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whole life insurance

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.
Reply to
Rapid Robert
I thought that whole life policies had a flat premium, and didn't escalate with age like term policies.
Not sure on your "extra charges" - again, my knowledge of whole life was a single flat premium payment that never changed over the years...
Reply to
ps56k
My suggestion is to do # 2 and then consider # 3. Calculate the return to your estate ($50k) compared to the premiums to be paid until your death. There may be an attractive ROI.
Frank
Reply to
FranksPlace2
I think that's your answer right there. Whole life insurance is, first and foremost, insurance. The fact that there is an investment component does not change this. If you no longer need life insurance, I would cash in the policies and do something more useful with that money. Pay down debt or put it in a simpler investment that you fully understand.
I don't say that to be snarky. I certainly don't know all the ins and outs of whole life insurance. But I do know that it can be extremely complicated. And when you say there are sections of your policy that you don't understand, I see that as an immediate red flag. I would rather be in a sub-optimal investment that I understand than an optimal investment that I don't understand.
That's my 2 cents.
--Bill
Reply to
Bill Woessner
That is good advice. There are all kinds of people in the investment world who will say: "Don't worry. You don't need to understand my plan. Just follow my instructions, and you will do a lot better. Now, my first instruction is: Give me 5% of the amount you are investing. But don't worry; that 5% is small compared to the amount of money you are going to make."
Even if it is not an out-and-out scam, that optimal investment usually goes right along with optimal risk.
Reply to
Don

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.
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Are you sure these are "totally" whole life ?
There are a couple of items that don't seem right
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Reply to
ps56k

Whole life insurance is better plan as compared to term life insurance,as you have this facility to pay premium with ease. Look for a cheap life insurance plan and save money.
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stevenricherd


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Reply to
stevenricherd
Thank you all for your feedback.
I have recently talked with the agent who sold the original policy. To clarify, this policy was not a traditional "whole life" policy, but something called "Universal life", which is essentially a term policy with a side investment account. So yes, the actual cost of insurance is indeed going up each year. The feature of the account is that if you pay the fixed annual premiums without fail, then the contributions plus earnings are supposed to cover the increasing payments for a very long time. (no increase in annual cash outlay despite increasing age).
Sorry for the inaccurate description in my original question.
I do not regret buying the policy, and I'm sure I clearly understood what I was getting at the time I bought it (speaking also for my spouse). It's just been on auto-pilot for so long, that I needed a self-administered kick in the butt to review it.
I'm pretty clear on the tax implications (almost zero in my case, as present cash value just about equals all payments made over time to the present).
Converting to a paid-up permanent policy of to cover funeral expenses is one option I'll check into. But most likely we'll just cash it out.
Reply to
Rapid Robert

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