You already mentioned you value the death benefit. Dont go any further than that. Why? Well bc without that want, from a purely math standpoint you need to create an artificial environment to make WL favorable. Did the OPs WL return 1-3% above. Nope. Will it in the future. Maybe. Were there items during that 26 years which had guarantees and would have produced above 1-3%...Yep. He/she doesnt seem to value the death benefit but you do. I like my iphone. I cant make any rational math argument that it should be purchased instead of whatever other phone for what i do with it. It isnt even the latest/greatest from a specs standpoint and is certainly more expansive. Its a small amount of money for me and i like it so no big deal. If you like a death benefit and you have an old whole life policy, the big costs are sunk so you might as well keep it. The math may or may not work out at this point (doesnt for buying). People take a small portion of their money here and do things that in my opinion have little evidence like tilting (except maybe small value on a risk adjusted basis), peer to peer lending, individual stocks, whatever. If you like it and its a small part of your money then i say be happy and its unlikely to be a big problem. As you seem to understand, you have to keep this until death for it to make any sense. Well once you put that real world variable into play, unless you die prematurely its hard to make a good case for it. Why would you take the investment piece with the longest horizon until use and invest it the most conservatively? You wouldnt. People buy bonds for a variety of reasons but they allow you to rebalance, sell during a down market for cash in retirement etc. Well you cant really do that with WL. You can surrender any PUAs you might have or you can take a loan against the CSV but that has costs and risks to it. It isnt really the same. I wouldnt worry much about the CSV if i were you at this point. Id look at the death benefit and decide if that return is something you are satisfied with (need to approximate your death which you should do based on your rating at the time of purchase and any health issues that have arisen since then (new health issues that decrease lifespan make the policy more valuable). If you are then keep going. Maybe re-evaluate every few years. Late in retirement take out a loan IF you need it or want that money against the CSV.roflwaffle wrote:That's accurate, no argument from my end. With that said, I'm not deciding to get whole term life insurance, I'm deciding whether I should keep it. In that context, the better question when it comes down to whether or not to sell is are there any other assets that returns ~1-3% above inflation with minimal fluctuations in value?
Whole Life Insurance 'Gift' from Parents
Re: Whole Life Insurance 'Gift' from Parents
Re: Whole Life Insurance 'Gift' from Parents
Thank you for the input on my situation (loan vs exchange), I will keep that in mind for future reference - hopefully several decades from now.dhodson wrote:More likely you would be better late in retirement taking a loan against the CSV then doing the 1035 exchange. Remember the death benefit is always larger and that way your heirs get the difference of the death benefit minus loans. Do it late so the loan cant collapse the policy. If you look at any of the threads of folks who used WL to pay for college, you will see the problem of taking out loans early especially in a situation of continuing decreasing dividends.DG99999 wrote:+1deanbrew wrote:I had decided to not chime in again, as it seems as all of the bases have been touched... but I just can't help myself. Given the miniscule annual premium, I think it would be foolish to do anything but keep paying the policy. People keep mentioning term insurance as the "right" life insurance to buy, and invest the difference. Go price term insurance for someone who is 26, 36, 46, etc. Yes, the OP could buy term insurance right now that is cheaper, but the death benefit doesn't increase. If you factor in the level premium and rising death benefit he already has with his WL policy, term insurance is not a clear winner - if you look at his policy now and don't dwell on the past 26 years.
And, yes, I understand the OP says he shouldn't/doesn't want death benefits. But he's only 26 years old, and has provided no evidence he has children yet. At 26, I didn't care about life insurance, either, but that changed once I had kids. Anticipating the next objection... he may need/want to buy additional life insurance at some point, and term will probably be better for him. But why give up a policy that is already in effect that will provide growing death benefit year after year for a measly $310 annual premium. The cash value and death benefit are going up by respectable rates that far exceed what he could earn through other "safe" income-generating vehicles.
Again, it's a measly $310 per year, earning a 6.2 percent return and providing a growing death benefit that will likely total a significant sum of money decades from now. I would gladly pay the current cash value to take over the policy as it exists for the OP. As some of us have pointed out repeatedly, the "bad" years are far under the bridge. Thank your parents for the policy (in a genuine, non-sarcastic manner), keep paying the premium, and watch the cash value and death benefit grow year after year.
My experience was that I bought a WL policy which required 10 years of payments. I paid out $12,000 and the cash value is now $30k - returned about 5% to date. As an investment this was, of course, inferior, but like your situation the payments were a fairly trivial amount (yours are quite trivial) and I actually am happy I have the policy as one part of an emergency fund and to putter along with its tax deferred return. Also, the death benefit does have some value and is fully paid for; I believe that late into retirement I could exchange the CV and purchase a small annuity if I wished to do so, or there will be a benefit to my spouse for maybe a year of expenses (plus or minus). This policy is also from MassMutual which is one of the better life insurance companies (along with Northwestern Mutual and NY Life, notwithstanding any comments to the contrary). I am CERTAINLY not recommending anyone BUY WL, but I am actually OK with having done it at this small level, and your decision is only about keeping what you have.
And yes, before the piling on starts, I have considerable term insurance and the CV represents a tiny percentage of my investment portfolio.
For $310/year I would hold onto it, you may look back, like I did, and say "guess I made a mistake, but I am actually glad that I did". Also, someday, you may get some emotional satisfaction looking at your little policy and reflecting on it as a gift from your parents - that can have some value for some people.
I am glad you are happy with the purchase but I will say that I think its a bad idea to recommend to others to buy or keep something for emotional reasons. That's how people make bad decisions with their money. Frankly that's how these things get sold in the first place. There is nothing wrong with taking this gift and doing whatever with it. That shouldn't reduce the OPs emotional satisfaction.
I do agree that emotions can be extremely detrimental to investing and have personally tried to avoid the impact with indexing, asset banding, rebalancing algorithms, etc. etc. At the same time, In this case I think there is some actual value in keeping the small policy, so sentimentality might be an additional positive for certain individuals. If I were to believe that this were a poor policy to hold onto, then I would fully agree that the cash value could just as well be treated as a wonderful gift.
If we want to believe the projections (admit that this may be a poor assumption, but that is the data we have at present) then at 95 the death benefit appears to be about $150k in today's dollars and the cash value would be about $130k (assumes 3% inflation over the period). His current cash value of $10,777 would need to be invested and grow at a real rate just a shade over 5% to reach about $130k. This assumes that the current cash value is fully available and will not be taxed, because it was a recent gift. Also assuming the $310 is not invested, but used to buy term insurance. Based on these numbers alone, I would personally hang onto it, but, I feel there is some benefit from having access to the loan option and holding some insurance that will persist to death (again ONLY because it is already 26 years into the policy -- those starting from scratch should buy term insurance and then invest as much as they feel they can from their budget; also, just be sure that your term insurance will fully cover the period needed - if a level term policy ends too early and you find you really could have used another 5 or 10 years, you will probably be underinsured for those remaining years).
Either way, hope we have given the OP enough information that he can make the best decision for his situation, I have gleaned some useful info here.
I am not a financial professional. My posts are only my opinion on the topic. You need to do your own due diligence and consult with a professional when addressing your financial questions.
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Re: Whole Life Insurance 'Gift' from Parents
Awesome, that's exactly what I'm looking for. Offhand, what are some examples of those instruments?dhodson wrote:You already mentioned you value the death benefit. Dont go any further than that. Why? Well bc without that want, from a purely math standpoint you need to create an artificial environment to make WL favorable. Did the OPs WL return 1-3% above. Nope. Will it in the future. Maybe. Were there items during that 26 years which had guarantees and would have produced above 1-3%...Yep.roflwaffle wrote:That's accurate, no argument from my end. With that said, I'm not deciding to get whole term life insurance, I'm deciding whether I should keep it. In that context, the better question when it comes down to whether or not to sell is are there any other assets that returns ~1-3% above inflation with minimal fluctuations in value?
Re: Whole Life Insurance 'Gift' from Parents
You forgot to subtract the premiums for an equivalent term life policy from the S&P 500 investment. Re-do the calculation after adjusting for that before you get so angry...EmergDoc wrote:Well, let's see. $310 per year for 26 years grows to $10,777. =RATE(26,-310,,10777,1) = 2.06% per year. Quite an investment for your parents. Too bad they didn't put it in an S&P 500 fund, whose return over the last 26 years annualizes to 10.41% per year. So basically, you could have had something closer to $40K if they had chosen the Vanguard S&P 500 fund instead of a whole life policy for you.logandouglasbr wrote:Hello Bogleheads,
I was informed by my parents that I have a whole life insurance policy in my name that they have been paying since my birth. I am now 26 and Married so they have decided to pass it on to me. My dad has stated that I am free to do whatever I wish with it, including cash it out. I admit that I don't know anything when it comes to insurance policies.
I will include details below but my question is: should I keep it?
My wife and I are currently contributing about 35% of our gross income ($90k) towards debt reduction (primarily student loans ~$35k @ 7%), no credit card debt or car payments.
My wife does not have any 401k option available to her and we are only matching 6% on my 401k while we pay off the debts.
The Insurance is provided by Mass Mutual in my name.
It is listed as a Limited Payment Whole Life Policy (Paid Up at 95)
It has an "Automatic Premium Loan Provision."
Face Amount: $50,000
Annual Premium: $310
Dividend Option: Paid-Up Additions
Dividend Available: $7,088
Loan Available: $10,551 @ 4.27%
Net Cash Value: $10,777
Death Benefit: $113,569
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Re: Whole Life Insurance 'Gift' from Parents
I agree with deanbrew.
Diversification includes more than buying just index funds.
Keeping a whole life policy that has its front end load fully covered is a bond like investment.
20'years from now this may turn out to be the best investment OP made, only time will tell.
Diversification includes more than buying just index funds.
Keeping a whole life policy that has its front end load fully covered is a bond like investment.
20'years from now this may turn out to be the best investment OP made, only time will tell.
The market goes up, the market goes down.
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Re: Whole Life Insurance 'Gift' from Parents
Thank you everyone,
I've learned a lot from all of your posts, and I have a lot to think about.
I've learned a lot from all of your posts, and I have a lot to think about.
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Re: Whole Life Insurance 'Gift' from Parents
Over at quickquote.com a $50,000 policy, 30 year term for a 30 year old male is $210 per year. So looks like you are overpaying by $100 per year at most.
Re: Whole Life Insurance 'Gift' from Parents
You can get a $250,000 30-year term policy for $200 a year... That's 5x as much insurance for $100 less per year.BackOfTheNet wrote:Over at quickquote.com a $50,000 policy, 30 year term for a 30 year old male is $210 per year. So looks like you are overpaying by $100 per year at most.
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Re: Whole Life Insurance 'Gift' from Parents
I'm still considering what to do with this policy, but I am heavily considering surrendering it because the guaranteed returns of paying off most of my student loans appears to out weigh any future gains the policy may or may not accumulate.
I am trying to determine what the tax burden will be for me in the event of a surrender. The policy has been in my name paid by my parents since my birth, so would the basis be considered the dollar value contributed by anyone until this point, or is it only the amount I have paid?
Is this something that the agent/broker will be able to answer if I initiate a surrender?
Before I can pursue that, what is the best venue for term life? Is there a general consensus on who is the best provider, best value, etc.?
I am trying to determine what the tax burden will be for me in the event of a surrender. The policy has been in my name paid by my parents since my birth, so would the basis be considered the dollar value contributed by anyone until this point, or is it only the amount I have paid?
Is this something that the agent/broker will be able to answer if I initiate a surrender?
Before I can pursue that, what is the best venue for term life? Is there a general consensus on who is the best provider, best value, etc.?
Re: Whole Life Insurance 'Gift' from Parents
All premiums paid forms your basis. Any gains over premiums paid will be taxed as income to you.
Use a site such as term4sale (there are others). This gives you an idea what you could qualify for. I'd be happy with any A rated company personally. I would not over pay for a higher level of A.
Use a site such as term4sale (there are others). This gives you an idea what you could qualify for. I'd be happy with any A rated company personally. I would not over pay for a higher level of A.
- mephistophles
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Re: Whole Life Insurance 'Gift' from Parents
Logan,logandouglasbr wrote:I'm still considering what to do with this policy, but I am heavily considering surrendering it because the guaranteed returns of paying off most of my student loans appears to out weigh any future gains the policy may or may not accumulate.
I am trying to determine what the tax burden will be for me in the event of a surrender. The policy has been in my name paid by my parents since my birth, so would the basis be considered the dollar value contributed by anyone until this point, or is it only the amount I have paid?
Is this something that the agent/broker will be able to answer if I initiate a surrender?
Before I can pursue that, what is the best venue for term life? Is there a general consensus on who is the best provider, best value, etc.?
Keep your policy inforce. As an investment, or as a death benefit, it is superior to other options available in conservative fixed income
investments. I have been in the life insurance business for 45 years and recommend that new life insurance should be term.
ole meph