| Message |
Author |
|
 Posted: Mon Aug 03, 2009 7:04 pm Post subject: Should she cash out? |
|
|
My sister (age 50) has a term life insurance with AXA Equitable. It's paid up. It has a death benefit of $50K, cash value of $15K with a current 4.5% interest. The interest yields $649 annually. The insurance cost for insured is $131?) and administrative cost is $60. The policy's current surrender charge is $198.00. She had no other life insurance.
Questions: She is thinking about cashing it out instead of paying charges to maintain the policy. Should she cash out? Your comments, input and advices are much appreciated.
Thank you |
|
Gnart
New member
Joined: 03 Aug 2009
Posts: 3
3.08 Dollars($)
|
|
| Posted: Tue Aug 04, 2009 9:39 am Post subject: |
|
|
| Quote: | | Should she cash out? |
Has she found a low-cost TL policy?
Or is she planning to go uninsured after cashing out? I'd never suggest her to go for that option.
_________________
Register Now to have your Insurance queries solved. |
|
anonymous00
Guest
|
|
| Posted: Tue Aug 04, 2009 1:16 pm Post subject: |
|
|
Term insurance policies don't have cash value. She probably has a UL policy. If it has $15k in cash value, I'm guessing it is an older policy (maybe from the late 80's/early 90's). UL is never "paid up" unless she bought a single-premium UL with a no-lapse guarantee. If she pays no further premiums, the policy will crash at some point and leave her with no death benefit. This is because as she gets older, the cost of insurance will increase more and more every year. By the time she gets to 65 or 70, the insurance cost will probably outweigh the interest being paid and the cash value will decrease each year until it crashes, unless she pumps more money into the policy.
If she's in good health (preferred risk), she could get a $125,000 death benefit that is truly paid-up with a no-lapse guarantee just by rolling over the cash value she has already and paying no further premiums. What state is she in? |
|
dgoldenz
Senior member
Joined: 10 Jan 2009
Posts: 392
Location: Virginia
5.24 Dollars($)
|
|
| Posted: Tue Aug 04, 2009 1:34 pm Post subject: |
|
|
| Goldenzweig is absolutely correct on this. The question can't even begin to be answered without at least knowing whether she cares about leaving money behind at death. |
|
InsuranceExpert
Senior member
Joined: 05 Apr 2009
Posts: 662
142.69 Dollars($)
|
|
| Posted: Tue Aug 04, 2009 4:11 pm Post subject: Thanks... |
|
|
The paperwork doesn't say which type. I took a stab at term. You are right that term doesn't have cash value, so it's probably "whole" because it's *paid up*. She has to pay only the insurance and maintenance fees stated above, which is about $200 a year. She isn't making that much $40k, so $200/year seems high for her.
She has a daughter so she worries about leaving something behind. She had nothing, so I took them under my wings (so to speak). I raise my niece as one of my own child for the last 6 years. My niece will have her bachelor from the prestigious Robert Smith School of Business (Maryland University) next year, I am trying to get her to go for her master. I moved them out of the apartment to stay with me (no rent) so my sister can save up for retirement - she had no IRA or 401k. I started her on saving for 401K so she has a little money there. I am starting her on IRA savings and will help her invest the IRA in the stock market. She has some savings now... financially, I am doing ok... unless I give my money away... my children and niece will inherit a nice sum each (let's put it above $500k)...
Financially, my sister worries a little less because she went from $0 to a little nice nest egg today. She feels that she shouldn't be paying them the fees and would like for me to invest that money for her in stocks.
Answers to your questions and additional comments:
- We are in Maryland and the agent asked her to increase the insurance to $100k.
- Thanks for the information on the "crash at some point",
-- is it with UL only as she gets older? or is that also for whole?
Thanks for the replies |
|
Gnart
New member
Joined: 03 Aug 2009
Posts: 3
3.08 Dollars($)
|
|
| Posted: Tue Aug 04, 2009 4:18 pm Post subject: |
|
|
The policy is not paid up. A paid up policy no longer has insurance charges. Whole life policies also don't have specific insurance charges. It is a universal life policy.
What she should do depends on:
1) What specifically does she want to accomplish?
2) Is she currently insurable?
Depending on the answers, it may make sense to:
1)Cancel the policy and invest the cash.
2)Buy a new policy and do a 1035 exchange.
3)Keep the current policy.
4)Some combination of the above |
|
InsuranceExpert
Senior member
Joined: 05 Apr 2009
Posts: 662
142.69 Dollars($)
|
|
| Posted: Tue Aug 04, 2009 4:35 pm Post subject: |
|
|
InsuranceExpert is correct - what she should do will depend on what goals she wants to accomplish. As a short explanation, she may be paying $200 this year for the cost of insurance and administrative fees - next year that number may be $220, then $280 the following year, $400 the year after that, etc. etc. The number grows as she gets older. If she paid no more premiums, they would take the $200, $220, $280, $400 out of her cash value. If the cash value reached $0, she would have no cash value and no coverage left. The policy is not paid up, it just allows her the flexibility to pay no premium if she wants. Paying no premium can have consequences on how long it will take the policy to lapse, especially as she gets older.
It is good to see that you are taking an interest in helping her out and pointing her in the right direction. If she wants the maximum death benefit, she can roll over the cash surrender value (the $15k) into a new policy that is truly paid up in a single lump sum, which would net her $100-135k in death benefit depending on her health. Keep in mind the insurance death benefit is tax free, while any investments she makes with the $15k would be taxable. It would take a long, long time for that $15k to be worth $200k (which would net an after-tax amount of ~$125k). The insurance benefit can leverage her money to create the maximum cash flow left behind.
If she just wants the $15k in her pocket, well, that is her decision.....depending on what she has paid into the policy, cashing out could also incur a taxable event if the cash value is more than the premiums paid.
If you plan on leaving your children each $500k+ in liquid assets, it sounds like you may want to take a look at a $1 million+ insurance policy for yourself too. That would again allow you to leverage your money for the death benefit while affording you the opportunity to use the rest of your money to do as you wish, rather than being worried about spending it down and leaving nothing behind. We are located in Northern Virginia....originally from Maryland (my father went to college there too), and would be happy to help you take a look at your options. Feel free to send me an email if you'd like some help: dgold[at]goldfinancialgrp.com |
|
dgoldenz
Senior member
Joined: 10 Jan 2009
Posts: 392
Location: Virginia
5.24 Dollars($)
|
|
| Posted: Thu Aug 06, 2009 5:52 am Post subject: |
|
|
If you talk to AXA, keep in mind their intention is to keep your policy on the books.
_________________
|
|
mkortz
New member
Joined: 06 Aug 2009
Posts: 24
Location: Orange County
7.85 Dollars($)
|
|
| Posted: Fri Aug 07, 2009 6:05 pm Post subject: Thanks for your input |
|
|
Thanks everyone for your input, it's a learning experience. The stock market keeps me busy looking for home runs the last couple days.... sold too soon 
If my email pops up, I will check back for more of yours input.
Specific thanks to mkortz for the AXA reminder; to Insurance experts for input and the life insurance for myself idea. I will think about it before asking more questions. I know about the tax free life insurance distribution to beneficiary.
What's with the $ & donate click-link? I think I know but thought I should ask, it saves reading time. |
|
Gnart
New member
Joined: 03 Aug 2009
Posts: 3
3.08 Dollars($)
|
|
