Life Insurance: Coverage for you and your family

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PostPosted: Sat Dec 12, 2009 2:41 pm   Post subject:   

You are correct, it would be CSO 1980 and as such would have an endowment age of 100.





To answer the OP's question about what they get at surrender, you get cash value from the policy. It's only a taxable event to the extent that your outlay is less than the cash value. Outlay = premiums paid - any dividends or PUA surrenders you've used to reduce or pay for premiums.

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PostPosted: Sat Dec 12, 2009 2:53 pm   Post subject:   

Looks like variable whole life insurance. Very popular back in the late 90s. Cash value at $29,528 means you can access $29,528 from the policy



There should be sub accounts associated with this if it's variable. Those would be on your statements. How often do you get statements?

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PostPosted: Sun Dec 13, 2009 3:27 pm   Post subject:   

Quote:
Accelerated Payment (AP) is a premium payment arrangement that allows you to systematically apply accumulated dividends to pay the annual premiums, after premiums have been paid out of pocket for a number of years.



In other words, AP uses the current annual dividend in conjunction with the available dividend balance to help "bridge" the policy to the point where the annual dividend exceeds the annual premium payment.



It is important to understand that a policy on AP is not fully paid-up, nor will AP reduce the number of years in which premiums are required to be paid. Since the AP arrangement is completely dependent on dividends, it is not guaranteed. Any fluctuations in the dividend scale

will directly impact this payment arrangement.



According to our records, the above arrangement is not available for your policy. Therefore, you will have to pay the premium payments. I can't explain why you were told this plan would be available on your policy. I would encourage you to speak with your representative. If you

would like me to contact the sales office and request a callback for you, please let me know when will be the most convenient time for the representative to contact you.



I understand that this is probably not the information that you were expecting to hear but I hope that it has been helpful.




OH, MAN! While the Company's explanation of things is excellent and what the OP's parent should have heard, you can bet that what the OP writes they remember being told is not something they would have made up. These are immigrants and were probably very much at a disadvantage from a language perspective, too, and the agent $aw an ea$y $2200+ (90%) in commi$$ion$ on the half $hell!



BNTRS ... I'm still not sure this is a VL policy, otherwise the OP probably would have copied the title as "VARIABLE WHOLE LIFE payable to age 98." And if a VL policy, the Company would have mentioned the "guaranteed minimum death benefit" (GMDB -- I would expect to see maybe $25,000) which is a fundamental component of VL policy design.



On the other hand, $2542.49 * 45 years is only $114,412.05 in base premium (76.3% of $150,000 face) and too low for a whole life policy which would demand closer to 90% in premiums over the life of the policy due to 4-5% IRR. So something else, like a sales illustration with a 7-8% IRR is driving the low premium. Without a copy of the policy in front of me, I'm still a bit confused.



12 years of premiums = $30,509.88, and despite the market conditions of late, if a variable policy, I would expect the cash value to still be higher than the total of premiums, unless there's something being siphoned off to the General Fund for the GMDB -- or the CV has been in a guaranteed fund all this time, which would have been a mistake for an "investor" looking to maximize the tax-deferred IRR. So there's something happening here that eludes me at present.



The fact that the OP has not mentioned anything yet about any annual statements is also indicative that it might not be a true variable policy. Still, a "variable rider", as the company admits, would require such a statement.



$936 in dividend for 2008/2009 is a 3.07% annual yield, $6,428.51 in PUA surrender value is 21% cumulative, but only 1.7% average annual yield, and is consistent with most participating whole life policies I've analyzed. I've never seen a participating VL policy, but this could be a first. So even if the PUAs are variable in nature, it seems like the funds are in a guaranteed interest account.



Paid up additions (PUA) total 9.5% of face after 12 years. Not bad, not great. Insured's age is the mitigating factor, now at 65-66.



What do you think, BNTRS?



zhl . . .



You've asked us



Quote:
What would you do in our situation? Would you surrender the policy? How much would we get back if we surrender? Do we have to pay tax?




1) Because none of us are truly familiar with the details of your family's situation, it would be a crime to suggest anything at this point. Would I surrender the policy? Probably not, unless there was some immediate need that demanded giving up the insurance and using the available cash value. I would be willing to go out on a limb and say that I doubt your parent's situation is that desperate at the moment (you haven't said anything to indicate that).



2) The company has told you that the surrender value is $29,528.51. That's what your parent would receive if they terminate the policy. They have already paid at least $30,509.88, so there would not be any taxable event in surrendering the policy.



3) Another thing to consider is that if your parent still needs life insurance, at their current age of 65/66, any new policy, even term, is going to be MUCH more expensive than what the current premium is for $150,000, let alone for any larger face amount. If they have a need for more coverage, it would probably be a better decision to supplement the additional need with a second whole life or term life policy (for the same face amount, a 10-year level term policy premium would be about 35-50% less than the premium for a whole life policy). At age 65/66, 10-yr level term is about the longest LT policy available from most insurance companies. A longer level term policy would also have a higher premium. Most term policies at this age are going to be level for a short period (to age 70, or 75 at best) and then change to Annual Term rates, which increase every year. So at age 65/66 if the need for life insurance is still a long term need, the more expensive whole life policy will be less expensive in the long run, and perhaps a better choice.



But any advice you truly need requires a more thorough analysis of your parent's present situation and future needs. That requires a "face-to-face" meeting between agent and client, something which can be done but is not best accomplished via email or fax.



Finally, you ask



Quote:
Please let me know what else you need in order for you to help me




A scan of the policy title page or data page would be nice to look at (block out any personal names, addresses, birthdates, and other personal identifiers). You can also send me a private message or email, and we can discuss this in greater detail, appropriately, off the thread. [/quote][/i]


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PostPosted: Sun Dec 13, 2009 8:35 pm   Post subject:   

I agree that it would be helpful to see the policy. Even an inforce illustration would be helpful.



Is the insured 53 now, or was 53 at policy issue?



I think we might be a tad too quick to jump on the original agent and vilify him/her. We don't know what kind of conversation took place 12 years ago, products were a lot different, and though the original agent made a big mistake if he/she suggested the policy would pay for itself by now, I think there are larger issues at hand.



I think I know what company issued this policy, and if I'm right, it's definitely an A+ top notch insurer, and there may be a few options concerning what the insured can do with this policy.

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PostPosted: Mon Dec 14, 2009 7:54 am   Post subject:   

You might be right, age could be 53 today, and not my assumption of issue age.



I have no doubt about the integrity of the insurer. I've run across too many clients over the years who seem to distinctly recall the agent telling them that after 7 or 10 or 15 years they wouldn't have to pay any more premiums. I had a prospect's husband literally tell me, as he got up and left the table, "The agent told us after 7 years we don't gotta pay. Next month gonna be 7 years, and I ain't payin' another penny. If the dude lied to me, I'll get him."



Okie dokie!



Any way, as presented so far, this is pretty interesting, but too many details still in the dark.



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PostPosted: Mon Dec 14, 2009 7:26 pm   Post subject:   

My parent's CURRENT age is 53. Insurance was bought in 1997. Insurance company is MetLife.



As my parent is entering retirement age, their income is decreasing and may not have the ability to continue to pay the annual premium. I want to evaluate if their current life insurance policy makes economical sense. If not, I suggest they surrender the policy, take the cash value (and the dividend? do they get the dividend too?) and enjoy their retirement. If yes, I may take on the burden and pay the annual premium.



Maxx, thanks for your help. I will try to send cover page of the statement and the policy, if possible.



In the meantimes, do you suggest I ask some additional questions to the company? And what would be the good questions to ask?



Thanks.

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PostPosted: Mon Dec 14, 2009 9:20 pm   Post subject:   

ZHL . . .



Thanks for clarifying the age element. At 53, insurance is getting costlier, but not nearly as much as at age 65. So that's in your parent's favor.



However, it's not simply a matter of "economical sense" that is your starting point, but whether or not there is a need for life insurance. IF the answer to the question is, "Yes, we have a need for life insurance," then even if the current policy does not make "economical sense" until it is replaced with anything else, you should not counsel your parent to surrender the policy.



Having a replacement policy in force first is critical, because if they apply for newer coverage, surrender the exiting policy, are declined for the new coverage, it may not be possible to reinstate the surrendered contract. There is usually language in the contract that a "lapsed" policy may be reinstated within a stated period of time (3 years very common, longer possible), but that same paragraph probably states something like "We will not reinstate a contract which has been surrendered."



To get things out of sequence could leave your parent with $30,000 cash in hand, but no insurance. Agents can lose their licenses by counseling persons in just that manner. So you really don't want to do it that way.



A needs analysis will help determine the amount of life insurance that might be appropriate. A crude by reasonable method is sometimes known as the "DIME" method: D=consumer debt (unsecured, credit cards, student loans, vehicles, business loans, etc, to be paid off), I=income for survivors (how much per year/how many years), M=home mortgage and other mortgages to be paid off, E=education funding for children or emergency funds for surviving spouse (separate concept from survivor income = usually thought of as 4-12 months' income in a separate account for emergency use only). Add them all up, and come up with a rough insurance amount.



Not entirely accurate, but a fair representation of need. Other sources of income, other assets that could be liquidated, these are things that could also reduce the amount of insurance needed or increase it if there was a concern about taxation of one's estate following death. (Won't be a concern in 2010, but is likely to reemerge in a big way in 2011).



It's commendable that you would consider paying the insurance premium, and is a viable option. As to your question about cash value and dividends, they are the policyowner's to take at any time. Dividends have been used to purchase paid up additions, so they can surrender the additions for their cash value without affecting the base policy. There are no premiums to pay for those additions. But the additions also increase the total death benefit, and once surrendered,, cannot be reinstated. Similarly, it is not usually possible to keep only the paid up additions and surrender the base policy.



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PostPosted: Mon Dec 14, 2009 10:19 pm   Post subject:   

Maxx...thanks.

So is it accurate to say $20,754.20 represents the total dividend my parent received over the past 12 years, of which $14,325.69 were used to buy paid up additions (i.e., additional coverage)?



I wish they had never used the dividends to buy the paid up addition and had left the as dividends. For 3 reasons:



1) We don’t need that much coverage.



2) For time value of money reason. Because dividend is something you can get IMMEDIATELY whereas the additional coverage amount is something you’ll get at the end of the policy. For example, if they had left it as dividends, then if my parent surrenders the policy today, they’ll get $50.282.71 (=$20,754.20 + $29,528.51), but now they will only get $35,957.02 (=6,428.51 + 29,528.51) because some of the dividends have been converted into death benefits.



3) My parent would have $20,754.20 in dividend today, which can be used to satisfy approximately 8 years of annual dividends without out of pocket expense.



Do you think I can tell the company to stop using dividends to purchase additions? So we still don’t know what kind of insurance my parent has (variable whole life or what)? Maybe I should ask the company directly.

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PostPosted: Mon Dec 14, 2009 10:57 pm   Post subject:   

Quote:
As of 11/13/2009:

Death Benefit Amount: $164,325.69

Surrender Value Quote: $29,528.51

Loan Value Quote: $29,528.51

Last Dividend Credited Amount: $936.00

Dividend Option: Paid Up Addtl Ins



Dividend/Rider Withdrawal:

Estimated Amount Available for Withdrawal: $6,428.51



Riders & Benefits:

Equity Additions(Variable Additional Insurance) Benefit / Coverage Amount: $14,325.69





No, your calculations are not accurate. Your $20,754.20 ($14,325.69 + $6,428.51) is wrong. As is the value of $50,282.71. Let me show you how to read the numbers you provided.



The surrender value ($29,528.51) is the maximum cash available other than as the result of death (because it appears that there are no more "surrender charges", the loan value and the surrender value are the same). It includes the accumulated cash value of the dividends ($6,428.51). (Not $29,528.51 + $6,428.51 = $39,957.02)



Some or all of the cash value of the dividends ($6,428.51) may be "withdrawn", reducing the death benefit by up to $14,325.69, but not below the $150,000 original face amount. Any amount of the $29,528.51 may be "borrowed" as a policy loan, reducing only the amount of death benefit payable as long as the loan and interest remain outstanding.



The total dividends returned to date are not more than $6,428.51 (only $936 in the last 12 months, will probably be more next year). They have been used to purchase an additional $14,325.69 in death benefit over time.



But just like cash value and death benefit, the two are intertwined, not separate. If your parent died today, heaven forbid, the insurance company's death claim obligation would be a minimum of $164,325.69 ($150,000 + $14,325.69). Not $164,325.69 + $29,528.51.



Your parent, as the owner of the policy, can direct that dividends be used in any of several ways other than purchasing more paid-up insurance. They can be credited to the next year's premium to reduce out of pocket cost. $2542.49 - $936 = $1,606.49 (the amount that would have been needed out of pocket to pay this year's premiums as a single payment). They can be received in cash (non-taxable event). They can be left in the insurer's general fund to earn interest (a taxable event). If there was an outstanding policy loan, the dividends could be used to repay the loan (principal, interest, or both).



Yes, we don't know exactly what type of policy it is, but it must be stated on the cover of the policy or on the first page inside the cover or on the Policy Specifications (Data) page -- it's required by law. It will say something like: Variable Whole Life Insurance, Modified Variable Life Insurance, Universal Life Insurance, Flexible Premium Adjustable Life Insurance -- any number of possibilities here. Look for that on the policy cover or on the first few pages of the policy inside the cover. I'm sure you'll find it. Should also be indicated on any policy statement. And you could ask the company directly, too. They'll tell you.


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PostPosted: Tue Dec 15, 2009 11:47 pm   Post subject:   

WL doesn't use a surrender charge against cash value for any policy year. Whatever the stated cash value is, it is also the surrender value.



The use of dividends to purchase Paid Up Additions allowed your parents to accumulate more cash inside the policy than any other dividend option, making that move was a wise one.



When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another).



This is not the company I was assuming, which better explains why the dividend is currently where it is.



If price is causing problems, you should contact the company and ask them what can be done for a premium offset. This doesn't mean premiums aren't due, it means that dividends continue to purchase paid up additions, and paid up additions are surrendered to pay for premiums. This could bridge period of time between now and when you'll have enough dividends to pay premiums.



Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be.



There may also be the option to reduce pay up the policy. It'll reduce the death benefit by a good amount, but it'll keep the policy inforce without future premiums, and the cash will remain and continue to grow. Also, dividends will continue to purchase PUAs increasing both cash value, future dividends, and death benefit.



I would advise you not to feel duped, the policy design seems mostly correct. Unfortunately, the sales concept hinging on the idea that the policy wouldn't require premium payments by now turned out to be false.



I'm intrigued by the retirement comment. Your parents are retired at 53?

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PostPosted: Wed Dec 16, 2009 3:05 am   Post subject:   

BNTR...



Quote

"When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another)."



Are you suggesting using dividends to purchase the addition was the best option? I think I just told the representative to change our dividend options to "Dividends with Interest." Should I change it back? There are 4 options available: 1) Additional paid-up insurance, 2) Dividends with Interest, 3) Premium Reduction, 4) Cash payments, and 5) One-Year Term Coverage. Are you saying #1 increases cash value faster than any other choices? Does WL separate out the cash value for the PUA and the base policy? (I only see one cash value). If it does, then I can choose to surrender only the PUA coverage. I think this is what you meant by premium offset? But if dividends are used to purchase PUA, wouldn't it slow down dividend accumulation?



Quote

"Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be."



What's the implication here for us? I'm not sure what you're suggesting here. Are you saying I should focus on increasing cash value rather than dividend?



I told my colleague about our situation about life insurance. She got nervous because she remembered her representative telling her that she only needs to pay premium for about 20 years and then she will no longer need to pay any out of pocket premium. She called her representative to confirm this and her representative assured her. Could this be true? I still can't believe it. When I ask her what kind of insurance she has, she read the product type to me: Guaranteed Advantage (UL). I think it is Universal Life? But even with Universal Life, could that be true?

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PostPosted: Wed Dec 16, 2009 4:15 am   Post subject:   

Yes, you're cash values and dividends grow faster with paid up additions. If asset accumulation is the goal, using that dividend option is in your best interest.



My comment about MetLife and dividends was to reinforce the likelihood of lower than originally suggested dividend performance.



As for your colleague...



You are correct, she has Universal Life Insurance



And her premiums...



This is tricky, UL is very interest sensitive it's possible to endow a UL contract and require no additional premiums, but there are so many moving parts.



To ensure a guaranteed premium period, she should look for something called a secondary guarantee on the policy. This promises that as long as she pays the planned premium for the specified period the policy will remain in force. The cash values most likely cannot be touched in this case. This sort of policy is more like having a permenant piece of term insurance.



In her case, there are no dividends, nor is there a paid up provision. It's simply the insurance company promising that after so many payments at a certain amount, they will guarantee a death benefit.

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PostPosted: Wed Dec 16, 2009 4:00 pm   Post subject:   

BNTR...

Are you saying for an UL, the Death Benefit Amount and the Annual Premium are subject to change? There’s no guaranteed Death Benefit Amount?


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PostPosted: Wed Dec 16, 2009 7:01 pm   Post subject:   

Depends entirely on the contract. Some are; some aren't. Most are guaranteed for a certain period of time providing a minimum premium is paid.

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PostPosted: Sat Feb 06, 2010 6:27 pm   Post subject: WHOLE LIFE INSURANCE  

What will the premiums be on a $1,000,000. Policy to go to my estate at the time of my death?


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