My husband and I are considering discontinuing our life insurance. I’d like to know what other people in similar situations have done.
It seems like you are always hearing to buy it, but I have to take those messages with a grain of salt as being driven by people selling it. I will of course call the insurance company but they will not only encourage me to keep it, but to buy more.
In addition, my husband officially retired last year. He has term life so it makes the most sense to get rid of his.
We no longer have kids at home or college/grad school bills. Mortgage is paid off. No debts. No health issues except the petty stuff that (hopefully) won’t kill either of us anytime soon. Our expenses are low. We live very modestly except for the things we can't change like real estate taxes.
Mine is Whole Life: payout $100,000. From the actuarial perspective I have 20 - 30 years left: considering my Mom’s date of death and my Dad’s. Annual premium is $ 700. I have $ 15,000 sunk into mine already.
Surrender value would be a fraction of what I have already paid in over the years. I don’t know exactly what without calling them.
Yes, I can afford to keep paying: but should I?
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We opted to plan and pre-pay for our funerals and keep less insurance. We were surprised to find out that IF we end up in a nursing home and run out of money - the State could claim payment of our life insurance, even though not the beneficiary - if our beneficiary is our spouse. Additionally, our kids are so grateful that we've made all the decisions and removed that burden from them. However, there is no 'right' solution for everyone. Careful input/consideration is needed from as many sources as you can get- for the funeral pre-pay, too - be sure you KNOW what you're signing up for so you don't get scammed! At our ages, 78 and 83, with 'fixed' pensions that are 25 years old, and 25 years of inflation .... there are tough decisions to make! Good luck!
Very good points everyone!
I had not thought of the life insurance being claimed by a nursing home.
Oddly we were talking about nursing home/assisted living centers last night. My husband was saying, “I’ll never go to one of those, I’ll take myself out first! I’ll go like your Dad!” My dad died abruptly of a heart attack at 97 right after the decision was made that he would move in with us. He was in the hospital recovering from a fall. He was mobile and not ill: we said afterward that he just couldn’t stand the idea of losing his independence.
Our two adult children seem to be well launched. We are, however, having our first grandchild. Making our kids the beneficiary seems like a good idea. Then move it to the grandchildren when they are a little older.
Please - NEVER use a bank as a trust manager!!!! Took my inheritance from a $750K total sum to under $200K due to their inappropriate handling of the funds. Banks follow the letter of the trust and do not have ANY flexibility in adjusting for life issues (a parent having a long term illness for instance and allocating funds to support that) and will never change the investments to reflect market conditions. The inheritance (which won't be distributed until the death of the final parent - who is very much alive and well at 102 years old) has lost all value because they never adjusted the investments and refuse to have any guidance from the beneficiaries. It's been a terrible situation since the trust ended up in the bank's hands - oh and the account has been sold multiple times to different banks and had more trust managers than I can count on both hands. They don't care at all!!!
Banks and some investment companies will manage your trust to anything you want. Funds can be held for grandchildren and does not depend on their parents {your children} being dead or alive. You also don't want them gambling with your money and investments by keeping with market conditions. You want to keep your safe and sound investments you now have. I assume its all super conservative mutual funds at age over 70. You can even have grandchildren get money only for college expenses until they are 21. The trust may cost a few thousand for a lawyer to write being in constant discussion with you but you can make any desire that you want. You don't want guidance from beneficiaries or changes to reflect life conditions. You want the funds to do exactly as you state in your trust once you are gone.
At 74 and out of curiosity, I looked at term life for taxes on transferring business to kids when I croak. Long and short of it: Horrendously expensive at my age and they would cancel the policy at age 95. I inherited good genes so that wont work LOL.
What you are seeking can can come under two types of setups.
A) A Buy / Sell agreement. Wherein you are treating your kids as business parties and looking to have a way of funding their takeover of the business without liquidation to offset the buyout for equality.
B) Estate conservation. Wherein you are seeking to offset tax liabilities and other expenses so your equity does not become diminished in order to pass the estate onto the beneficiaries.
Yes, insurance is far more expensive at a late stage in life, compared to when you are young and healthy. This factor is part of "Equality of Risk".
There are many options. Based on your mentioning Term insurance. Look at the costs in premium dollars VS the coverage amounts and the tax ramifications.
Simple concept is: Budget for the known... Insure for the unknown.
Known = Someday you will pass away, someday the taxes on the inheritance will have to be paid.
You can budget for it, or insure for it if you do not want to have to have the liquid equity available now.
Insurance is the instant creation of an Estate. It can also be used, wisely to save on taxes.
Not all policies cancel at age 95
You need to look at all the Non-Forfeiture values.
If the Whole life policy is from a a participating, mutual company not a Stock company it should have dividends accumulated. This is in addition to the Cash Reserve Value.
There are 3 basic options in forfeiture:
A) Takeout all the Cash & dividends and surrender the policy. You lose ALL benefits. The policy stops.
B) Stop paying premiums and take a Reduced Face amount paid up policy for life. Example your current policy may have a Face amount of $100,000. Under this provision you may get a $60,000 policy, paid up for life, wherein you never pay another premium. You also will not build more cash value nor dividends.
C) Stop paying and accept a Reduced term paid up policy. Your policy will retain it's full face value but will be for a limited period of time. Example your current policy may have a Face amount of $100,000. Under this provision you would get a $100,000 policy, paid up for a period certain such as 15 years, wherein you never pay another premium. You also will not build more cash value nor dividends.
Another option is to Borrow the cash value from the policy. You can invest teat money elsewhere or use it as you feel best. In the case of demise, the policy will be in full force. It would pay the Face Value minus whatever money is owed on the policy.
Example:
1) Surrender the $100,000 policy, get $20,000. Lose your insurance.
2) Borrow $18,000 from the $100,000 policy. At demise policy pays $100,000 minus $18,000, net payout approx. $82,000.
Remember, at demise, a current Life policy will pay the face amount plus all dividends to the beneficiary free of all liens and encumbrances.
There are significant tax implications that are beneficial with an insurance policy.
You policy may be a Whole Life policy, that does not equate to paying for Whole Life. The terminology / Title of "Whole Life" means permanent insurance. It may be paid up at many different times. Example, yours may be paid in full at age 65.
Life insurance is based upon actuarial tables. Most people surrender their insurance when it most likely to benefit them keeping it (unfortunately).
A good financial planner, who does NOT have a stake in selling anything, should be able to do a needs based analysis of your portfolio to determine the best option for you.
As to the Non-forfeiture provisions, these will be stated, as required by law, in the pilicy itself.
In the meantime keep paying your premiums, as failure to do so will cause the policy to lapse, in which case it will automatically go into one of the non forfeiture Provisions based upon the default selected at time of issue.
It is better for you to choose what you want now, based upon your current situation, rather than what is automatically selected from many years ago.
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