by Guest » Sat Oct 31, 2009 12:34 am
When I was very young my parents took out a life insurance policy for me. I have just recently taken over making payments for it now that I am old enough, out of college and in a real job.
I am incredibly ignorant when it comes to life insurance and I need some guidance!
I just received my first bill and it says....
"WHOLE LIFE PAID-UP AT 90
During the last year your contract cash value increased by $337.10 (withdrawals, if any, not fully reflected). In addition, the 2009 dividend of $284.17 will be applied to purchase $850.56 of Modified Benefit Additions.
Total Modified Benefit Additions will be $20,483.11"
What? I only comprehend life insurance like I do my car insurance. I pay an amount and the insurance company promises to cover me in case something bad happens. What on earth does this all mean???
Finally, it also says the following that puzzles me...
"PREMIUM INFORMATION
Premium Due for 12 Months $241.75
LOAN INFORMATION
Loan Principal $221.75 (excluding current interest)
Current Loan Interest (8.00%) $17.97"
I understand the premium part but why is it talking about Loans and loan interest? I did not take a loan out off this policy, so I am at a loss.
THANK YOU IN ADVANCE FOR ANY ASSISTANCE!
I am incredibly ignorant when it comes to life insurance and I need some guidance!
I just received my first bill and it says....
"WHOLE LIFE PAID-UP AT 90
During the last year your contract cash value increased by $337.10 (withdrawals, if any, not fully reflected). In addition, the 2009 dividend of $284.17 will be applied to purchase $850.56 of Modified Benefit Additions.
Total Modified Benefit Additions will be $20,483.11"
What? I only comprehend life insurance like I do my car insurance. I pay an amount and the insurance company promises to cover me in case something bad happens. What on earth does this all mean???
Finally, it also says the following that puzzles me...
"PREMIUM INFORMATION
Premium Due for 12 Months $241.75
LOAN INFORMATION
Loan Principal $221.75 (excluding current interest)
Current Loan Interest (8.00%) $17.97"
I understand the premium part but why is it talking about Loans and loan interest? I did not take a loan out off this policy, so I am at a loss.
THANK YOU IN ADVANCE FOR ANY ASSISTANCE!
Posted: Sat Oct 31, 2009 03:11 am Post Subject:
Welcome to the forum samsaba, great questions! OK...first things first.
I am incredibly ignorant when it comes to life insurance and I need some guidance!
Lol...it's a different language from just about every other kind of insurance. You, my friend, are certainly not alone! Let's see what we can do.
During the last year your contract cash value increased by $337.10 (withdrawals, if any, not fully reflected). In addition, the 2009 dividend of $284.17 will be applied to purchase $850.56 of Modified Benefit Additions.
The cash value is the policy's internal cash accumulation account. Think of it as a built-in savings account within the policy. It's funded through part of your premium, has an interest rate paid to it and it grows on a tax-deferred basis. Last year, your cash value grew by $337.10 which is more than your annual premium. (!)
The dividend they are referring to is not a stock dividend, it's a policy dividend. Think of it as your profit sharing bonus from the company. You have what's called a "participating insurance policy" which is a policy that may pay those dividends. In you case, they used the dividend to buy you more insurance on your life and it sounds like they've been doing this since the policy was purchased:
Total Modified Benefit Additions will be $20,483.11"
In your case, since you were so young when the policy was purchased, your annual premium is cheap.
"PREMIUM INFORMATION
Premium Due for 12 Months $241.75
We don't know what the face amount on the policy is or what the total amount of cash value that's in the account- that would help us if you could let us know.
LOAN INFORMATION
Loan Principal $221.75 (excluding current interest)
Current Loan Interest (8.00%) $17.97"
I understand the premium part but why is it talking about Loans and loan interest? I did not take a loan out off this policy, so I am at a loss.
The likely reason there's a loan outstanding on the policy is that at some point part of the premium wasn't paid and that resulted in what's known as an "automatic premium loan (APL)" from your cash value. If the premium required isn't paid by the end of the grace period stated in the policy, the insurer will "borrow" the amount of the premium due from the policy's cash value. It's a loan like any other loan, will accrue interest, and will be subtracted from the death benefit if it hasn't been paid back before the insured dies or the policy endows (another thread!).
Hope this diatribe helped a bit, and let us know if you need anything else!
InsTeacher 8)
Posted: Mon Nov 02, 2009 04:11 am Post Subject: THANK YOU!
Phew, that was IMMENSELY helpful. So much so that I copied the whole thing and saved it to a word document so I can go back and make sense of this bill every year. Thank you, thank you, thank you!
Yes, the cash value is a good question and it does not appear to be on the bill anywhere. I will call and see if I can find out. I would be interested in an opinion on the quality of the policy and it sounds like that information would be very helpful for that.
Thanks!
Posted: Tue Nov 03, 2009 02:04 pm Post Subject: Life Insurance - Cash Value
Alrighty, my policy has a cash value of about $4,000 and a death benefit of $73,000. Seems kind of paltry but then again I dont know anything about these matters. Your thoughts would be appreciated, as usual!
Posted: Wed Nov 04, 2009 03:24 am Post Subject:
If I were to guess, I'd say money was taken from the policy at some point, this policy should have more available cash value than premiums paid if this policy has been around since you were young.
It would be wise to contact the insurance company and ask them if you have the ability to add additional money to the policy--known as being able to purchase paid up additions or paid up insurance. You then will want to look at your policy's effective date if the answer is yes. I have my doubts on this, but if your policy is old enough, and you can purchase paid up additions (put extra money in) you might have a policy that is grandfathered from modified endowment rules. This would allow you to put an almost unlimted amount of money into a vehicle that would grow your money on a tax deferred basis and allow you to access the money tax free.
Posted: Wed Nov 04, 2009 05:45 am Post Subject:
If I were to guess, I'd say money was taken from the policy at some point, this policy should have more available cash value than premiums paid if this policy has been around since you were young.
The cash value doesn't seem so low when you consider the miniscule annual premium of about $250. It sounds like it had an original face amount of $50k and with the additional insurance purchases made with the dividends the current face is $73k.
With a cash value of roughly $4k as you stated, I'm still not sure if this is the cash considered in the account or the cash surrender value. With the outstanding loan (still not sure what that's about), the surrender value would be the cash value minus back-end surrender charges, current loans and interest and past-due premiums...normally. Your insurer might be different.
Did that make any sense?
It would be wise to contact the insurance company and ask them if you have the ability to add additional money to the policy--known as being able to purchase paid up additions or paid up insurance.
The purchase of paid-up additions normally adds to the death benefit with portions of the policy that require no more premium payments. They do add to the cash value over time, but are primarily used to increase coverage.
I believe that this is a plain-old whole life policy. The boring kind that has fixed, required boring premiums and doesn't let you place additional funds into the cash value account. If purchased in 1985 or later- ya can't play with the premiums too much or you'll violate TEFRA laws and get whacked by the IRC.
InsTeacher 8)
Posted: Thu Nov 05, 2009 03:06 am Post Subject:
I'm assuming this policy is over 20 years old and even with a 250 dollar annual premium there should be more than 4K in cash. Cost basis alone should be north of 5k.
Paid up adds are how you put extra money into a Whole Life product, and you can fund it to the MEC limit this way.
Whole Life insurance is actually an extremely versatile product. Contrary to what many would have you believe.
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