Needing some sage advice on mom's Uni Life policy

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cromagnon17
Posts: 4
Joined: Tue Jan 10, 2017 6:19 pm

Needing some sage advice on mom's Uni Life policy

Post by cromagnon17 » Tue Apr 24, 2018 12:41 pm

Hey Bogleheads. First time posting for me.

Mom (82) has a 15k universal life policy:
current cash value $9K
Interest rate of 4.85%
death benefit: $24K
Premiums are $480 annual (and rising)
her premiums are paid from the cash value.
At the current rate of COI, the certificate will lapse in 5 years*. (0 cash value) * as indicated in her last statement.
Mom's healthy and I expect she will far outlive this policy. She has good health insurance.
She's runnning low on savings ($20K)
My thinking is that it would be better to cash out now and reinvest the $9K (for emergency cash or to help cover burial costs down the road) rather than watch it vaporize in 5 short years. Or Am I being shortsighted here? I'm not seeing an upside to putting any money into this policy.
Confused on what to do.
Thanks!

jwhitaker
Posts: 40
Joined: Thu Jun 16, 2016 12:57 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by jwhitaker » Tue Apr 24, 2018 2:13 pm

In general the advice is to avoid these policies no matter what. The more favorable advice is only to use these policies if you are very well off and don't intend to use the money while you are alive (i.e. for inheritance only). Doesn't seem to be the case for you. I think cashing it out is probably a good move, but here are some options to consider.
1) if she bought in the range of 5 to 10 years ago, it could be that the early termination penalty is decreasing rapidly and cash out value could be significantly more next year. Should be easy to check
2) $480 per year for a 24k death benefit on an 82 year old is a steal (cost is 2% of benefit whereas probability of death is probably 10% or more). Would it be possible for you to lend her some money to keep this in force? I know you said mom is healthy but statistics don't lie unless you have a lot of relatives living to age 130.
3) If she is very healthy then maybe you can arbitrage an annuity. an annuity on an 82 year old female will pay out like 12% annually right now. If you cash out the 9k and combine with 20k of savings she might be able to get a little under $300 a month. Is that helpful?

cromagnon17
Posts: 4
Joined: Tue Jan 10, 2017 6:19 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by cromagnon17 » Tue Apr 24, 2018 2:27 pm

Jwhitaker- That was extremely helpful feedback. Thank you. I'm reconsidering keeping it in force.

Jack FFR1846
Posts: 7770
Joined: Tue Dec 31, 2013 7:05 am

Re: Needing some sage advice on mom's Uni Life policy

Post by Jack FFR1846 » Tue Apr 24, 2018 2:43 pm

Get an in force illustration. I had one of these policies and found that this is not a whole life policy. In my case, I found that paying the level premium led to the policy terminating in some number of years. Also, the insurance premium was constantly rising, so cash value dropped annually, not rose.

I cashed mine last year as it was not needed and I wanted the cash
Bogle: Smart Beta is stupid

inbox788
Posts: 5478
Joined: Thu Mar 15, 2012 5:24 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by inbox788 » Tue Apr 24, 2018 2:52 pm

cromagnon17 wrote:
Tue Apr 24, 2018 12:41 pm
Mom (82) has a 15k universal life policy:
current cash value $9K
Interest rate of 4.85%
death benefit: $24K
Premiums are $480 annual (and rising)
her premiums are paid from the cash value.
At the current rate of COI, the certificate will lapse in 5 years*. (0 cash value) * as indicated in her last statement.
Mom's healthy and I expect she will far outlive this policy. She has good health insurance.
If it's a 15K policy, why is the death value 24k? Would the current cash value be added on top? And if that's being used to pay the premiums and goes to zero, doesn't that mean the policy only pays 15k in 5 years and then zero? Is $480 the real and full COI? and how fast is it rising? Looks like $9k for 4-5 years, depending on whether the $480 premium you're currently quoting is included. Something doesn't add up or we may not be correctly understanding some factors.

I'd be inclined to just cash it out unless there was a compelling case to keep paying, which I'm not seeing clearly.

cromagnon17
Posts: 4
Joined: Tue Jan 10, 2017 6:19 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by cromagnon17 » Tue Apr 24, 2018 2:54 pm

Jwhitaker- That was extremely helpful feedback. Thank you. I'm reconsidering keeping it in force.

pshonore
Posts: 6421
Joined: Sun Jun 28, 2009 2:21 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by pshonore » Tue Apr 24, 2018 3:42 pm

inbox788 wrote:
Tue Apr 24, 2018 2:52 pm
cromagnon17 wrote:
Tue Apr 24, 2018 12:41 pm
Mom (82) has a 15k universal life policy:
current cash value $9K
Interest rate of 4.85%
death benefit: $24K
Premiums are $480 annual (and rising)
her premiums are paid from the cash value.
At the current rate of COI, the certificate will lapse in 5 years*. (0 cash value) * as indicated in her last statement.
Mom's healthy and I expect she will far outlive this policy. She has good health insurance.
If it's a 15K policy, why is the death value 24k? Would the current cash value be added on top? And if that's being used to pay the premiums and goes to zero, doesn't that mean the policy only pays 15k in 5 years and then zero? Is $480 the real and full COI? and how fast is it rising? Looks like $9k for 4-5 years, depending on whether the $480 premium you're currently quoting is included. Something doesn't add up or we may not be correctly understanding some factors.

I'd be inclined to just cash it out unless there was a compelling case to keep paying, which I'm not seeing clearly.
Thats a good question - payout can be the face amount (15K) or less frequently but still possible the face amount plus the cash value. True cost of COI has to be about $1800 per year (that why it will lapse within 5 years). If she wants it to last longer she can add money to the annual premium (not recommended).

cromagnon17
Posts: 4
Joined: Tue Jan 10, 2017 6:19 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by cromagnon17 » Tue Apr 24, 2018 4:32 pm

inbox and Jack-
Thanks for the response. All great questions. the COI is certainly going up steeply over the next 5 years. I don't get the 15K- 24K discrepancy either. The death benefit is also dropping over time(whaaa?). Getting ahold of this outfit has been like pulling teeth- (another red flag telling me to just get my mom the hell outta this policy asap.) Here's a little more detail from the last statement I have on file. Thanks again all!
Image

dl.dropboxusercontent.com

Nate79
Posts: 3474
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Needing some sage advice on mom's Uni Life policy

Post by Nate79 » Tue Apr 24, 2018 11:37 pm

If she needs the cash then I would cash it out. Why does she need LIFE INSURANCE? This policy really only benefits someone in the next 5 years if she dies. Otherwise there is no benefit to her.

ralph124cf
Posts: 1999
Joined: Tue Apr 01, 2014 11:41 am

Re: Needing some sage advice on mom's Uni Life policy

Post by ralph124cf » Wed Apr 25, 2018 3:10 pm

inbox788 wrote:
Tue Apr 24, 2018 2:52 pm
cromagnon17 wrote:
Tue Apr 24, 2018 12:41 pm
Mom (82) has a 15k universal life policy:
current cash value $9K
Interest rate of 4.85%
death benefit: $24K
Premiums are $480 annual (and rising)
her premiums are paid from the cash value.
At the current rate of COI, the certificate will lapse in 5 years*. (0 cash value) * as indicated in her last statement.
Mom's healthy and I expect she will far outlive this policy. She has good health insurance.
If it's a 15K policy, why is the death value 24k? Would the current cash value be added on top? And if that's being used to pay the premiums and goes to zero, doesn't that mean the policy only pays 15k in 5 years and then zero? Is $480 the real and full COI? and how fast is it rising? Looks like $9k for 4-5 years, depending on whether the $480 premium you're currently quoting is included. Something doesn't add up or we may not be correctly understanding some factors.

I'd be inclined to just cash it out unless there was a compelling case to keep paying, which I'm not seeing clearly.
The $15K is the face value. Payout on death would be face value plus cash value of the investment portion. This is not like the cash value of a whole life policy.

Ralph

jwhitaker
Posts: 40
Joined: Thu Jun 16, 2016 12:57 pm

Re: Needing some sage advice on mom's Uni Life policy

Post by jwhitaker » Wed Apr 25, 2018 3:27 pm

If the 15k value is rapidly decreasing and the 480 annual cost is rapidly increasing (or its actually just way more already), then i would be rapidly cashing this out as soon as possible.

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