"Paid-up" whole life policy: keep or cash it in?

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Olduvai
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Joined: Sat Feb 02, 2013 8:26 am

"Paid-up" whole life policy: keep or cash it in?

Post by Olduvai » Tue Aug 29, 2017 8:08 am

Many years ago, when my first child was born, I bought a standard whole life insurance policy. The policy has long been "paid-up," such that its yearly dividend is more than its yearly premium. The excess dividend is used to buy more paid-up insurance and to increase the cash value of the policy. The children are now grown and are financially independent. I really have no financial need for the insurance, but have kept it since there is no out of pocket expense for it. (I'm 68 and in good health.) But I'm wondering if this is the best course, or should I cash in policy for its cash value.

Dottie57
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by Dottie57 » Tue Aug 29, 2017 8:14 am

Cash it in. If any grand children, put it in 529's?

Grt2bOutdoors
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by Grt2bOutdoors » Tue Aug 29, 2017 8:32 am

Not enough information. Sometimes the yield on the cash value exceeds what you may find in the open market, so I wouldn't rush to cash it in just yet. BTW, I'm no fan of whole life but sometimes it pays to thoroughly assess the total picture before rushing for the doors.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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gasdoc
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by gasdoc » Tue Aug 29, 2017 4:53 pm

Olduvai wrote:
Tue Aug 29, 2017 8:08 am
Many years ago, when my first child was born, I bought a standard whole life insurance policy. The policy has long been "paid-up," such that its yearly dividend is more than its yearly premium. The excess dividend is used to buy more paid-up insurance and to increase the cash value of the policy. The children are now grown and are financially independent. I really have no financial need for the insurance, but have kept it since there is no out of pocket expense for it. (I'm 68 and in good health.) But I'm wondering if this is the best course, or should I cash in policy for its cash value.
I recommend cashing it in. You almost certainly could get term life if you wanted it but you don't even need it. And you most certainly can get more bang from you buck with the investment portion.

gasdoc

kmurp
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by kmurp » Tue Aug 29, 2017 6:40 pm

If you cash it in, you will owe taxes. How many years would it take for the cash value after taxes to equal the death benefit? It may take quit a while.

bklyn96
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by bklyn96 » Tue Aug 29, 2017 7:00 pm

Olduvai wrote:
Tue Aug 29, 2017 8:08 am
....The policy has long been "paid-up," such that its yearly dividend is more than its yearly premium. The excess dividend is used to buy more paid-up insurance and to increase the cash value of the policy....
My wife and I both have paid-up whole life policies from Northwestern Mutual that we keep as part of our "emergency reserve." Last year her cash value increase was 4.68% and mine was 4.14%

johnra
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by johnra » Fri Sep 01, 2017 9:38 am

No, no, no, no. Now is the time to keep it! All those early years the company benefited, and now it is in your turn. What is the cash value compared to the death benefit? Do you have bonds?--this is better, because you receive a dividend (probably about 4%) that is tax free, the NAV does not vary with interest rates, and you can borrow the cash any time you want (but can keep the death benefit).

Dandy
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Re: "Paid-up" whole life policy: keep or cash it in?

Post by Dandy » Fri Sep 01, 2017 6:05 pm

The longer the whole life has been in effect the better it usually is for the insured/owner. If it is paid up then no more premiums are due. Each year the dividends are likely to go up a bit. Divide the latest dividend by the current cash value. How does that compare to Savings or short term CDs? If it is favorable then take the dividends in cash and have a tax free inheritance for your spouse/heirs. If you need the cash value that is a different story.

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