Term Life Insurance

Who is the beneficiary? I'm asking why you need, or think you need, insurance. Had you invested that $5000 in an S&P index fund, it would have grown to over $65000, water under the bridge I suppose. Unless you are working and have a dependent to protect, you may not need insurance at all. (Disclaimer - I have a working Wife and Child and both Mrs. Taxpayer and I have enough term to replace our income should the other die) JOE

Sandybeth,

As Joe asked, do you need insurance now or for the next 20 years?

Going another direction, I happen to sell Genworth Life (that's not a solicitation), and I had a little difficulty getting the same numbers your agent did. Using your above details, I got $491/annually as a "preferred non-smoker" and $423/annually as a "Preferred Best non- smoker". A "standard non-smoker" health rating is $866/annually (100% more). Are you sure you can get these above average health ratings, or are you getting setup for a bait-and-switch. The only time I was able to get $461/annually was for a "preferred best non-smoker" as a 61 year old. Are you closer to age 61 or 60 (most companies use the age you're closest to)? If you are technically 61, add about 10-15% to the prices quoted above.

Health ratings are a double-edged sword in the insurance industry. The better your health rating, the less likely you are die in the next 20 years, and the more likely your insurance will become unaffordable prior to your passing. Unless your agent has thoroughly discussed your medical history and is extremely confident that you are in exceptional health, he/she is may be acting predatorily to get your business.

I guess I don't REALLY need insurance. Healthy husband is beneficiary, with 2 adult children secondary. When I decided to cash that single- term policy in, I just automatically started thinking about what to replace it with. We both have IRAs, Roths, pensions, 401Ks (being converted to our IRAs now that we're recently retired), and considerable savings and investments. Also 2 homes. We're not wealthy, but have been prudent. I'm having the health test done tomorrow, and if they try to jack the rate up after I get results, I'll cancel out. I'm closer to 61, but am in excellent health, no medications or medical conditions at all. Non-smoker. The Genworth table I have says $462 & it was worked out using my birthdate. We'll see how it pans out... The ins agent is trying to talk me into converting that 17K into another annuity (doing a 1035 exchange) but that's a BAD IDEA, right? I'm thinking I should just take my tax hit on the 12,000 gain and invest the remainder along with the 5K initial premium. Being retired, we are in a lower tax bracket. SandyBeth

Perhaps he has a younger wife as I do. Thumper

Pre-tax 401(k) and IRA money, will still have income tax after your passing, when the beneficiary withdraws it. In the 15% bracket, you can convert $3000 of IRA to Roth for a cost of $450, and save the kids maybe $1000 if they have high incomes. Of course, not dying is my first advise to you. But using the life insurance as a gift account is not the most efficient way to transfer wealth. (of course there may be a case where it would be, I just don't see it for this OP)

JOE

Younger husband or not, she isn't working, has no estate tax concern, and no younger dependants. JOE

A single pay policy issued in 1985 is almost certainly whole life. Is that correct? If so do the dividends buy paid-up additions in the policy (which is often the default)? If so (again) your policy is assuredly worth more than $39k today. I often see policies like this double or triple in total death benefit as time goes on.

I apologize, but I'm still leary of the "deal" in front of you. Your existing policy may soon be worth more than $100k without an extra $461 annually. If having the cash is more important than having the insurance, you should look into surrendering the paid-up additions. Another option is reducing the face value and taking a loan against the policy. If done properly you may still be able to get most of the cash into your hand, pay no taxes (as opposed to OIT), and still have a little policy left (a burial policy perhaps).

To compound all of this, you verified above that he lured you in with the most rarely-issued health rating in the insurance industry. Exactly how close are you to 61? Did he mention that you can "backdate" the policy so that you get the rates of a 60 year old? This would save you hundreds over the next 10 years. We (insurance agents) are paid based on the premium. Once again, he makes more money if you're 61, not 60.

My point is you have options that don't appear to have been given to you. Unless your insurance agent is a dolt, he knows this stuff too. But none of this stuff boosts his commissions.

Thank you for all your advice. It has really made me think things over. The existing policy is a Single Premium Endowment (AXA Equitable) and the death benefit has never gone up. My statements ALWAYS list 39,461 as the death benefit. That's why I want to get rid of it. The agent who sold me this has left long ago, and the new agent treats me like I'm stupid. In fact, he told me to KEEP this dinosaur, that it was a good policy because I'm getting double my money in insurance (*duh*). It states right in the policy that the premium and interest are LOST in case of death. The guy who is trying to sell me the term deal is a

3rd person. Here's how I look at it: I could cash the 17K in and owe maybe 2K in taxes (on the 12K interest). That would leave me with 15K. Even if I put this in a lousy 5% CD, I'd earn $750 interest each year, $288 more than it takes to cover the $462 premium for a 100K policy. AND I'd have my 15K free. I will let you know if I "pass" the strict health requirements for the term policy. I still think it's a good buy for me, altho I understand all your cautionary comments. If I don't pass and/or they try to jack the premium way up, I'll go back to rude agent #2 and find out how to "borrow" some of my 17K out of the policy, leaving me with, as you say, a "burial policy." I am 2 weeks from being 61, unfortunately. I will definitely ask about the backdating! For sure I'm going to request copies of the very extensive test results, which I will take to my doctor, thus avoiding my December annual physical and all the co-pay & deductible costs that entails. Ins. co. is even doing an EKG! Thanks for the IRA/Roth tip. I may bring that topic up in the future on this board, once I get this term ins business settled. Our IRA's are much larger than our Roths. SandyBeth

Ah ha! Single premium endowments are a bit of an odd bird. They're kind of fixed investments and guaranteed death benefits. Unfortunately the two don't play well together.

That's a pretty good way of looking at it and I'm certainly not saying its a smart option. FWIW you'll lose alot of the interest over and above the premium to taxes, but it still sounds like a good plan.

Good luck with your underwriting. For the record, I hope everything goes perfectly. Also, I'm not sure if you can borrow against that particular type of policy, you'll have to check your contract if it comes to that.

Simply explained, you can "date" the insurance policy to reflect a past date in which you were closer to 60 (in April, for instance). Of course this means almost 6 months of backdating in your case. The catch, you ask? You have to pay the full year's premium as if the policy actually existed in April. AND THEN it becomes due annually starting in April 2008. Because you are so close to age 61 it is probably a wash. It will save you ~$45 a year (plus the time value of money) but your coverage will run out 19.5 years from now, not 20.

Good luck with everything.

Check on getting a life settlement for your policy from a third party. You may get more than the surrender value.

-- Ron

Ron, do you know of any companies that will settle a policy like this one? My knowledge of this industry is limited as I have only dealt with a small number of companies (Coventry First, Life Settlement Solutions, and one other that does not immediately come to mind). All of the companies I deal with suggest the following for a successful life settlement:

1. A medically recorded decline in health since policy issuance. If the original insurer believed the insured would live a normal life expactancy, but new information suggest they will not, than the settlement company knows that they will need to make fewer premium payments than the insurance company expects to receive. The OP suspects she is in excellent health, however.
2. Policy face amounts must be larger than 0k. Because of the fixed costs associated with settling the case, all of our companies insist the policy be larger than 0k (I definitely can't say this is the case for ALL companies).
3. The insured needs be over age 65. Life expectancy estimates become more accurate as the insured ages. Most companies are hesitant to make life expectancy calculations on someone as young as the OP. They are also reluctant to pay premiums for the next 25 years because the insured is only 60 (and in good health).

Our firm has been hesitant to deal with any but the largest of the settlement companies and rightfully so, I think. I wouldn't want "Soprano Life Settlement Company, LLC" to have a vested interest in my demise! Even the largest company out there, Coventry First, is now under fire for unethical practices. Having said that, if there are reputable companies that are willing to analyze smaller cases like this one, I would appreciate the chance to give them a look.

Thanks in advance.

Ron do you know of any companies that will settle a policy like this one? My knowledge of this industry is limited as I have only dealt with a small number of companies (Coventry First, Life Settlement Solutions, and one other that does not immediately come to mind). All of the companies I deal with suggest the following for a successful life settlement:

1. A medically recorded decline in health since policy issuance. If the original insurer believed the insured would live a normal life expactancy, but new information suggest they will not, than the settlement company knows that they will need to make fewer premium payments than the insurance company expects to receive. The OP suspects she is in excellent health, however.
2. Policy face amounts must be larger than 0k. Because of the fixed costs associated with settling the case, all of our companies insist the policy be larger than 0k (I definitely can't say this is the case for ALL companies).
3. The insured needs be over age 65. Life expectancy estimates become more accurate as the insured ages. Most companies are hesitant to make life expectancy calculations on someone as young as the OP. They are also reluctant to pay premiums for the next 25 years because the insured is only 60 (and in good health).

Our firm has been hesitant to deal with any but the largest of the settlement companies and rightfully so, I think. I wouldn't want "Soprano Life Settlement Company, LLC" to have a vested interest in my demise! Even the largest company out there, Coventry First, is now under fire for unethical practices. Having said that, if there are reputable companies that are willing to analyze smaller cases like this one, I would appreciate the chance to give them a look.

Thanks in advance.

I was looking at the website

don't know if that company would meet the OP needs.

-- Ron