Whole Life Insurance

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azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Whole Life Insurance

Post by azFF » Tue May 15, 2018 4:12 pm

My Wife has a whole life policy that I'm currently figuring out what to do with and I'm looking for advice from the awesome BH community. The policy is almost 30 years old and all of the surrender fees are no longer active, the death benefit amount is only $25,000 and isn't part of the consideration since my wife and I both have term life to satisfy our needs. The annual premium is $125 and the account earns a minimum of 4% interest (4.5% right now). The expense/risk rates are deducted from the annual premium, which is currently approx. $32 from the $125 and this expense/risk rate will incrementally increase every year. I'm planning on keeping the cash value as an emergency fund whether I do cash out the policy or keep it in the policy. My question is does this policy with it's generous interest rate serve well as a "savings account" or does it still make more sense to cash out and put in another account? Thank you all for your help!

Nate79
Posts: 2353
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Whole Life Insurance

Post by Nate79 » Tue May 15, 2018 4:25 pm

What happens to your "savings account" if she dies?

Jack FFR1846
Posts: 6841
Joined: Tue Dec 31, 2013 7:05 am

Re: Whole Life Insurance

Post by Jack FFR1846 » Tue May 15, 2018 4:29 pm

Get an in force illustration.

How much is the cash value? A previous poster's question pointed out that if your wife passes, the cash value vanishes. If instead, she has term life, there's no cash value but the cost tends to be roughly 1/10th that of whole life.

I had a 27 year old universal life policy (similar in lots of ways) that I cashed last year.
Bogle: Smart Beta is stupid

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Tue May 15, 2018 4:36 pm

@Jack FFR1846. Thank you both @Nate for your responses. I thought that if my wife were to pass away, that I would receive the death benefit and the cash value, if it as you both are stating then it's clear that I need to cash out now! What is an in force illustration?

Nate79
Posts: 2353
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Whole Life Insurance

Post by Nate79 » Tue May 15, 2018 4:46 pm

You are learning the exact reason it is very dangerous to think of a WL policy as a "savings account." You need to look at the scenarios of how to get the money out of the policy under different conditions.

Policy holder dies? You get the face value but lose the cash value.

Want the cash value early? Either take out a loan (but pay interest which kind of defeats the purpose of this so called great dividend rate) or cancel the policy (thus losing the face value). If that is what you are wanting you are wasting money on the face value insurance death benefit part of the policy.

You need to keep paying to keep the policy in force (or else use the dividends to pay the policy but that defeats the return in the first place).

People delude themselves into thinking these are savings accounts.

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Tue May 15, 2018 5:00 pm

Just spoke with a representative from the insurance company and it is as you both have stated the cash value of the WL policy will go to the company and I would receive the death benefit in the event of my wife passing away. My wife has an annuity rider on the policy that is the bulk of the cash value and according to the representative the cash value of that portion would be delivered to me in the event of my wife passing. Thank you both for the insight and advice. Time to cash this thing out and put it somewhere useful!

inbox788
Posts: 5054
Joined: Thu Mar 15, 2012 5:24 pm

Re: Whole Life Insurance

Post by inbox788 » Tue May 15, 2018 5:47 pm

Nate79 wrote:
Tue May 15, 2018 4:46 pm
People delude themselves into thinking these are savings accounts.
I’m one of them. Guilty as charged. On a year over year basis, lets say last year I could have cashed out $4000. I paid $200 in premiums and today I can cash out $4500. I pay another $200 in premiums to keep the policy in force and next year the cash value is $5000. It’s not a savings account, but cash I can spend or invest is similar enough for me. What common risk am I overlooking? I can live with insurance company insolvency risk.

OP, don’t do anything rash until you’ve understood your spouses policy and what would you do with the cash. If you take the cash and invest in higher risk/return investments, chances are you’ll do better, but if you put it into CDs, the insurance is likely to outperform. Get the inforce illustration to see the guaranteed cash values and please explain this annuity rider in more detail, particularly any guarantees. What is the cost of this rider, and can you cancel just the rider? Any other riders?

Also, what is this 4% minimum? What does it apply to and is it some sort of guarantee? And this expense/risk, is it the cost of insurance? What is the maximum lifetime amount? Will it ever exceed the premium? What is the current cash value? What was it last year? And what will it be next year?

Btw, tax wise, now is not a good time for me to cash out, but if the tax situation improves, I would consider cashing out then, but ultimately, the greatest benefit is for the beneficiary.

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Tue May 15, 2018 8:05 pm

inbox788 wrote:
Tue May 15, 2018 5:47 pm
Nate79 wrote:
Tue May 15, 2018 4:46 pm
People delude themselves into thinking these are savings accounts.
I’m one of them. Guilty as charged. On a year over year basis, lets say last year I could have cashed out $4000. I paid $200 in premiums and today I can cash out $4500. I pay another $200 in premiums to keep the policy in force and next year the cash value is $5000. It’s not a savings account, but cash I can spend or invest is similar enough for me. What common risk am I overlooking? I can live with insurance company insolvency risk.

OP, don’t do anything rash until you’ve understood your spouses policy and what would you do with the cash. If you take the cash and invest in higher risk/return investments, chances are you’ll do better, but if you put it into CDs, the insurance is likely to outperform. Get the inforce illustration to see the guaranteed cash values and please explain this annuity rider in more detail, particularly any guarantees. What is the cost of this rider, and can you cancel just the rider? Any other riders?

I'm planning on using the funds for an emergency fund. I don't know all of the details, but the guarantee for the annuity rider is the cash value. The expense/risk rates are the cost of insurance and the amount this year for both WL/Annuity Rider was approx. $33 and that will increase incrementally every year. I believe I could cancel just the annuity rider, but I'm not certain and no other riders exist.

Also, what is this 4% minimum? What does it apply to and is it some sort of guarantee? And this expense/risk, is it the cost of insurance? What is the maximum lifetime amount? Will it ever exceed the premium? What is the current cash value? What was it last year? And what will it be next year?

The 4% interest rate is the minimum interest rate for the policy. I'm not sure on the max lifetime amount or whether it will exceed the premium. I did the calculation comparing this years cash value vs last years and the WL earned 4.5% and the annuity rider earned 4%. Next year will be 4.5% increased for the WL and 4% for the annuity rider.

Btw, tax wise, now is not a good time for me to cash out, but if the tax situation improves, I would consider cashing out then, but ultimately, the greatest benefit is for the beneficiary. Was going to speak with my CPA about this
I find the more complicated the product the more likely it is probably not in my best interest

inbox788
Posts: 5054
Joined: Thu Mar 15, 2012 5:24 pm

Re: Whole Life Insurance

Post by inbox788 » Tue May 15, 2018 8:23 pm

azFF wrote:
Tue May 15, 2018 8:05 pm
inbox788 wrote:
Tue May 15, 2018 5:47 pm
Nate79 wrote:
Tue May 15, 2018 4:46 pm
People delude themselves into thinking these are savings accounts.
I’m one of them. Guilty as charged. On a year over year basis, lets say last year I could have cashed out $4000. I paid $200 in premiums and today I can cash out $4500. I pay another $200 in premiums to keep the policy in force and next year the cash value is $5000. It’s not a savings account, but cash I can spend or invest is similar enough for me. What common risk am I overlooking? I can live with insurance company insolvency risk.

OP, don’t do anything rash until you’ve understood your spouses policy and what would you do with the cash. If you take the cash and invest in higher risk/return investments, chances are you’ll do better, but if you put it into CDs, the insurance is likely to outperform. Get the inforce illustration to see the guaranteed cash values and please explain this annuity rider in more detail, particularly any guarantees. What is the cost of this rider, and can you cancel just the rider? Any other riders?

I'm planning on using the funds for an emergency fund. I don't know all of the details, but the guarantee for the annuity rider is the cash value. The expense/risk rates are the cost of insurance and the amount this year for both WL/Annuity Rider was approx. $33 and that will increase incrementally every year. I believe I could cancel just the annuity rider, but I'm not certain and no other riders exist.

Also, what is this 4% minimum? What does it apply to and is it some sort of guarantee? And this expense/risk, is it the cost of insurance? What is the maximum lifetime amount? Will it ever exceed the premium? What is the current cash value? What was it last year? And what will it be next year?

The 4% interest rate is the minimum interest rate for the policy. I'm not sure on the max lifetime amount or whether it will exceed the premium. I did the calculation comparing this years cash value vs last years and the WL earned 4.5% and the annuity rider earned 4%. Next year will be 4.5% increased for the WL and 4% for the annuity rider.

Btw, tax wise, now is not a good time for me to cash out, but if the tax situation improves, I would consider cashing out then, but ultimately, the greatest benefit is for the beneficiary. Was going to speak with my CPA about this
I find the more complicated the product the more likely it is probably not in my best interest
Yes, it’s complicated, and if you consider the spent costs, it’s wasnt worth starting at year 1, but since you’ve sunken 30 years plus, the investment question you want to ask is, whether it would have been a good decision to cash out last year and add the premium and put the funds in a 12 month CD compared to cashing out today. And will you be better off cashing out today, adding the premium into 12 CD today vs. guarantee cash value next year. If 4%+ is accurate, I believe keeping the insurance is the better “investment”. Note it isn’t as liquid as an FDIC account nor as safe.

Btw, I still don’t understand this annuity rider business and what funds get what interest treatment. That’s part of the complication that is easy to confuse returns, and make orange to pineapple comparisons. Unless COI is clearly spelled out in a table, I would look to see if the $32/33 cost isn’t an additional cost associated with the annuity. Are you paying that on top of the $125 premium? Are the subtracting it out from the premium? Not at all clear.

The actual COI only covers the difference between face value of policy and cash account, so as cash account builds, COI goes up doubly with increased costs and less actual coverage. Only risk goes up. The valuation of this insurance is zero in the above comparison, but in actuality, there is some benefit to consider to the benefit of keeping policy. There’s also the guarantee of insurability that’s another small benefit, especially if health has changed/deteriorated.

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Wed May 16, 2018 12:12 pm

inbox788 wrote:
Tue May 15, 2018 8:23 pm
azFF wrote:
Tue May 15, 2018 8:05 pm
inbox788 wrote:
Tue May 15, 2018 5:47 pm
Nate79 wrote:
Tue May 15, 2018 4:46 pm
People delude themselves into thinking these are savings accounts.
I’m one of them. Guilty as charged. On a year over year basis, lets say last year I could have cashed out $4000. I paid $200 in premiums and today I can cash out $4500. I pay another $200 in premiums to keep the policy in force and next year the cash value is $5000. It’s not a savings account, but cash I can spend or invest is similar enough for me. What common risk am I overlooking? I can live with insurance company insolvency risk.

OP, don’t do anything rash until you’ve understood your spouses policy and what would you do with the cash. If you take the cash and invest in higher risk/return investments, chances are you’ll do better, but if you put it into CDs, the insurance is likely to outperform. Get the inforce illustration to see the guaranteed cash values and please explain this annuity rider in more detail, particularly any guarantees. What is the cost of this rider, and can you cancel just the rider? Any other riders?

I'm planning on using the funds for an emergency fund. I don't know all of the details, but the guarantee for the annuity rider is the cash value. The expense/risk rates are the cost of insurance and the amount this year for both WL/Annuity Rider was approx. $33 and that will increase incrementally every year. I believe I could cancel just the annuity rider, but I'm not certain and no other riders exist.

Also, what is this 4% minimum? What does it apply to and is it some sort of guarantee? And this expense/risk, is it the cost of insurance? What is the maximum lifetime amount? Will it ever exceed the premium? What is the current cash value? What was it last year? And what will it be next year?

The 4% interest rate is the minimum interest rate for the policy. I'm not sure on the max lifetime amount or whether it will exceed the premium. I did the calculation comparing this years cash value vs last years and the WL earned 4.5% and the annuity rider earned 4%. Next year will be 4.5% increased for the WL and 4% for the annuity rider.

Btw, tax wise, now is not a good time for me to cash out, but if the tax situation improves, I would consider cashing out then, but ultimately, the greatest benefit is for the beneficiary. Was going to speak with my CPA about this
I find the more complicated the product the more likely it is probably not in my best interest
Yes, it’s complicated, and if you consider the spent costs, it’s wasnt worth starting at year 1, but since you’ve sunken 30 years plus, the investment question you want to ask is, whether it would have been a good decision to cash out last year and add the premium and put the funds in a 12 month CD compared to cashing out today. And will you be better off cashing out today, adding the premium into 12 CD today vs. guarantee cash value next year. If 4%+ is accurate, I believe keeping the insurance is the better “investment”. Note it isn’t as liquid as an FDIC account nor as safe.

Btw, I still don’t understand this annuity rider business and what funds get what interest treatment. That’s part of the complication that is easy to confuse returns, and make orange to pineapple comparisons. Unless COI is clearly spelled out in a table, I would look to see if the $32/33 cost isn’t an additional cost associated with the annuity. Are you paying that on top of the $125 premium? Are the subtracting it out from the premium? Not at all clear. The interest rate for the annuity rider is set at 4% and is apparently locked. The interest rate for the WL cash value is currently 4.5% with a minimum rate of 4%. the COI is deducted from the annual premium of $125.

The actual COI only covers the difference between face value of policy and cash account, so as cash account builds, COI goes up doubly with increased costs and less actual coverage. Only risk goes up. The valuation of this insurance is zero in the above comparison, but in actuality, there is some benefit to consider to the benefit of keeping policy. There’s also the guarantee of insurability that’s another small benefit, especially if health has changed/deteriorated.
I have some pics of the contract that I don't believe contain anything that should not be shared, but I'm having trouble uploading them onto this forum. Can I use a google pic link to do this?

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Wed May 16, 2018 12:48 pm

Nevermind, I am convinced that I need to cash this policy out. Just spoke with another rep from the insurance company and found out that on top of the other fees, there is an annual $1,000 fee for the annuity rider. I've spoke with this company on 3 separate occasions and seem to found out another negative everytime! This makes it crystal clear in my mind, that this policy is definitely not a benefit. Thank you all for your advice and replies, I really appreciate it and that's what makes this forum so damn awesome :sharebeer

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Wed May 16, 2018 4:41 pm

Update...After considering my phone conversation with the insurance rep, I don't think it makes any sense. She informed me of an annual fee of $1,000 for the annuity rider, but my wife only pays the $125 annual premium for the WL and annuity rider and the annuity rider has had a net gain of $7,000 plus since its inception (approx. 28 years). Per this years annual statement, the COI and the annuity rider charge total for last year was $33.14. I will be making another phone call to the insurance company tomorrow and give an update after.

inbox788
Posts: 5054
Joined: Thu Mar 15, 2012 5:24 pm

Re: Whole Life Insurance

Post by inbox788 » Wed May 16, 2018 6:02 pm

azFF wrote:
Wed May 16, 2018 4:41 pm
Update...After considering my phone conversation with the insurance rep, I don't think it makes any sense. She informed me of an annual fee of $1,000 for the annuity rider, but my wife only pays the $125 annual premium for the WL and annuity rider and the annuity rider has had a net gain of $7,000 plus since its inception (approx. 28 years). Per this years annual statement, the COI and the annuity rider charge total for last year was $33.14. I will be making another phone call to the insurance company tomorrow and give an update after.
It's worth finding out the facts. Here's a simple calculation ignoring a lot of factors. Assume this is a typical vanilla whole life policy and policy holder died in 50 years, so you make an additional $125*50=$6250. Add that to the cash value, which I'll assume is $5000, so total cost is $12,500, and beneficiary receives $25,000 benefit. That's 100% in 50 years annualized comes to 1.4% return. This is near a worse case estimate, and a lot of factors improve this financially.

A plain vanilla whole life policy is complicated enough to understand and adding riders compounds the problems. Some riders are worth having/keeping, while others just add costs. I haven't come across one that hurts the policy besides costing more yet, so I'd be interested in this annuity rider and whether its just extra costs you're paying or it's forcing your into something less desirable. Do you have any names for this rider or links to the product or similar products? I tried googling, and most results are annuities with riders, not whole life policies.

Is it something like this? Is there an end date or maturity? Do premiums reduce later in the policy?
. What is a flexible premium annuity rider?
A. A non-tax qualified flexible premium annuity rider is included with the standard Security Builder Plan policy. It is designed for long-term accumulation of money. Any contribution you pay into the flexible premium annuity rider grows over time on a tax-deferred basis until a selected future date (usually at retirement). The flexible premium annuity rider is a fixed annuity, which means it earns a specified interest rate during each guaranteed period. In addition, a minimum guaranteed interest rate (MGIR) is set at the time of issuance and is guaranteed never to change for the life of the flexible premium annuity rider contract.
The annuity is designed to begin making payments at its maturity date. The value of the annuity may be paid in a lump sum or a stream of payments for a period of time that is based on the annuity payment option you select. You can elect that it provide monthly payments to continue for your lifetime. The amount of the monthly payments will be based on the payments you have made into the annuity, your age when payments begin, the amount of interest that has been credited to the annuity, and the exact option you select.
https://www.cblife.com/Content/ProductB ... ochure.pdf

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Thu May 17, 2018 3:22 pm

inbox788 wrote:
Wed May 16, 2018 6:02 pm
azFF wrote:
Wed May 16, 2018 4:41 pm
Update...After considering my phone conversation with the insurance rep, I don't think it makes any sense. She informed me of an annual fee of $1,000 for the annuity rider, but my wife only pays the $125 annual premium for the WL and annuity rider and the annuity rider has had a net gain of $7,000 plus since its inception (approx. 28 years). Per this years annual statement, the COI and the annuity rider charge total for last year was $33.14. I will be making another phone call to the insurance company tomorrow and give an update after.
It's worth finding out the facts. Here's a simple calculation ignoring a lot of factors. Assume this is a typical vanilla whole life policy and policy holder died in 50 years, so you make an additional $125*50=$6250. Add that to the cash value, which I'll assume is $5000, so total cost is $12,500, and beneficiary receives $25,000 benefit. That's 100% in 50 years annualized comes to 1.4% return. This is near a worse case estimate, and a lot of factors improve this financially.

A plain vanilla whole life policy is complicated enough to understand and adding riders compounds the problems. Some riders are worth having/keeping, while others just add costs. I haven't come across one that hurts the policy besides costing more yet, so I'd be interested in this annuity rider and whether its just extra costs you're paying or it's forcing your into something less desirable. Do you have any names for this rider or links to the product or similar products? I tried googling, and most results are annuities with riders, not whole life policies.

Is it something like this? Is there an end date or maturity? Do premiums reduce later in the policy?
Yep, it's titled Flexible Premium Annuity Accumulation Rider. After speaking with another representative, which was much more informed than the previous rep; the annuity rider is $2.75 every year and will not increase in cost. The minimum interest rate for the annuity rider is 4% and will mature in the year 2043 in which I have the option of extending that another 10 years if we choose. We can contribute up to $5,000 annually and the only restriction I have found is we can only withdraw from the annuity once per year.

As for the WL policy, as the contract extends less and less of the premium will go to the WL interest bearing account, but the annual premium will always be $125.25. Having considered all of the details, I think the policy is well worth keeping for $125.25 annually and a minimum interest rate of 4%. Any further questions? I really appreciate your advice :)
. What is a flexible premium annuity rider?
A. A non-tax qualified flexible premium annuity rider is included with the standard Security Builder Plan policy. It is designed for long-term accumulation of money. Any contribution you pay into the flexible premium annuity rider grows over time on a tax-deferred basis until a selected future date (usually at retirement). The flexible premium annuity rider is a fixed annuity, which means it earns a specified interest rate during each guaranteed period. In addition, a minimum guaranteed interest rate (MGIR) is set at the time of issuance and is guaranteed never to change for the life of the flexible premium annuity rider contract.
The annuity is designed to begin making payments at its maturity date. The value of the annuity may be paid in a lump sum or a stream of payments for a period of time that is based on the annuity payment option you select. You can elect that it provide monthly payments to continue for your lifetime. The amount of the monthly payments will be based on the payments you have made into the annuity, your age when payments begin, the amount of interest that has been credited to the annuity, and the exact option you select.
https://www.cblife.com/Content/ProductB ... ochure.pdf

senex
Posts: 39
Joined: Wed Dec 13, 2017 4:38 pm

Re: Whole Life Insurance

Post by senex » Thu May 17, 2018 3:59 pm

azFF, did you ever post the actual cash value?

If the cash value is $7000 and you're getting a 4.5% return, that's about $160/year more than buying a 1 year CD (BankRate is showing 2.25% on those).

So yes, you're getting a few dollars per week in extra interest, and you get the death benefit.

On the negative side, you have a product that is too difficult to understand -- neither you nor some of the company's employees understand it. And you are required to add money every year. And since you don't understand it, there may be other hidden downsides you won't discover until later.

I'm not saying it's a terrible decision to keep it -- just that it's worth thinking about whether the phone calls, the opacity, and the complexity is worth the extra $160/year.

azFF
Posts: 23
Joined: Mon Feb 06, 2017 8:32 am

Re: Whole Life Insurance

Post by azFF » Fri May 18, 2018 12:59 pm

senex wrote:
Thu May 17, 2018 3:59 pm
azFF, did you ever post the actual cash value?

If the cash value is $7000 and you're getting a 4.5% return, that's about $160/year more than buying a 1 year CD (BankRate is showing 2.25% on those).
The cash value is quite a bit more than that figure, so the interest garnered is quite good
So yes, you're getting a few dollars per week in extra interest, and you get the death benefit.

On the negative side, you have a product that is too difficult to understand -- neither you nor some of the company's employees understand it. And you are required to add money every year. And since you don't understand it, there may be other hidden downsides you won't discover until later.

I'm not saying it's a terrible decision to keep it -- just that it's worth thinking about whether the phone calls, the opacity, and the complexity is worth the extra $160/year. I totally get that, the effort involved in understanding this policy was at times high. Although on the whole the reps I spoke to besides one, were very helpful. I've already put in the effort and feel that I have a solid understanding now, in no small part thanks to this community :D

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