by ginnyh08 » Tue Feb 03, 2015 09:13 pm
my sister is 83-pays 30 dollars a month for a 10000 dollar
life policy, which she has a loan on for 1000 dollars- should she cash it in for face value? She has been paying on it for
apprx. 30 yrs
life policy, which she has a loan on for 1000 dollars- should she cash it in for face value? She has been paying on it for
apprx. 30 yrs
Posted: Wed Feb 11, 2015 07:29 pm Post Subject:
should she cash it in for face value?
You apparently don't understand how life insurance works. The "face value" is only payable (a) when the insured person dies or (b) the insured person reaches age 100 (age 121 in newer policies). Paying $30/month for 30 years, with 17 left to age 100, the cash value might have reached $7,000-$8,000.But with a $1,000 loan outstanding, if your sister has not been repaying loan interest (at probably 8%) each year, the capitalized interest added to the original loan amount could be several thousand more dollars (because the insurance company charges interest on the unpaid interest.
Your sister's policy, far from being worth $10,000, might be closer to lapsing due to the loan + unpaid interest exceeding the available cash value, and those $11,000 in premiums paid for a $10,000 policy will have completely evaporated, and could result in a taxable event. Even if the policy does not lapse, the unpaid loan and interest is deducted from a death claim payment before the beneficiary is paid.
Your sister needs to contact the insurance company and get a current statement of her policy values and current loan amoun
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