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 Posted: Thu Dec 04, 2008 11:27 pm Post subject: change cash value in a whole life policy to a paid up univer |
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It was suggested yo me to take my cash value of a whole life insurance policy and purchase a universal paid up policy with another company.
Would this be to my advantage? |
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akraemer1
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| Posted: Fri Dec 05, 2008 12:39 am Post subject: |
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Replacement of a cash value life insurance policy with another cash value life insurance policy it NOT normally suggested unless there are definite advantages to replacement, which are rare. I would add that using the cash value surrendered from the "old" policy to purchase a "single-premium" Universal Life policy is, (let's see, how do I put this) is something that I would rarely, if ever, suggest.
Before I get into specifics, would you please let me know specifically WHY you are considering cancelling your whole life policy, taking the cash, and buying a U.L. policy? Who did the "suggesting?" My guess is that it was a life insurance producer.
I am more than happy to help guide you here, but please give me a little more information as to the purpose, person who suggested the replacement, and why they suggested the replacement. Also, please give me the age you were when the whole life policy was originally purchased as well as your current age. 
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InsTeacher
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| Posted: Fri Dec 05, 2008 6:22 am Post subject: |
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I guess that the agent is driven by business interest, otherwise why would he suggest an option that might not benefit you. In case of the whole life plan the cash value is guaranteed, whereas, with the universal plans only the death benefit is assured. Therefore, you can clearly see where you are losing. Changing the life plan is a wise move unless you have a clear objective for it.
Akraemer, pls go ahead a post the additional information that Teacher has asked. I'm sure that you want to make a well informed decision.
~Jeremy |
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JeremyHolter
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| Posted: Fri Dec 05, 2008 6:57 am Post subject: |
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| Quote: | | Therefore, you can clearly see where you are losing. |
Well, that's not true always. The universal life plan can outperform the whole life plan if it continues generating good return through out its tenure while the cost of insurance remains the same, but this can happen only in an ideal situation. The cost of insurance may not remain the same for the entire period of the policy and in the given market condition the performance of the UL plan is kinda uncertain. |
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jeorge
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| Posted: Fri Dec 05, 2008 7:31 am Post subject: |
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| Quote: | | Well, that's not true always. The universal life plan can outperform the whole life plan if it continues generating good return through out its tenure while the cost of insurance remains the same |
Agreed, the universal life plan offers more flexibility to the policy holder. The insured can actually tune-in the premium payment amount and mode to his/her convenience with the UL. This option isn't available with the whole life plan, in which the premium remains fixed for the term of the plan.
Universal life can be an ideal alternative for people with fewer responsibilities but want their policy to perform as an investment tool.
The returns are higher with UL plans since the insurer can take greater risk with the premium paid and thus can generate better return than the WL plans. |
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carol
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| Posted: Fri Dec 05, 2008 8:05 am Post subject: |
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Honestly OP, apart from the variable premium payment benefits you can derive any other advantage out of the universal life plan. I'd second Jeremy, whoever has suggested you to switch from whole life plan to universal life plan is driven by his/her won interest and isn't really considering what is good for you.
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pits-bull
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| Posted: Fri Dec 05, 2008 10:42 am Post subject: |
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Without more information there isn't any reasonable way to have an intelligent conversation.
Before we go too far into bashing an agent for replacing an old policy with a new policy we need to know the facts.
If OP had $20,000 cash in an old $50,000 policy that he is paying $300 per month for and if he can 1035 exchange the old policy for a new $100,000 single premium life policy with a No Lapse Guarantee AND no more money paid out of his pocket,.... then where's the beef?
The agent would have doubled the death benefit for the beneficiary and the insured doesn't have to pay $300 out of his pocket any more.
So OP, aka, Original Poster, please post the following:
Your sex,... your age,... smoker???,... death benefit old policy,... cash surrender value old policy,... death benefit for new policy,... premium for old policy and whether or not you will continue to pay this into the new policy in addition to the lump sum premium?
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GarySpicuzza
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| Posted: Sat Dec 06, 2008 12:24 am Post subject: |
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Gary, I would agree with your statement, especially with a company that is actually using the 2001 mortality tables. The 2001 tables show a distinct drop in mortality compared to the prior table based from 1980. Mortality costs have dropped like a rock over the past 20+ years.
As well, no one (other than you) mentioned a 1035 exchange which would be the ideal way to go...keep any taxation on a deferred basis. My hunch, however, since the words "1035 Exchange" were never mentioned, is that this agent is simply telling the insured to surrender the contract for the cash value, and then use that cash as a single premium on the UL policy. This would obviously take the 1035 out of play.
Remember that mortality costs in a UL are only guaranteed to a point, and that there have been numerous occurrences in which a single premium looked good at the time of purchase, but 20 years later??? Things have changed, and the insured now gets a minimum premium due billing notice. Pay or the policy will lapse! Usually associated with variable ULs, but I've seen it more than once in a fixed UL product when things change at the company level. Additionally, too many producers out there use the current interest rate payable as their basis for the single premium, even thought this is not only stupid, it's illegal in most states.
By simply surrendering the policy, you could potentially run into a taxable event on the surrender. Additionally, what if the insured surrenders the policy for the cash with the intent of buying the new contract with the cash, and turns out to be uninsurable? What if the whole life policy was purchased in 1979 when the insured was 22 years old (the premium basis for the whole life contract), but is now 51 years old. Obviously, the premium base for the UL contract would bring into play a new age basis. There are numerous other concerns that could be run into as well.
This is why I was hoping the OP would actually come back to the thread and answer the questions that both you and I posted.
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InsTeacher
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| Posted: Sat Dec 06, 2008 11:16 am Post subject: |
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Calling out akraemer1. 
Mr./Mrs./Ms. akraemer1,
We need more information.
Please participate in your own thread.
You've offered nothing in the way of concrete information except to say your Whole Life policy was proposed to be replaced with a Universal Life policy.
Since both are specific yet generic terms for cash value life insurance that's almost like saying you want to replace your car with an automobile then ask rhetorically:
| Quote: | | Would this be to my advantage? |
Now since it's been two days and you haven't bothered to reply to your own thread that starts to cause my Financial Services-Insurance Cult antenna to go up.
So please answer the very simply, straightforward questions posed to you so we may assist you in determining if this proposed replacement of your in-force Whole Life Insurance policy with a Universal Life Insurance policy is a wise choice or a mistake.
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GarySpicuzza
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| Posted: Sun Dec 07, 2008 11:08 am Post subject: |
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Cult members are so easy to spot.
akraemer1 must be a new recruit.
He-she probably didn't know you can IRC Section 1035 exchange an old non-performing policy for a new policy and have a "paid-up" new policy even though you may be 20 years older depending on certain conditions.
Now I don't expect anyone to actually read the following but new recruits should at least know there is such a thingy.
| Quote: | Section 1035 of the Internal Revenue Code
Title 26 — Internal Revenue Code ("IRC")
Sub Title A — Income Taxes
Chapter 1 — Normal Taxes and Surtaxes
Subchapter O — Gain or Loss on Disposition of Property
Part III — Common Non-Taxable Exchanges
Updated: Friday, July 14, 2006
Section 1035 — Exchange of Stock for Property
(a) General rules --
No gain or loss shall be recognized on the exchange of --
(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract; or
(2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract; or
(3) an annuity contract for an annuity contract.
(b) Definitions --
For the purpose of this section --
(1) Endowment contract --
A contract of endowment insurance is a contract with an insurance company which depends in part on the life expectancy of the insured, but which may be payable in full in a single payment during his life.
(2) Annuity contract --
An annuity contract is a contract to which paragraph (1) applies but which may be payable during the life of the annuitant only in installments.
(3) Life insurance contract --
A contract of life insurance is a contract to which paragraph (1) applies but which is not ordinarily payable in full during the life of the insured.
(c) Exchanges involving foreign persons --
To the extent provided in regulations, subsection (a) shall not apply to any exchange having the effect of transferring property to any person other than a United States person.
(d) Cross references --
(1) For rules relating to recognition of gain or loss where an exchange is not solely in kind, see subsections (b) and (c) of section 1031.
(2) For rules relating to the basis of property acquired in an exchange described in subsection (a), see subsection (d) of section 1031.
END OF DOCUMENT |
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GarySpicuzza
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| Posted: Mon Dec 08, 2008 5:51 am Post subject: change of whole life policy to paid up universal policy |
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| I am new at this. Iam 70 years old and the policies of whole life insurance (there are several of them)the oldest of them is 54 years and the rest are appr.30 and 20 years old . I know pretty much what I have in the whole policies but dont know too much about universal insurance.I was told the universal life would be garauranteed to age 120. Thanks for your help |
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akraemer1
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| Posted: Mon Dec 08, 2008 11:38 am Post subject: |
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kraemer, thanks for coming back and participating.
You've given your age, 70, that's a start.
Now, are you a boy or a girl?
How much total money is in ALL of the policies?
What is the combined death benefit of the old policies?
What is the death benefit of the proposed new policy?
Are you a smoker?
Also, are you going to be paying a monthly premium into the proposed new policy and if so, how much?
Now to answer the question:
| Quote: | | I was told the universal life would be guranteed to age 120. |
That is possible with the addition of the No Lapse Guarantee or if the lump sum premium is at or near the Guidline Single Premium but I need to know each and every question I asked you so I can run a proposal, just for fun, and see if the numbers work.
Even if the numbers work there isn't any guarantee you'll get the new policy because you'll have to qualify medically.
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GarySpicuzza
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| Posted: Mon Dec 08, 2008 3:17 pm Post subject: change whole life policy to universal paid up policy |
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I am a 70 year old male.The policies are ( there are 6 separate whole life)with total cash value of $48,000. The death benefit is a combined total of$78,ooo and growing each year due to accumulated dividends which are added to death benifits. I am in good health,no medications,non-smoker,non-drinker who walks approx. 30-35 miles per week. The new policy would be a one time premium of $48,000 for a death benefit of $120,000 guaranteed for 120 years of age.
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kraemer
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| Posted: Tue Dec 09, 2008 12:46 am Post subject: |
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Okay, kraemer, I ran the numbers and the math works.
Worst case rate class senario is $48,000 would keep a $120,000 life insurance policy in-force on a male age 70 non-smoker until age 96. Past reasonable life expectancy. That's WORST CASE rates with the No Lapse Guarantee based on the lump sum premium of $48,000.
Best case super premier extra healthy rate class senario is at your age 120 the $48,000 cash would grow to $1,862,447 and the death benefit would equal the cash. But since you didn't die, guess what happens? Uncle Sam now wants you to pay Federal Income Tax on your $1.8 million dollar gain on your 121st birthday.
Since cash value life insurance projections are based on interest credits NEVER changing over the life of the contract the above best case super premier extra healthy rate class senario isn't reality.
With the preferred non-smoker rate class and interest projected 1.5% below the current rate at your age 100 your cash value and death benefit would equal $151,455.
The botton line here is the math works out.
So what your agent told you is feasible.
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GarySpicuzza
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| Posted: Tue Dec 09, 2008 10:14 am Post subject: insurance |
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| I've read ALOT about Universal Life and 'regualr Life Insurance. HOEVER...I'm STILL confused about what the 'overall' difference is. From what I've read, they give about the same kind of 'benefits.' Can someone just explain the difference between the two? Thanks. |
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sdchargersfan
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