Life insurance question

[Jwill]

Have a small policy that my parents got for me around birth, currently mid forties, trying to decide if I should keep paying or cash it... $10k base value, addtl paid up $8K, so total payout if I kicked the bucket would be about $18k. Cash value $6,500. I'm paying $80/yr and it paid a $26 dividend last year. What would you do - let it ride, cash it, something else?

 

[TN2shot07]

At your age, if you’re in good health I would price some term insurance. For the same price per year you’d probably be looking at at least $100k in coverage. Once that’s in place I’d cash it out.

If you have health issues where getting additional insurance is a problem let it ride.

It’s all personal planning and choice. I do not look at life insurance as an investment, it’s a transfer of risk (no different than house or car insurance). In almost every circumstance I can invest in a plain S&P fund and get a way better return than anything through whole life insurance.

 

[LuketheDog]

Are you single? Married? Kids? If there are no spouse or kids in the pic I'd just scrap it and invest in something better, otherwise I'd pick up a term plan to take care of your family if you die.

 

[Brandon270]

Like said above, a term life policy has way more bang for the buck if you have a family that relies on your income. I got a $500k 30 year term life policy at age 30 a few years ago and it costs $315/year.

 

[Jwill]

Married, 3 kids, and have about $500k coverage through work. I don't really think of this as something that we necessarily need, just a carryover from my parent's estate that I need to figure out what to do with...

 

[npaden]

Generally on those whole life policies the fees (commission to the salesman) are front loaded so that once you have them about 15 or 20 years it just makes sense to keep them. The policy value is probably going to be growing by at least what you are putting in there so essentially by now it is free insurance. More than likely it is going to be growing the cash value and paid up balance by $200 - $300 a year while paying $80 a year. Not the S&P 500 but it would be hard for me to cash it out.

 

[GoGriz]

I had something similar and decided to cash it out so I didn’t have to think about it anymore. I say take the cash and use it for something you need, or add to investments or kids college planning.

 

[Gerald Martin]

Married, 3 kids, and have about $500k coverage through work. I don't really think of this as something that we necessarily need, just a carryover from my parent's estate that I need to figure out what to do with...

Cash it out on an adventure style hunt that is epic enough you could potentially die on the adventure? How ironic would that be?

In all seriousness though, if you have additional coverage that will provide for your family, instead of having your family receive the 18K that they will only receive when you are gone, why not cash it out and invest the money in a way that will provide a financial benefit to your family while you are here to enjoy it with them?

 

[LopeHunter]

My wife and I had term insurance up until were both retired. We now have $0 life insurance. The rate at which our term insurance premiums were rising post-age 55 meant the only way to win was to die within our first 10 years of retirement. Two of our parents lived into their 80s and the other two into their 90s.

The sunk cost on past premiums for the years we had real estate mortgages and children at home did bring us peace of mind which is what all types of insurance should do. How much did we pay in premiums the last year we had term insurance in place? $26,000. Not a typo. And would have been closer to $29,000 the next year then $34,000...

That cash outflow for premiums is turned off so now remains sitting in our pile of money we built up for using during retirement. Obviously, now there will not be a term insurance payout windfall when one of us dies. Wealth will not be bumped up with that windfall. Do we need a windfall? No. The surviving spouse will see household combined expenses fall to about 60% of what is needed for two of us. Only the Lord knows though we are betting on us living no less than deep into our 70s with a shot at our 80s.

 

[mxracer317]

Have a small policy that my parents got for me around birth, currently mid forties, trying to decide if I should keep paying or cash it... $10k base value, addtl paid up $8K, so total payout if I kicked the bucket would be about $18k. Cash value $6,500. I'm paying $80/yr and it paid a $26 dividend last year. What would you do - let it ride, cash it, something else?

See about taking a “loan” from the policy, which will be tax free versus a withdrawal which will be taxable. That is if you’re gonna go the route of cashing it in.

Just be aware that there’s gonna be a loan provision charged. Figure out if it’s worth it. Some companies have very small loan provisions and other is very excessive.

 

[jt13]

My grandfather collected these small whole life policies like they were trading cards and it was a giant PIA trying to find them all and sort them out after he passed. With no will and no records other than hand written notes, to this day we have no idea if we got them all cashed in. Even our inheritance was in the form of whole life policies.

Insurance salesman loved him.

You don't need the insurance so I'd recommend getting rid of it and doing something else with the money.

 

[David58]

Married, 3 kids, and have about $500k coverage through work. I don't really think of this as something that we necessarily need, just a carryover from my parent's estate that I need to figure out what to do with...

I bought $400K of term when I was 57, 20 year, $135 or so a month. In your mid-40's it will be way cheaper if you have no health issues.

Factor in kids, wife, retirement savings, etc. I went this way so I had portability (work insurance stops when I stop working), and my retirement got hit when my previous job froze retirement in 2015. So this was just a bit extra to make sure my wife had some pocket change if she's left here after me. Otherwise, the kids will get a paycheck after I kick the bucket.

But for $18K, I would cash out the policy your parents established. A small drop in the bucket of the $500K you have. Down payment on a truck, retire a debt, buy some toys, whatever, but as long as the insurance company has it the insurance company is winning.

David
NM

 

[npaden]

Not all of these are created the same and $6,500 isn't life changing money by any means but without doing an actual projection on it there isn't anyway to really know what you should do.

I don't recommend whole life insurance to very many people (zero that I can think of) but once you have been suckered into paying on one for 20+ years they actually can be worth holding onto, not just from the insurance perspective, but as an investment. There should not be any taxable income if you cash it out now or 20 years or 30 years from now. Think of it kind of like a tax exempt bond with no maturity date.

Now if you have something you need the $6,500 for and especially if you have some high interest debt you could cash it out and pay that off, but if your policy is like most of the ones I've looked at there is a place in there about 20 or so years into the policy where it just pains me for people to cash them out. They have paid almost all of the front loaded fees and the thing is actually turning the corner and then they cash them out.

Oh well, $6,500 isn't going to make a big deal one way or the other I'm sure in the grand scheme of things.

 

[Moserkr]

You are underinsured at the term level being married with 3 kids in your 40s. Term through work doesnt follow you.

For the small permanent policy with a cash value, save it for a rainy day if its returning a dividend. Does it do a lot for you though? No. Theres ways to stop paying and keep it by reducing the face value, if thats even an option. Or cash it out if you just want the money. Should be a tax free withdraw to basis if you let it go. If I am licensed in your state I could take a look for you. Feel free to pm me.

 

[Pucky Freak]

You are underinsured at the term level being married with 3 kids in your 40s. Term through work doesnt follow you.

Maybe, maybe not. If you have paid in to SS, you could get anywhere from $0 to hundreds of thousands from the SSA depending on how old your children are.

 

[Moserkr]

Maybe, maybe not. If you have paid in to SS, you could get anywhere from $0 to hundreds of thousands from the SSA depending on how old your children are.

We recommend $500k per kid plus the sum of all liabilities. The $0-100's of thousands doesnt sound too secure vs cheap term insurance.