Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

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choirboy
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Joined: Mon Jul 17, 2017 1:04 am

Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by choirboy » Mon Jul 17, 2017 1:13 am

Hello,

I am Canadian by the way, incase this makes any difference with any laws/policies.

Anyways, I found out a couple weeks ago that my parents have been buying whole life insurance for my sister and I since 2001 when we were kids, as a form of investment. I did some reading since then about what it is, and the general gist of it seems to be that it is not worth it for 99% of people, and that if you need insurance, to get term and invest the rest. Actually though, the entire whole life insurance thing is so confusing to me that I'm not sure if I'm even understanding it correctly.

For myself, l don't plan on having kids/dependents so I think I should just cancel and cash in the policy regardless of what the values are, since I won't be benefitting from any of it anyways since the payout is upon death. If in the slightest offchance that I would have kids, I could look into term insurance.

For my sister, she probably would want to have kids in the future but since we are deep into the policy (16-17) years, I'm wondering if it is even beneficial for her to cancel at this point and get a term policy later, or perhaps stop paying the premiums and opt for reduced paid up insurance.
To aid in this decision making process, people online have been saying to request an in force illustration or ledger because supposedly it shows a projection of what the policy is worth in the future and what the cash values are, etc.

However, when I spoke to the agent that sold the policy to us, she said she would get one for me but later came back and said the company would not generate one for me, and only gave me a snapshot of what the numbers are like today. Skeptical, I decided to contact the life insurance directly to ask and they told me its impossible because since our policy has dividends that are used to buy more insurance, there is no way to predict what the future value of the policy would be.

The only information I have at this moment are these simple facts. These numbers are based off my own policy, and the ones in parenthesis are for my sisters, though I don’t have all the information on hers since the agent didn’t provide them to me. All I have from hers is information from a previous statement.

Annual premium: $661.80/yr (sister: $614.31/yr), to be paid until death.
Death benefit: $50,000 (sister: $50,000)
Paid up additional insurance as of 2017: ~$39,458.35 (Sister paid up additional insurance as of 2016: $52,435.74)

Options available besides continuing to pay premium:
Reduced paid up Insurance: ~$61,300 (unknown for sister but probably about $15,000 to $20,000 higher)
Extended term insurance: 16 years, 3 months (unknown for sister)

I believe there is also an option to use the dividends to pay the premium, but its not available to me since the dividends (last year it was $526.88, last year for sister’s was $487.30) does not exceed the premium of $661.80
Surrender value last year was If I surrender the policy now, we get about $9000 back according to the agent. (Last year mine was $8706, last year sister’s was $7,667)

Also, I asked the agent to get me a quote for a $100,000 term30 policy at my current age so I can see what I might expect to pay for that. When I looked online at Kanetix, the lowest quote I got for a $100,000 term30 policy was $166/yr. Sister’s Kanetix quote for $100,000 term 30 is $140/yr

Based off this only information I have, is it possible to determine whether the whole life insurance is worthwhile to keep or not, or if its better to buy term30 and invest the rest? Does that fact change if one does not invest the difference? (my sister for unknown reasons is simply not interested in investing and just keeps her money in a savings account @2.3%)

CedarWaxWing
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by CedarWaxWing » Mon Jul 17, 2017 2:21 am

http://www.evaluatelifeinsurance.org/ is a webpage through which, in the USA, you can get your life insurance record evaluated.

If you cannot get an "enforce illustration" I suspect he could help you determine from the policies' historical "returns".. or results from your annual payments, dividends, cash values, and death benefit info from each past year how the policy has "performed".

Best.

M

ryman554
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by ryman554 » Mon Jul 17, 2017 1:21 pm

OP, you don't list your ages or relative healths here. Since you're talking about children, I'll assume you're in your (early) 30's at most.

But let me get this straight -- you are paying almost $700/year for a $50,000 death benefit?

And you've been paying 16+ years and have only a $9000 cash value?

1. I'm in my 40's and can get 500,000 (10x more!) 20 year term for under 500/year. For only 50k/year, we're safely talking about under $100 a year. So lets conservatively say you are 'investing" $500/year.
2. You contributed ~$8000 toward investments. Your policy is workth not quite $9000. Is that a good investment return over 16 years? (No, it's terrible)

Let's face it, 50k is not a death benefit which will really make a difference to you or your sister's family.

The fact that they cannnot give you information tells me you have a bad policy. Cancel it and don't look back.

choirboy
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by choirboy » Tue Jul 18, 2017 6:22 pm

Hello,

In response to ryman554's post, I am turning 28 tomorrow, my sister is currently 25 (so my parents bought these policies for us when we were 11-12 and 8-9). We are both currently healthy individuals.

I hope I'm not mistaken, but I believe the death benefit is actually the $50,000 base, PLUS the paid-up additional insurance that goes up every year (from dividends of the policy that is used to purchase more insurance?) so if I, or my sister were to pass away right now, our families would get ~$90,000 and ~$102,000 respectively.

The cash value is yes about $8000-$9000 per policy and my families invested $10,000-11,000 ish so far for each policy. I don't know much about this but I think this is just what you'd get back if I cancelled now, which makes sense I think to me that it would be less than what we put into it, since part of it had to go towards insuring us for these 16-17 years so far in the unlikely scenario that something happened and they would pay out.

My parents own both policies, and I am going to convince them to cancel mine (I've expressed my intent to them that I don't see myself wanting to have kids and will have no dependents and therefore, no need for permanent life insurance).

Its just my sister's policy that I don't know how to convince them (and myself as well to be honest, since I can't see the forecast with the numbers). Because right now, its a policy that they've paid $10K into, that we'd only get $8K back if cancelled, but if my sister were to pass away right now (knock on wood), would pay out $102K, and would continue to grow in the future.

Nate79
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by Nate79 » Tue Jul 18, 2017 6:53 pm

Whole life is one of the worst horrible financial products ever created. Term insurance is for life insurance and whole life is for lining bird cages.

EHEngineer
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by EHEngineer » Tue Jul 18, 2017 7:10 pm

Hi Choirboy -

One simple way to get a sense of the policy is to look at cash surrender value (CSV) growth. For simplicty, let's look at your policy only. Do you have the annual policy statements?

1) What is the most recent CSV? I would prefer you get the actual value from the statement, instead of the word of mouth value from the agent.
2) What was the prior year CSV? Again, get the value from the statements, not from the agent.

By the way... don't make your parents feel bad for buying whole life insurance. They were doing something nice for you and have saved thousands of dollars for you. Whole life is not a good investment, but it has better return than, say, $600 of extra birthday presents. So remember to be gracious and recognize their good intentions.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

galectin
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by galectin » Tue Jul 18, 2017 7:24 pm

Who is the policy owner? You don't say. Is it you/your sister, or your parents? Any surrender for cash value will go to the owner of the policy, not the insured. That is not to say that it shouldn't happen.

It does indeed sound like the agents are giving you a run-around hoping that you will give up on pursuing the issue.

inbox788
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by inbox788 » Tue Jul 18, 2017 8:04 pm

Short answer: Cancel it!

Very complicated, but do you have a whole life or some other even more complicated policy? Universal/Variable?

You should get an inforce illustration showing the GUARANTEED values. Keep at it until you get one. Do you have prior tables available?

Did you take over the policy when you became an adult?

For the most part, I don't see any reason to keep the policy. You've sunken enough money into it and don't need to keep wasting more. Any benefit is minimal. You can get 20 year term policy for $50k for less than $100/year and $500k for $200/year, so most of the cost is administrative/profit and the actual COI is only around $20.

https://www.term4sale.com/

choirboy
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by choirboy » Wed Jul 19, 2017 12:59 am

Hello just responding to some of your questions:

EHEngineer:

I have the CSV values from the statements. I'll post the ones from 2012 to 2016 for my own policy. If needed, I can go back further. They are $5023, $5859, $6751, $7702, $8706. We just got the 2017 statement in the mail but not sure where my mother placed it at the moment.

And thank you, I am grateful that they had good intentions to want to help us in our future; I'm just disappointed that they chose to do it through purchasing whole life insurance and trusting the agent's word 100%.

Galectin: Currently, my dad is the owner of my policy and my mom is the owner of my sister's policy, and yes I am aware the money would go to them.

itstoomuch
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by itstoomuch » Wed Jul 19, 2017 1:23 am

Galectin: Currently, my dad is the owner of my policy and my mom is the owner of my sister's policy, and yes I am aware the money would go to them.
which is why you cannot get an "inforce value" . By contract, and all other rights the Ins company will tell you nothing,. :annoyed
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

inbox788
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by inbox788 » Wed Jul 19, 2017 2:09 am

Simple math is 7702+662=8364, so (8706-8364)/8364=4%. It's a tiny bit higher if you value the $20 in annual COI you're getting. Not horrible, but not that great either because of the illiquidity and requirements (i.e death; unknown future COI or returns)

If the amounts were larger or situation suitable, a 1035 exchange into a variable annuity might be considered, but your situation doesn't look like it applies, so makes the decision simpler. Just cash it out.

viewtopic.php?t=157783#p2367634

EHEngineer
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by EHEngineer » Wed Jul 19, 2017 9:34 am

choirboy wrote:I have the CSV values from the statements. I'll post the ones from 2012 to 2016 for my own policy. If needed, I can go back further. They are $5023, $5859, $6751, $7702, $8706. We just got the 2017 statement in the mail but not sure where my mother placed it at the moment.
Perfect, thank you.
So, your CSV from 2015 to 2016 went up $1004 ($8706-$7702). You paid $661.80 to keep the policy active. Your policy grew by $338.20 more than your premium. To allow that to happen you had to "let them hold" your $7700. Your rate of return is $338.20/($7700+$661.80) = 4.04% !

Conclusion: Your policy earned a good return from the 2015 to 2016 statement period. As a "safe" investment, this is quite good. If I were you, I would do this calculation each year. If you find a year where the return is low or negative I would consider cancelling the policy then. For now, you are getting about 4% return on assets. That's better than any low risk account that I am aware of. The marginal return is good, and, you are getting the life insurance "for free." Keep the policy for now.
choirboy wrote:And thank you, I am grateful that they had good intentions to want to help us in our future; I'm just disappointed that they chose to do it through purchasing whole life insurance and trusting the agent's word 100%.
Good to hear. Voice your thoughts here on bogleheads and don't say that to your parents. Your parents have likely questioned some of your choices, and they hopefully don't rub your nose in the bad ones!
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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David Jay
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Re: Contemplating cancelling life insurance policy (16 years in), can't get an inforce illustration

Post by David Jay » Wed Jul 19, 2017 1:48 pm

EHEngineer wrote:As a "safe" investment, this is quite good. If I were you, I would do this calculation each year. If you find a year where the return is low or negative I would consider cancelling the policy then. For now, you are getting about 4% return on assets. That's better than any low risk account that I am aware of.
For your sister, 4% certainly beats 2.3%. I would not encourage her to cancel.

[edit] At least until she shows an interest in investing.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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