Cancelling a small whole life policy

[momoney]

I've had a $50,000 whole life policy for about 30 years. I pay $600 a year (Auto pay and forgot about it) and have a $34,000 cash value. Cash value increased about $2000 last year. I don't see any need to keep this going as I can probably get the same term policy for a 1/3 of the cost.

I'll be taxed on the difference in contributions. $34,000 minus the $18,000 in contributions?

I'm thinking my income will be low enough this year to take this on without a problem.

Anything I'm missing here?

 

[OldShooter]

... I can probably get the same term policy for a 1/3 of the cost ... Anything I'm missing here?

Do you need insurance at all? I had term insurance until the kiddos were on their own and DW had her own career with a good salary and benefits. From that point there was no need for additional protection. I think I was done with life insurance in my early 40s.

 

[CardsFan]

DW and I have similar policies. Not a great investment, but not a terrible one either. I did the math a few years ago and the return if I cashed it out would have been around 4%. At that time (5-6 years ago?) we just put them on automatic with the dividends paying the policy, so no more out of pocket costs for us. And the death benefits have increased to around $75k.

We have considered just cashing them out, but we don't need the money, so we will let them ride for now.

 

[pacergal]

Have you investigated what a term policy would actually be?
And do you really need life insurance now? You don't state your age or if you have younger kids/spouse who would need income if you passed.

Like OldShooter, we cashed in our life insurance and cancelled disability insurance when we were mid fifty's, kids out of the house, and pension plus investments would cover our budget if needed.

 

[friar1610]

Yet another similar situation here, albeit with different face amounts. We, too, let the dividends pay the premiums. Our kids can use the proceeds pay for funeral expenses and a nice Irish wake with ample amounts of Guinness. They can do as they wish with anything that’s left over.

 

[MarieIG]

One thing to keep in mind is that term life becomes much more expensive as one ages. I cancelled DH's term about a year ago as the premiums increased by a factor of ten.

See also, #3 above.

 

[momoney]

DW and I have similar policies. Not a great investment, but not a terrible one either. I did the math a few years ago and the return if I cashed it out would have been around 4%. At that time (5-6 years ago?) we just put them on automatic with the dividends paying the policy, so no more out of pocket costs for us. And the death benefits have increased to around $75k.

We have considered just cashing them out, but we don't need the money, so we will let them ride for now.

I didn't consider letting the dividends pay the policy. Is this what would happen by default if you stopped paying into it?

I'll look into this and see what my tax situation is at the end of the year.

 

[CardsFan]

I didn't consider letting the dividends pay the policy. Is this what would happen by default if you stopped paying into it?

I'll look into this and see what my tax situation is at the end of the year.

I just called them, and they changed it over. I would NOT just stop paying, you could lose everything.

What happened to us is the dividends more than cover the cost, so the death benefit continues to grow, but slower than before.

 

[Koolau]

I just called them, and they changed it over. I would NOT just stop paying, you could lose everything.

What happened to us is the dividends more than cover the cost, so the death benefit continues to grow, but slower than before.

Eventually, the insurance costs will exceed the "dividends" and I assume you'll cut into cash value. YMMV

 

[Badger]

I have a couple of small policies my father took out on me 60+ years ago. I took over the premiums once I started working. Then about 25 years ago the dividends were paying the premiums and I put it all on autopilot with the excess of the dividends buying additional free coverage. Since it isn't needed but doesn't cost us anything anymore it should pay for all funeral expenses plus pipers and make for a heck of a party that I'm going to miss.

 

[street]

My wife has a 75K LIP also. Pay 25 a month and have looked into cashing it out but still worth keeping it for now. We still are ahead of the game with that policy. It will be a tax-free gift for the kids at some time.
Always a gamble with any insurance you buy.

 

[CardsFan]

Eventually, the insurance costs will exceed the "dividends" and I assume you'll cut into cash value. YMMV

Yeah, I have considered that, and at some point we may just cash out the policies. But right now we are both worth more dead than alive

 

[dknighd]

If I had whole life insurance policies, which I do not, I'd probably let them ride. Unless you need the money now. Life insurance proceeds are tax free to beneficiaries. Which could be a benefit. Obviously the details matter . . .

We cancelled our term policies about a year before we retired. We no longer needed life insurance.
But whole life is a completely different animal. It might be worth keeping it active for other reasons, especially if you were lucky enough to have purchased a good policy. . .

 

[badatmath]

I cancelled mine when the dividends quit covering the premiums but I have no kids.

My estate can cover any death costs. I don't want a funeral.

 

[dknighd]

I cancelled mine when the dividends quit covering the premiums but I have no kids.

My estate can cover any death costs. I don't want a funeral.

I do not want a funeral either.

 

[Gumby]

The funeral is for the survivors, not the deceased. The young wife knows that my preference is just to be pushed to the side of the road so I don't block traffic, but she is free to do as she pleases (and there will be sufficient funds to allow that). I won't be in a position to care either way.

 

[CRLLS]

My MetLife whole life policy had a guaranteed annuitization clause among others. When I turned 65, I tried to enact that option as it fit my needs/desires. I had trouble getting anyone to understand the policy as they aren't common in newer policies. All the people that I talked to told me I had to cash out the policy and then buy a separate annuity. Cash-out was only one of several options in my policy. It took me a few months of running up and down the corporate ladder but finally found someone to find and then read my policy. I selected a life with 10 yr. certain annuitization. I now get a small check from them each month, larger than what would have been if I cashed it out and bought an annuity. I pay taxes on the appreciated value but not on the premium part. Spreading out the payout helps to level out the tax burden.

You might want to check it that is an option available to you, and if it fits your financial plan.

FWIW, over the years, MetLife had split off parts of their business. They no longer had salespeople, that was done by a different company, they no longer sold annuities, that was done by another company, and the list goes on. It was extremely difficult to find the right people. In the end, I know they handed off my cash value to the annuity company to manage the annuitization. ML had to pay another 15% or so more to meet my policy's guarantee amount. there is some back-office work being done because ML sends me that check every month with their name on it, not the other company (Brighthouse?)

 

[Sunset]

I had a whole life policy, and had them set the dividends to pay the premium, so it was zero cost to me from then on.
Later the insurance company gave me shares when they switched the type of company.
Much later I cashed in the policy as not needed.

 

[badatmath]

The funeral is for the survivors, not the deceased. The young wife knows that my preference is just to be pushed to the side of the road so I don't block traffic, but she is free to do as she pleases (and there will be sufficient funds to allow that). I won't be in a position to care either way.

I won't have surviving relatives to care about it. I just included it in my estate plan so the executor will feel no guilt about not holding one.

 

[pb4uski]

I had a small whole life policy that I was keeping as a bond substitute since the cash value growth was decent. About a year ago I decided to cash it in, in part to have one less thing for DW and DD to have to worry about if I get hit by a beer truck.