Almost 25 years ago, my wife and I each took out a whole life policy for $50K each. We paid the annual premiums of $360 each for twenty years, building up cash value. Then, for reasons I don't want to get into, we stopped making premium payments about five years ago. During that time, the annual earnings on the cash value (now about 4.5%) have been more than enough to pay the premiums, but we are just now at the age (late 50's) where the premiums have risen enough to make that no longer true.
So what makes sense?
1. cash in the policies now (each one about $7K, which is just slightly
more than the total amount of premiums actually paid since beginning)
2. continue to use earnings and cash value to pay the premiums until
there is no more cash value and the policy terminates some number of
years down the road for lack of premium payments.
3. start paying the premiums again (can I pay additional money in for
investment purposes? I don't understand the section of my policy
document that mentions "additional premiums").
While 4.5% sounds like a great return, I'm not clear on how this would
work as an investment. Can we just let the cash value grow (by paying
scheduled or full amount of insurance premiums), and then cash it out
when a better return is available elsewhere? I think for tax purposes,
the taxable amount is everything we get out, less all the premiums that
have been paid in.
I don't feel like we really need any life insurance at this point
(neither spouse would be destitute if the other died, children are all
adults), yet the cost under this policy is going to rise steeply over
the next 10-15 years. There is also a $36 each annual "expense charge",
plus a 2.5% "premium expense charge", although I don't recall ever
seeing that one actually show up.
I have a call into the agent who sold me the the policy, but am
interested in a less biased viewpoint.
- posted 8 years ago