Elderly Parent with Whole Life Insurance

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Mullins
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Elderly Parent with Whole Life Insurance

Post by Mullins » Wed May 15, 2019 11:21 am

About fifteen years ago my mother bought a whole life insurance policy with a $500K death benefit. This was to cover then-estate tax situations if mom were to pass and/or leave a little something for me and my sibling.

Well, happily my mom's now in her early 90's and now-current estate tax rates no longer impacts her estate (but who knows how that may change in the next ten years or so?) The policy's cash/surrender value is now $46K and so far her cost basis is $240K. Premiums are $15K annually.

My sibling, who has the Power of Attorney, is keeping the policy at this point. That makes sense to me too.

But are we right?

Dandy
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Re: Elderly Parent with Whole Life Insurance

Post by Dandy » Wed May 15, 2019 11:55 am

Someone in their early 90's usually would want to keep coverage if they can afford it - so would potential heirs. The numbers seen odd to me. 15 years inforce, 15k yrly premium yet "only" 46k in surrender value? I would have thought it would be higher. But underwriting a large policy for someone in their late 70's? might have a much different financial dynamics than if the person was in their 30's.

If the premium amount is an issue you can usually get a deal to lower the face amount and premium or even get it as a paid up policy. Any policy dividend should probably should be to reduce the premium and not to buy additional insurance.

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Nate79
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Re: Elderly Parent with Whole Life Insurance

Post by Nate79 » Wed May 15, 2019 12:14 pm

At this point it probably makes sense to keep paying $15k to eventually get the payout of the death benefit. I don't know if there is anything that can be done with the cash value at this point to help in paying the premium or increase the death benefit because it will be lost in the end.

But man, what a horrible scam of a product and this is just a perfect example of how bad they are. It's really too bad when people flush their money down the Whole Life toilet.

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Mullins
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Re: Elderly Parent with Whole Life Insurance

Post by Mullins » Wed May 15, 2019 12:57 pm

Dandy wrote:
Wed May 15, 2019 11:55 am
The numbers seen odd to me. 15 years inforce, 15k yrly premium yet "only" 46k in surrender value?
I thought the same. But she had checked twice and confirmed that's the number.
Nate79 wrote:
Wed May 15, 2019 12:14 pm
But man, what a horrible scam of a product and this is just a perfect example of how bad they are. It's really too bad when people flush their money down the Whole Life toilet.
Yep. But no hard regrets really, it's exactly the reason one buys a policy like that in the first place. If death had occurred early on we'd be viewing the policy as a good thing. Now, maybe the payout isn't as remarkable but I still have my mom!

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Nate79
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Re: Elderly Parent with Whole Life Insurance

Post by Nate79 » Wed May 15, 2019 1:29 pm

Mullins wrote:
Wed May 15, 2019 12:57 pm
Nate79 wrote:
Wed May 15, 2019 12:14 pm
But man, what a horrible scam of a product and this is just a perfect example of how bad they are. It's really too bad when people flush their money down the Whole Life toilet.
Yep. But no hard regrets really, it's exactly the reason one buys a policy like that in the first place. If death had occurred early on we'd be viewing the policy as a good thing. Now, maybe the payout isn't as remarkable but I still have my mom!
No, my point is that they WAY overpaid for a life insurance product and they would have been far better to have done just about anything else (buy term, invest the difference). Their estate would have far more money if they didn't buy this WL product and done what is always recommended by anyone in the financial world (except insurance salesman) and that is buy term insurance and invest the rest. I would use this as a cautionary tale for people to not buy these as there are so many better choices. In your mom's case the decision was made and they lost significant amount of money on this product compared to doing anything else but the decision to keep to me seems clear.

deltaneutral83
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Re: Elderly Parent with Whole Life Insurance

Post by deltaneutral83 » Wed May 15, 2019 1:45 pm

Mullins wrote:
Wed May 15, 2019 12:57 pm

Yep. But no hard regrets really, it's exactly the reason one buys a policy like that in the first place. If death had occurred early on we'd be viewing the policy as a good thing. Now, maybe the payout isn't as remarkable but I still have my mom!
Nope, level term and invest the difference. Run the numbers for yourself. Can also doll out $15k a year to each heir(s) to reduce estate.

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Re: Elderly Parent with Whole Life Insurance

Post by Mullins » Wed May 15, 2019 1:51 pm

Nate79 wrote:
Wed May 15, 2019 1:29 pm
No, my point is that they WAY overpaid for a life insurance product and they would have been far better to have done just about anything else (buy term, invest the difference). Their estate would have far more money if they didn't buy this WL product and done what is always recommended by anyone in the financial world (except insurance salesman) and that is buy term insurance and invest the rest. I would use this as a cautionary tale for people to not buy these as there are so many better choices. In your mom's case the decision was made and they lost significant amount of money on this product compared to doing anything else but the decision to keep to me seems clear.
deltaneutral83 wrote:
Wed May 15, 2019 1:45 pm

Nope, level term and invest the difference. Run the numbers for yourself. Can also doll out $15k a year to each heir(s) to reduce estate.
OK, now I understand your reasoning. Thanks.

inbox788
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Re: Elderly Parent with Whole Life Insurance

Post by inbox788 » Wed May 15, 2019 5:22 pm

deltaneutral83 wrote:
Wed May 15, 2019 1:45 pm
Nope, level term and invest the difference. Run the numbers for yourself. Can also doll out $15k a year to each heir(s) to reduce estate.
Seems like if it's a traditional WL policy, it's worth keeping till the end.

I'm not sure the BTIR works later in life. I checked https://www.term4sale.com/ and found $5k/year for 20 year term $500k policy for 70 year old female, but it wouldn't quote me a 30 year policy. What do you do after the term expires?

You have to ask why you'd want to leave behind exactly $500k or whatever amount, but if that was the goal, a traditional WL policy works well for that particular situation.

https://www.ssa.gov/cgi-bin/longevity.cgi


OP, is this really a traditional WL and not one of these UL or VUL types? Cash value seems low.

How old was she when the policy started? When does it get paid up? Any riders?

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Re: Elderly Parent with Whole Life Insurance

Post by Dandy » Wed May 15, 2019 5:46 pm

(buy term, invest the difference).
Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?

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Re: Elderly Parent with Whole Life Insurance

Post by deltaneutral83 » Thu May 16, 2019 2:15 pm

inbox788 wrote:
Wed May 15, 2019 5:22 pm
deltaneutral83 wrote:
Wed May 15, 2019 1:45 pm
Nope, level term and invest the difference. Run the numbers for yourself. Can also doll out $15k a year to each heir(s) to reduce estate.
Seems like if it's a traditional WL policy, it's worth keeping till the end.

I'm not sure the BTIR works later in life. I checked https://www.term4sale.com/ and found $5k/year for 20 year term $500k policy for 70 year old female, but it wouldn't quote me a 30 year policy. What do you do after the term expires?

You have to ask why you'd want to leave behind exactly $500k or whatever amount, but if that was the goal, a traditional WL policy works well for that particular situation.

https://www.ssa.gov/cgi-bin/longevity.cgi


OP, is this really a traditional WL and not one of these UL or VUL types? Cash value seems low.

How old was she when the policy started? When does it get paid up? Any riders?
I agree in theory, but then we have to get to the practicality of why someone in their mid 70's wants or even needs life insurance to begin with. If it's an estate planning tool, I think there are much better ways to pass down money even if you're worried the exemption get's lowered in the future.

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Re: Elderly Parent with Whole Life Insurance

Post by Stinky » Thu May 16, 2019 2:59 pm

deltaneutral83 wrote:
Wed May 15, 2019 1:45 pm


Nope, level term and invest the difference.
Mother is in her early 90s per OP. I doubt any term is available now.

I’d probably pay the $15k per year to keep the policy in force, or pay the next 3 premiums from the cash value. That price seems reasonable for the death benefit on a woman in her 90s

I wouldn’t have recommended this policy 15 years ago, but that was then and this is now.
It's a GREAT day to be alive - Travis Tritt

deltaneutral83
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Re: Elderly Parent with Whole Life Insurance

Post by deltaneutral83 » Thu May 16, 2019 3:09 pm

Stinky wrote:
Thu May 16, 2019 2:59 pm
deltaneutral83 wrote:
Wed May 15, 2019 1:45 pm


Nope, level term and invest the difference.
Mother is in her early 90s per OP. I doubt any term is available now.

I’d probably pay the $15k per year to keep the policy in force, or pay the next 3 premiums from the cash value. That price seems reasonable for the death benefit on a woman in her 90s

I wouldn’t have recommended this policy 15 years ago, but that was then and this is now.
Of course, keeping what is currently in place is the move. OP had made a prior post that he had no regrets about the move 15 years ago and that's when we were bringing the alternatives to his attention.

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Re: Elderly Parent with Whole Life Insurance

Post by Nate79 » Thu May 16, 2019 3:33 pm

Dandy wrote:
Wed May 15, 2019 5:46 pm
(buy term, invest the difference).
Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?
If you can buy WL you can buy term. The underwriting is basically the same in principle because underneath it is life insurance. So if you can't get term you can't get whole life and vice versa (and if term is very expensive WL will be extremely expensive).

inbox788
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Re: Elderly Parent with Whole Life Insurance

Post by inbox788 » Thu May 16, 2019 3:36 pm

deltaneutral83 wrote:
Thu May 16, 2019 2:15 pm
I agree in theory, but then we have to get to the practicality of why someone in their mid 70's wants or even needs life insurance to begin with. If it's an estate planning tool, I think there are much better ways to pass down money even if you're worried the exemption get's lowered in the future.
Like I said, I don't know why someone retired would want to pass on exactly $500k or whatever amount when they passed, whether it's 1 year or 31 years from now, but if that was the goal, what alternatives are available. If you simply invested the policy premiums, you'd fall short in the initial years and by year 31, you'll likely far exceed the target. It's like undoing an annuity, and if you have a pension or annuity that's above your needs, it's a way to take some of that future income stream off the table.

Anyway, it has limited usefulness, and in this case, the plan was set in motion a while ago, and the issues at hand is whether to intervene now and change the course or allow inertia to take over.

As far as looking backwards, with 20/20 vision, if OP simply took $15k/year and invested it, he'd have $225k plus growth, so likely nearly the face value of the policy in cash and potential for more growth. If a 20 year term was available for $5k/year, only $150k plus growth would be available now, and it would take longer to reach the target amount, so there may be a gap between years 21 and when the growth reaches the needed amount. This could be a problem if you wanted to pay off an interest only business loan or mortgage.

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Re: Elderly Parent with Whole Life Insurance

Post by Katietsu » Thu May 16, 2019 3:45 pm

Nate79 wrote:
Thu May 16, 2019 3:33 pm
Dandy wrote:
Wed May 15, 2019 5:46 pm
(buy term, invest the difference).
Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?
If you can buy WL you can buy term. The underwriting is basically the same in principle because underneath it is life insurance. So if you can't get term you can't get whole life and vice versa (and if term is very expensive WL will be extremely expensive).
This has not been my experience either with a 50 year old who had a cancer history or a 75 year old.

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Re: Elderly Parent with Whole Life Insurance

Post by Nate79 » Thu May 16, 2019 3:47 pm

Katietsu wrote:
Thu May 16, 2019 3:45 pm
Nate79 wrote:
Thu May 16, 2019 3:33 pm
Dandy wrote:
Wed May 15, 2019 5:46 pm
(buy term, invest the difference).
Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?
If you can buy WL you can buy term. The underwriting is basically the same in principle because underneath it is life insurance. So if you can't get term you can't get whole life and vice versa (and if term is very expensive WL will be extremely expensive).
This has not been my experience either with a 50 year old who had a cancer history or a 75 year old.
Are you saying that an insurance company refused to underwrite a term policy but would write an equal amount of whole life for the same person? That is not normal.

123
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Re: Elderly Parent with Whole Life Insurance

Post by 123 » Thu May 16, 2019 3:57 pm

If you do not have a recent in-force illustration on the policy it may be a good idea to get one. It is possible that credited interest or other variations like paid-up additions (often due to policy dividends) have changed since the policy was originally written. Some things could have increased the amount of insurance payable. For a significant policy such as this it is often good to get an in-force illustration from the insurance company every 3 to 5 years. You can contact the insurance company and simply ask for a current in-force illustration for the policy.
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Re: Elderly Parent with Whole Life Insurance

Post by David Jay » Thu May 16, 2019 6:09 pm

123 wrote:
Thu May 16, 2019 3:57 pm
If you do not have a recent in-force illustration on the policy it may be a good idea to get one. It is possible that credited interest or other variations like paid-up additions (often due to policy dividends) have changed since the policy was originally written. Some things could have increased the amount of insurance payable. For a significant policy such as this it is often good to get an in-force illustration from the insurance company every 3 to 5 years. You can contact the insurance company and simply ask for a current in-force illustration for the policy.
Great recommendation! Again, the specific item to request is (verbatim): “In-force Illustration”.
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Re: Elderly Parent with Whole Life Insurance

Post by Grt2bOutdoors » Thu May 16, 2019 6:16 pm

Nate79 wrote:
Thu May 16, 2019 3:47 pm
Katietsu wrote:
Thu May 16, 2019 3:45 pm
Nate79 wrote:
Thu May 16, 2019 3:33 pm
Dandy wrote:
Wed May 15, 2019 5:46 pm
(buy term, invest the difference).
Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?
If you can buy WL you can buy term. The underwriting is basically the same in principle because underneath it is life insurance. So if you can't get term you can't get whole life and vice versa (and if term is very expensive WL will be extremely expensive).
This has not been my experience either with a 50 year old who had a cancer history or a 75 year old.
Are you saying that an insurance company refused to underwrite a term policy but would write an equal amount of whole life for the same person? That is not normal.
For obvious reasons, namely age or poor health prognosis, insurance companies can and will decline to underwrite coverage where the risk of paying out is high. Would you underwrite a life insurance policy of $500K when you only collect less than a small percentage of the face value in premiums? You know why term is cheap when you are younger? Survival rates are high, most term policies lapse without the insurance company having to pay out claims. As a early 90 year old, seeing what the expected life expectancy is, there is no way the insurance company will come out ahead or even break-even by underwriting such a policy. Premiums would have to be $100K+ a year and most people will not pay that high of a premium for it.
OP should keep their policy in place, it's served its purpose.
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Mullins
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Re: Elderly Parent with Whole Life Insurance

Post by Mullins » Thu May 16, 2019 7:00 pm

inbox788 wrote:
Thu May 16, 2019 3:36 pm
Like I said, I don't know why someone retired would want to pass on exactly $500k or whatever amount when they passed
At the time back when the policy was issued, I believe it was because estate tax rates would've taken $500K so because she preferred the heirs have it instead, the insurance seemed to make sense. Yes, she could gift the heirs and also use her lifetime exclusion but thought it best for her to have the full use of her capital, besides which ultimately a stepped up basis in any estate left would be beneficial to the heirs.
123 wrote:
Thu May 16, 2019 3:57 pm
If you do not have a recent in-force illustration on the policy it may be a good idea to get one.
We'll check that out. Thanks.
Stinky wrote:
Thu May 16, 2019 2:59 pm
pay the next 3 premiums from the cash value.
I wasn't aware that was possible. Thanks, I'll have that checked out too.

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Re: Elderly Parent with Whole Life Insurance

Post by Nate79 » Thu May 16, 2019 7:24 pm

Grt2bOutdoors wrote:
Thu May 16, 2019 6:16 pm
Nate79 wrote:
Thu May 16, 2019 3:47 pm
Katietsu wrote:
Thu May 16, 2019 3:45 pm
Nate79 wrote:
Thu May 16, 2019 3:33 pm
Dandy wrote:
Wed May 15, 2019 5:46 pm


Don't know what an insurance company would do with a request for 500k in term for a person in their late 70's. Not just the premium but how long would they insure? Could you buy a 20yr term? a 25 year term? If the average life expectancy for a 78 year old is 87?? they would have to charge a very hefty term premium and I think they would limit the term i.e. I don't think they would offer coverage into the early 90's. This is just a mildly education guess. It would be nice to know since term is usually a better option in most cases.

In an extreme example wouldn't the premium for 5 year term and whole life be pretty close for someone 95?
If you can buy WL you can buy term. The underwriting is basically the same in principle because underneath it is life insurance. So if you can't get term you can't get whole life and vice versa (and if term is very expensive WL will be extremely expensive).
This has not been my experience either with a 50 year old who had a cancer history or a 75 year old.
Are you saying that an insurance company refused to underwrite a term policy but would write an equal amount of whole life for the same person? That is not normal.
For obvious reasons, namely age or poor health prognosis, insurance companies can and will decline to underwrite coverage where the risk of paying out is high. Would you underwrite a life insurance policy of $500K when you only collect less than a small percentage of the face value in premiums? You know why term is cheap when you are younger? Survival rates are high, most term policies lapse without the insurance company having to pay out claims. As a early 90 year old, seeing what the expected life expectancy is, there is no way the insurance company will come out ahead or even break-even by underwriting such a policy. Premiums would have to be $100K+ a year and most people will not pay that high of a premium for it.
OP should keep their policy in place, it's served its purpose.
No, the comment and question was whether or not an insurance company would decide to issue a whole life policy for $500k someone yet not issue a term insurance policy for $500k to the same person. I have always heard that the basic insurance underwriting is the same whether term or whole life. Both are based on health and whole life in general is more expensive for the underlying insurance portion of the policy.

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Re: Elderly Parent with Whole Life Insurance

Post by inbox788 » Fri May 17, 2019 1:48 am

Nate79 wrote:
Thu May 16, 2019 7:24 pm
No, the comment and question was whether or not an insurance company would decide to issue a whole life policy for $500k someone yet not issue a term insurance policy for $500k to the same person. I have always heard that the basic insurance underwriting is the same whether term or whole life. Both are based on health and whole life in general is more expensive for the underlying insurance portion of the policy.
I did a quick test of a 70 year old female and got $5000/year for 20 year term preferred rate. I realized it might be hard to qualify for best rates, so I checked average health and got around $8-10k/year. Guaranteed Whole Life (AKA burial insurance) limits are much lower, but relative costs are very high. For a 10k policy, it cost nearly $1000/year and the site I saw limited the max to 25k, which scaled fairly linearly. If you could get more coverage at a proportional rate, $500k would cost $50k/year. This higher rate doesn't require screening, but there was language about limited coverage the first 2 years.

The social security longevity calculator estimates an average of 17 years for a 70 year old female. If you qualify for life insurance, I'm sure the companies are screening out the higher risk cases, so I'd expect the average to be somewhat higher.

I am concerned that the premium appears to be too good and isn't a traditional whole life policy, and the cash value is nowhere close to the face value. Something about the numbers don't add up for me. Maybe they're using a 120 age model. The inforce illustrations may help clarify the situation.

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