by rlee2 » Wed Jun 17, 2009 02:30 am
Retired couple’s primary asset is set of Mass Mutual whole life policies, face amount of coverage approx $480k (one @ $200k, one @ $100k, plus several smaller policies), total cash surrender value approx $290k (less $15k in loans). Dividends have been applied to cover premiums fully in recent years, but 2008 dividends of $11,200 did not quite cover premium total of $11,700. Concern is that if Mass Mutual reduces dividends significantly, we won’t be able to cover premiums out of pocket, and we’re wondering about use of CSV to make up the difference between dividends and premiums and maintain the policies as-is. Is this the best strategy? What are the tax implications? What factors should we be considering? What other options are there? Our Mass Mutual rep has been nonresponsive lately, and in any event, we would like independent advice on this. Any guidance would be greatly appreciated. Thanks.
Posted: Fri Jun 19, 2009 04:35 am Post Subject:
Hi Expert,
I was just wondering if they can surrender the smaller value life plans to use the money towards increasing the death value of the existing high value one, would that be beneficial for them? Can this be done?
Posted: Fri Jun 19, 2009 11:29 am Post Subject:
They could surrender the smaller value plans, but it won't make sense to do it and it won't be necessary. Old people don't want to cancel life insurance policies. When they do this, they are trading a smaller taxable cash surrender value for a larger tax free death benefit.
Posted: Sat Jun 20, 2009 06:50 am Post Subject:
Old people don't want to cancel life insurance policies.
I think the idea isn't restricted to old people only. Anyone, who has a dependent to take care after his death wouldn't trade his life insurance for smaller cash surrender value than death benefit.
Posted: Sun Jun 21, 2009 02:44 pm Post Subject:
FROM RLEE2 (ORIGINAL POSTER)
First, to clarify, yes, keeping insurance in force to provide for my mother if my father predeceases is VERY important. What I meant to communicate was that there are no particular OTHER obligations to worry about (e.g, no other dependents, no other debts, etc), just covering father's and mother's expenses .
To InsuranceExpert: can you please elaborate on your guidance? I want to make sure I understand.
Are you saying that my father should plan to take out small loans against the policies each year if and as necessary to cover any gaps where annual premiums exceed annual dividends? (or at least be prepared to do that as the situation unfolds each year)
Or in your suggestion about requesting the illustration with no out of pocket premiums, are you saying that there is a way to set things up with MassMutual such that my father would not get billed for premiums any longer, e.g., that future costs of maintaining coverage would automatically be offset against dividends, with any premium-minus-dividend differential being handled by reduction of cash value and/or death benefit?
And what are the tax implications (particularly immediate tax implications) here? Are there any immediate tax implications associated with borrowing against the policies, or does borrowing just impact the amount of death benefit/cash value available for later payout? If any scenario involves use of cash value to pay current premiums, would there be any immediate tax implications there?
Again, sincere thanks again for your input (and patience).
Posted: Mon Jun 22, 2009 01:17 am Post Subject:
The only thing that you should do now is get an illustration for all of the policies that is run at a dividend scale that is 1% lower than their current dividend scale AND has no future out of pocket premiums.
In other words, I want you to find out what happens if they immediately stop paying premiums and the dividend scale drops. With this information, a plan of action can be undertaken.
It doesn't make sense to go through all the "what ifs" without knowing more facts.
What I'm talking about is a combination of surrendering paid up additions, using dividends from one policy to help pay for another and taking policy loans if necessary. Based upon the information provided, this should be able to be done pretty easily and with absolutely no tax consequences.
If you don't mind talking to a stranger, you can PM me with a phone number and I'll walk you through this.
Posted: Sun Jul 05, 2009 02:34 am Post Subject: I was just wondering if they can surrender the smaller value
another alternative for some of the smaller policies that they may no longer need is to see how much cash surrender value they have and compare it to what he can get for selling them in a life settlement. Don't know if this is allowed, but there's a good article on life settlements you can find on the web -- You can turn unneeded life insurance policies into cash.
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