Question about an old whole life policy

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Question about an old whole life policy

Postby Rich Cape Cod » Wed Nov 07, 2012 1:10 pm

I truly do not understand the subtleties of life insurance (except that whole life policies are, generally, bad news). My wife and I are having a discussion about an ancient policy of mine and I’d sure like some knowledgeable opinions on the matter.

I’ve had a MetLife whole life insurance policy since I was around 21 (I’m 67 now). Just got the most recent statement:

Amount of insurance:
$10,000

Dividends with interest:
$6,122

Bi-annual premium:
$81

Our current dividend of $271 will be left to accumulate with interest.

Current interest:
$143

I suggested to my spouse that we cash it out and invest the $6,122 dollars into a good quality dividend paying stock (I have a dozen conservative “aristocrat” stocks through ETrade that have done very well). She thinks the interest we’re making on this whole life policy makes it wiser to hang on to it. I pointed out to her that all that policy is worth, should I predecease her, is around $4,000 dollars ($10,000 minus $6,100).

Which option makes the most financial sense.

Thanks!

Rich
Rich Cape Cod/AZ
Rich Cape Cod
 
Posts: 78
Joined: 28 Feb 2011

Re: Question about an old whole life policy

Postby JDCPAEsq » Wed Nov 07, 2012 3:59 pm

I'm not the insurance expert, but isn't there a cash value in addition to the dividends? I would guess your policy may be worth much more than face value.
John
JDCPAEsq
 
Posts: 1835
Joined: 5 Mar 2007
Location: Southwest Florida

Re: Question about an old whole life policy

Postby dhodson » Wed Nov 07, 2012 4:09 pm

Have the company send you an in force illustration. It should show you the cash surrender value.

Most of the time if you have had a policy this long, it's best to keep it assuming you are fine with leaving this money to someone other than yourself.

Pay yearly though instead of biannually since typically there is a charge for that.

If it were me I'd also ask for an illustration with dividends set to buy PUAs which are tinny paid up insurance. The illustration compared to current assumptions will show you how the policy might perform over time. It won't perform exactly like the illustration for sure.

You will get either the cash surrender value if you surrender or the death benefit if kept in force until death.
dhodson
 
Posts: 2972
Joined: 24 May 2010

Re: Question about an old whole life policy

Postby Rich Cape Cod » Wed Nov 07, 2012 5:50 pm

So the cash surrender value is more than the $6,100 dollars indicated on the material I received from the company??

Rich
Rich Cape Cod/AZ
Rich Cape Cod
 
Posts: 78
Joined: 28 Feb 2011

Re: Question about an old whole life policy

Postby JDCPAEsq » Wed Nov 07, 2012 6:28 pm

Rich Cape Cod wrote:So the cash surrender value is more than the $6,100 dollars indicated on the material I received from the company??

Rich

Yes, the cash surrender value should be indicated on the policy contract which is in addition to the accumulated dividends.
John
JDCPAEsq
 
Posts: 1835
Joined: 5 Mar 2007
Location: Southwest Florida

Re: Question about an old whole life policy

Postby dhodson » Wed Nov 07, 2012 6:37 pm

No that info isn't going to be in the original contract and any illustration from then certainly is way off base.

Call the company and ask for the illustrations and just ask what the CSV is currently?
dhodson
 
Posts: 2972
Joined: 24 May 2010

Re: Question about an old whole life policy

Postby JDCPAEsq » Wed Nov 07, 2012 6:44 pm

dhodson wrote:No that info isn't going to be in the original contract and any illustration from then certainly is way off base.

Call the company and ask for the illustrations and just ask what the CSV is currently?

Isn't the guaranteed cash value in the contract?
John
JDCPAEsq
 
Posts: 1835
Joined: 5 Mar 2007
Location: Southwest Florida

Re: Question about an old whole life policy

Postby CABob » Wed Nov 07, 2012 7:02 pm

I believe there is more information about the policy needed in order to make a reasonable decision. I would think that such information would be provided on an annual basis from the insurance company, but, in any case should be available from them. You should check to see what would be payable upon your death. I think it would be at least $10,000 and perhaps more. As others mentioned there should be a cash value which is probably something greater than that indicated. You should also know what the dividend yield is for this policy. Also consider the tax implications. Cashing out the policy would probably result in a payment that would be at least partially taxable to you as income. If on the other hand your beneficiary receives it as a death benefit I don't believe it is taxable income.
I have what might be a similar policy that I considered for cash out. I discovered that the dividends were about 4% which isn't too bad in today's environment. I decided to keep it.
Bob | An investment in knowledge pays the best interest. -- Benjamin Franklin
User avatar
CABob
 
Posts: 2795
Joined: 25 Feb 2007
Location: Southern California

Re: Question about an old whole life policy

Postby dhodson » Thu Nov 08, 2012 1:07 pm

JDCPAEsq wrote:
dhodson wrote:No that info isn't going to be in the original contract and any illustration from then certainly is way off base.

Call the company and ask for the illustrations and just ask what the CSV is currently?

Isn't the guaranteed cash value in the contract?
John


not necessarily in the contract and even if it was the current quaranteed amount could be more depending on how dividends were set previously. Once dividends are earned they move over to the guarantee collumn. Thus he needs a current illustration from the company.
dhodson
 
Posts: 2972
Joined: 24 May 2010

Re: Question about an old whole life policy

Postby pshonore » Thu Nov 08, 2012 3:14 pm

In a standard Whole Life policy, it is difficult to imagine the death benefit being less than the stated amount (assuming no outstanding policy loans, etc). Since OP evidently left dividends to accrue with interest, at the very least the accrued interest is probably added to the stated amount. As others have pointed out, a current illustration from the company should have all that info.
pshonore
 
Posts: 2753
Joined: 28 Jun 2009

Re: Question about an old whole life policy

Postby EmergDoc » Fri Nov 09, 2012 11:56 am

After 40+ years, I'd be surprised if the right move wasn't keeping the policy. You might minimize your fees by paying the premiums once a year.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
User avatar
EmergDoc
 
Posts: 9675
Joined: 2 Mar 2007
Location: Greatest Snow On Earth

Re: Question about an old whole life policy

Postby Rich Cape Cod » Fri Nov 09, 2012 6:43 pm

Thanks for all the input. Good advice which I'll take.

Rich
Rich Cape Cod/AZ
Rich Cape Cod
 
Posts: 78
Joined: 28 Feb 2011

Re: Question about an old whole life policy

Postby likegarden » Fri Nov 09, 2012 7:07 pm

My wife actually also has a $10,000. policy from the 1960s, and we decided to keep paying the bi-annual $88 to NY Life. In 1986 a salesman sold us to add some more insurance to it which miraculously would be paid by the dividends, but that did not work correctly as planned, so we cancelled that part and lost some of the money. Death benefit now is $19,000., cash value is $12,000.
likegarden
 
Posts: 1124
Joined: 26 Feb 2007

Re: Question about an old whole life policy

Postby likegarden » Fri Nov 09, 2012 7:34 pm

I am adding to my recent reply, seems to be similar to the original posters case :
(Note that I lost some money in 3 years from 1986 on after a temporary change to the policy sold to us)
Actually we pay 2x83.10 = $166.20 per year as premium. Policy was started in 1969.
Over the last year dividends were $165.
Over the last year the Net Cash Value increased by $ 499., death benefit increased by $ 322.

($499 increase - $166 premium paid) on Net Cash Value of 12,030. is 2.77% return on this 43 year old Whole Life policy right now, not the 4% advertised nowadays.
likegarden
 
Posts: 1124
Joined: 26 Feb 2007


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: 2cents2, C8H18Engineer, chaika, StarbuxInvestor, vafricati, Yahoo [Bot] and 45 guests