there.
Posted: Tue May 27, 2014 07:52 pm Post Subject:
Mark is correct, but perhaps the issue could be explored a bit more.
How much is the death benefit? I'm guessing about $15,000-$25,000.
At $320 per year, and assuming an 8% policy loan interest rate, which was very common 30 years ago, you could stop paying premiums now, using the current cash value as collateral for the next 13 years of premium payments, and continue your life insurance with a total lien of $6878.50 against the policy face amount to about age 77.
If you died prior to that time, your beneficiary would receive the face amount of insurance minus the accumulated loan and loan interest amounts. If you did not die, you could simply begin making your $320 premium payments + $486 in annual loan interest (total = $805.81) and also pay down some of the $2718.50 in accumulated interest to lower the future interest charges, and your policy could continue until age 100 or your death, if earlier.
Or you could continue to not pay the premiums or loan interest, and the policy will lapse without value. But you would have had 13 years of additional insurance without any out of pocket expense.
You should also have two other options built into your contract. One is called "Extended Term Insurance" which would use the $7000 of current cash value to purchase a new single premium term policy of the same face amount for a certain number of years and days (your contract will tell you how long). With no more payment of premiums, you will have the full face amount of insurance preserved for your beneficiary for that period of time -- I'm guessing about 9-10 years. If you do not die, your insurance ends then, but your premium payments will have ended now.
The third "nonforfeiture option" is called "Reduced, Paid-Up Insurance". Your $7,000 cash value will purchase a new policy fully paid up to age 100 (or possibly to age 121), but it will be for about half to two-thirds the original face amount, and will continue to build cash value without ever having to pay additional premiums.
You can contact me for a complete policy analysis. As a Life & Disability Insurance Analyst, I normally charge a small fee for that kind of analysis, but I offer that service as a courtesy to AM/PM contributors such as yourself. Click on the "Send me your questions . . ." link below to communicate with me.
Mark Colbert ("InsInvestigator") and I have been working together on cases such as yours for the past three years or so.
Posted: Wed May 28, 2014 02:54 pm Post Subject:
Very good, Max. Those are some great ideas as well.
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