Surrender Variable Life Insurance? (En force illustrations attached)

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47Sticks
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Joined: Mon Sep 09, 2019 12:08 pm

Surrender Variable Life Insurance? (En force illustrations attached)

Post by 47Sticks » Mon Sep 09, 2019 2:54 pm

I am a first time poster. I have a question on whether to surrender a flexible premium variable life insurance plan that my parents purchased. My parents purchased this plan 25 years ago when I was a child. Supposedly it was used for its tax benefits to pay for college and other expenses. I don’t know the original value, but a significant amount of money has been withdrawn from the account to pay for college, etc. and now it is left with a policy account value of $4,062, which is the same as the cash surrender value. My parents just told me about the plan and gave me free reign on what to do with it. I am 30 years old and I have no dependents, and have no plans on having depends or a significant other any time soon. I know that term insurance is the way to go if I were to purchase life insurance, but I have no need for life insurance, term or otherwise. I would like to surrender the plan, but would like some thoughts on the benefits of keeping the plan for the long term vs surrendering for the relatively small value. En force illustrations attached. This is my first time look at En force illustrations, so I am not entirely sure how to interpret them.

The en force illustrations extend past years 39 and 54, but to avoid putting too many images into the pictures, I only uploaded the first page of each.

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David Jay
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Location: Michigan

Re: Surrender Variable Life Insurance? (En force illustrations attached)

Post by David Jay » Mon Sep 09, 2019 3:58 pm

Welcome to the forum!
47Sticks wrote:
Mon Sep 09, 2019 2:54 pm
I would like to surrender the plan, but would like some thoughts on the benefits of keeping the plan for the long term vs surrendering for the relatively small value.
You should take the cash surrender value and add the $2846 premium to your retirement savings every year.

A couple of comments on the in-force illustration:

1. Look at the headers. Note the difference between the gross return and the net return is 1.49% to 1.80%. That is the cost of your fund fees, depending on the different assumptions. Bogleheads start freaking out when we see a fund fee over 0.4 or 0.5, even for active funds. Putting your money in the same style of investments in passive funds outside of this VA could cut your fund expenses by an factor of 10 or 20.

2. Your fund balance goes up less than your premium each year due to the cost of insurance. Look at the middle set of assumptions on the second graphic. They show a gross return of 3.5% and a net return of 1.96%. Now look at the one year change in net policy amount, let’s use the year of 26. Even though you “earned” 1.96%, your balance after a $2846 premium payment only goes up $1985 (7713-5728). So the insurance portion of the policy is costing you about $975 a year (the 1.96% gain is about a $115 gain on your balance).

[edit] For comparison, a healthy 26 year old can purchase a $500,000, 20 year, level term policy for $375 a year according to term4sale.com, so this insurance is almost 3 times as expensive as you can purchase on the open markets if the time comes for insurance (you have dependents).

Listed below are all the arguments I can make in favor of keeping the policy:
{


}
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

deikel
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Re: Surrender Variable Life Insurance? (En force illustrations attached)

Post by deikel » Wed Sep 11, 2019 12:35 pm

David Jay wrote:
Mon Sep 09, 2019 3:58 pm


Listed below are all the arguments I can make in favor of keeping the policy:
{


}
That was funny...

I like some of the wordsmithing they do: what exactly is 'assuming guaranteed charges', either they are guaranteed or you assume them, no ?

'weighted average fund fees' is also funny, how to weight an average and based on what and in what direction...


I am glad this product paid for your college education, at least a lot of good came out of it....
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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Stinky
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Re: Surrender Variable Life Insurance? (En force illustrations attached)

Post by Stinky » Wed Sep 11, 2019 2:12 pm

Welcome to the Forum! Glad that you found us.

Surrender this turkey variable life policy. Today. [Can I be any more clear?]

Depending on the premiums paid, withdrawals made, and surrender value, there might be taxable income on surrender. Pay the taxes, and invest the balance according to your investment plan.

You say that you're 30 years old, and the insurance death benefit is $500,000. Per zander.com, if you're in the second-best risk category, you could buy $500,000 of 20-year level term today for $300 per year. This variable life policy would have you pay $2,846 per year. What a rip-off.

Buy term insurance when you have an insurable need - wife, kids, etc. But no need to keep the variable life policy.
It's a GREAT day to be alive - Travis Tritt

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Nate79
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Re: Surrender Variable Life Insurance? (En force illustrations attached)

Post by Nate79 » Wed Sep 11, 2019 2:36 pm

Cancel this junk.

Jack FFR1846
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Re: Surrender Variable Life Insurance? (En force illustrations attached)

Post by Jack FFR1846 » Wed Sep 11, 2019 2:38 pm

deikel wrote:
Wed Sep 11, 2019 12:35 pm

I like some of the wordsmithing they do: what exactly is 'assuming guaranteed charges', either they are guaranteed or you assume them, no ?
This simply assures you that there is a guaranty that you will be charged at least this much. Now, I'm sure you'd like to be charged more. Paying more can make one feel like a big shot. I want to be a big shot.....charge me more!
Bogle: Smart Beta is stupid

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