Should we keep paying for this life insurance policy?

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Topic Author
teelainen
Posts: 200
Joined: Fri Feb 01, 2019 1:17 am

Should we keep paying for this life insurance policy?

Post by teelainen » Thu Sep 12, 2019 11:23 pm

This life insurance policy was purchased 30 years ago when the person (a male) was 37 years old This person is 67 years old now and in good health.

The amount of the life insurance policy is only worth $100,000 and it will never change.

Currently, the monthly premium is $118 and it will go up by 10% each year.

Questions:

1. Should he keep paying for this life insurance policy?
2. Are there any better life insurance products for this 67 year old man?
3. Any other tips on how to better handle this scenario?

mhlambert
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Re: Should we keep paying for this life insurance policy?

Post by mhlambert » Thu Sep 12, 2019 11:40 pm

Based on your view that the policy is "only worth $100,000" and it's costing you $118/mo I'd say dump it now.

#2/3 Would require knowing why you need life insurance at all at this stage of your life.

FoolStreet
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Re: Should we keep paying for this life insurance policy?

Post by FoolStreet » Thu Sep 12, 2019 11:53 pm

teelainen wrote:
Thu Sep 12, 2019 11:23 pm
This life insurance policy was purchased 30 years ago when the person (a male) was 37 years old This person is 67 years old now and in good health.

The amount of the life insurance policy is only worth $100,000 and it will never change.

Currently, the monthly premium is $118 and it will go up by 10% each year.

Questions:

1. Should he keep paying for this life insurance policy?
2. Are there any better life insurance products for this 67 year old man?
3. Any other tips on how to better handle this scenario?
I hear people on this site say, “ask for an in force illustration.”

HawkeyePierce
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Re: Should we keep paying for this life insurance policy?

Post by HawkeyePierce » Fri Sep 13, 2019 12:10 am

Does this person have any dependents? There may not be any need for life insurance.

Grt2bOutdoors
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Re: Should we keep paying for this life insurance policy?

Post by Grt2bOutdoors » Fri Sep 13, 2019 12:12 am

For 30 years this person has paid $118 a year? Ask if this policy has a cash value component and if yes, what the in-force illustration is? I would not be so quick to drop it. Especially if this person has an insurance need.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mortfree
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Re: Should we keep paying for this life insurance policy?

Post by mortfree » Fri Sep 13, 2019 3:28 am

Grt2bOutdoors wrote:
Fri Sep 13, 2019 12:12 am
For 30 years this person has paid $118 a year? Ask if this policy has a cash value component and if yes, what the in-force illustration is? I would not be so quick to drop it. Especially if this person has an insurance need.
Currently 118 per month. Not sure what the premium was in earlier years.

Even worse than 118 per year.

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Stinky
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Re: Should we keep paying for this life insurance policy?

Post by Stinky » Fri Sep 13, 2019 10:02 am

HawkeyePierce wrote:
Fri Sep 13, 2019 12:10 am
Does this person have any dependents? There may not be any need for life insurance.
I agree with this. Unless the person had people who are financially dependent on this person, drop the policy.

The vast majority of 67 year old folks don’t need life insurance.
It's a GREAT day to be alive - Travis Tritt

Topic Author
teelainen
Posts: 200
Joined: Fri Feb 01, 2019 1:17 am

Re: Should we keep paying for this life insurance policy?

Post by teelainen » Fri Sep 13, 2019 10:07 am

Here is some more clarification on this person's situation:

- This person is still married to his wife, who is about the same age. Both are in good health. All their children are grown up and independent.

- They live in a home that is paid off, in a relatively low cost of living area.

- In addition to their home that is paid off, they have about $800,000 in investable assets.

- They collect about $37,000 per year in Social Security benefits and some dividends/interest from their investable assets.

- The cash value component of this insurance policy has dropped to zero. However, this life insurance policy still has a death benefit of $100,000

- When the man purchased this life insurance policy 30 years ago, the monthly premium was MUCH MUCH less than $118 per month. It has slowly increased to $118 per month over the last 30 years. The premium will increase 10% per year (they have a max cap of 10% increase per year).

Questions:

1. Should he keep paying for this life insurance policy?
2. Are there any better life insurance products for this 67 year old man?
3. Any other tips on how to better handle this scenario?

Jack FFR1846
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Re: Should we keep paying for this life insurance policy?

Post by Jack FFR1846 » Fri Sep 13, 2019 10:16 am

He'd still need an in force illustration.

I had a Universal Life policy that was paid for for 27 years, started by my dad. I got the illustration and it showed how it was NOT permanent. For me, at age 70, the cash value AND the death benefit went to zero.

I'm not saying that this policy does this.....but it sounds like nobody knows if it does or not. Could this person use $118 a month for something else?
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FrugalConservative
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Re: Should we keep paying for this life insurance policy?

Post by FrugalConservative » Fri Sep 13, 2019 10:21 am

Ouch.

$118 ( more or less) a month since he was 37 years of a age for a measly 100K.

These types of products should be outlawed.

NotWhoYouThink
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Re: Should we keep paying for this life insurance policy?

Post by NotWhoYouThink » Fri Sep 13, 2019 11:14 am

However it started out, it is now a $100K term policy with a premium of $118/month, increasing by 10% a year. Probably it made sense 30 years ago, but it doesn't today. He could live to be 90 and the premiums could go over $1000/month.

Dottie57
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Re: Should we keep paying for this life insurance policy?

Post by Dottie57 » Fri Sep 13, 2019 11:19 am

Why is the cash value 0 if the policy had been paid every month of every year for 30 years?

casualflower
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Re: Should we keep paying for this life insurance policy?

Post by casualflower » Fri Sep 13, 2019 11:43 am

teelainen wrote:
Fri Sep 13, 2019 10:07 am
1. Should he keep paying for this life insurance policy?
2. Are there any better life insurance products for this 67 year old man?
3. Any other tips on how to better handle this scenario?
We're missing some information. Primarily what their annual expenses are and if the spouse is reliant on her husband's income or not. But $100,000 isn't going to make much of a difference with a 4% withdrawl rate. It sounds like the gentleman has no dependents that rely on his income, which, if true then...

1. No, he shouldn't. He has no need for insurance.
2. No, he has no need for insurance.
3. Cancel the insurance and move on?

How old he was when he bought it, how much he paid for it over the past 30 years, all of that doesn't matter.

NotWhoYouThink
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Re: Should we keep paying for this life insurance policy?

Post by NotWhoYouThink » Fri Sep 13, 2019 3:41 pm

Dottie57 wrote:
Fri Sep 13, 2019 11:19 am
Why is the cash value 0 if the policy had been paid every month of every year for 30 years?
OP said the payments used to be much lower. It may always have been term.

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Nate79
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Re: Should we keep paying for this life insurance policy?

Post by Nate79 » Fri Sep 13, 2019 3:44 pm

Sounds like a horrible product like Universal life. You have gotten good advice from the other posters.

Topic Author
teelainen
Posts: 200
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Re: Should we keep paying for this life insurance policy?

Post by teelainen » Fri Sep 13, 2019 5:30 pm

Dottie57 wrote:
Fri Sep 13, 2019 11:19 am
Why is the cash value 0 if the policy had been paid every month of every year for 30 years?
When this man first purchased the policy 30 years ago, he paid an amount each month that exceeded the "cost of insurance" premium. He paid that same amount for many many years. The excess money paid each month that was above the "cost of insurance" premium went into the cash value account.

As he got older, the "cost of insurance" premium went higher and higher but he never changed the amount of his payment each month. Once the "cost of insurance" premium exceeded his payment each month, the insurance company pulled the shortage out of the cash value account.

So now the cash value account is zero. So this man now needs to pay the $118 "cost of insurance" premium each month, and it will go up by 10% each year.

Dottie57
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Re: Should we keep paying for this life insurance policy?

Post by Dottie57 » Sat Sep 14, 2019 6:31 am

teelainen wrote:
Fri Sep 13, 2019 5:30 pm
Dottie57 wrote:
Fri Sep 13, 2019 11:19 am
Why is the cash value 0 if the policy had been paid every month of every year for 30 years?
When this man first purchased the policy 30 years ago, he paid an amount each month that exceeded the "cost of insurance" premium. He paid that same amount for many many years. The excess money paid each month that was above the "cost of insurance" premium went into the cash value account.

As he got older, the "cost of insurance" premium went higher and higher but he never changed the amount of his payment each month. Once the "cost of insurance" premium exceeded his payment each month, the insurance company pulled the shortage out of the cash value account.

So now the cash value account is zero. So this man now needs to pay the $118 "cost of insurance" premium each month, and it will go up by 10% each year.
Thank you.

BanquetBeer
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Re: Should we keep paying for this life insurance policy?

Post by BanquetBeer » Sat Sep 14, 2019 7:09 am

Yea, we dont know expenses but assuming if he dies the wife would get $20k from social security and $800*0.04=$32k

Can the wife live off of $50k/yr?

Other question, what does health insurance look like? If he gets cancer and has treatment for 3 years before he dies - how much will retirement savings drop? Would that take them down to $20+$550*0.04=$42k/yr? Knowing how they got there, is the wife willing to take the risk?

Either way the insurance only adds $4k/yr to spending if he dies. Lets look at break even - They pay $1416/yr I would imagine if he lives for 10 more years the amount spent (assuming invested) would be worth $30k and would provide almost 8 years of increased spending.

So when does the policy get canceled? How is his health? If it looks like he will live 15 more years then I would cancel. If he will die in the next 5 I would keep. Anything in between is a mix of guestimation and emotions.

MikeG62
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Re: Should we keep paying for this life insurance policy?

Post by MikeG62 » Sat Sep 14, 2019 9:29 am

teelainen wrote:
Fri Sep 13, 2019 10:07 am
Here is some more clarification on this person's situation:

- This person is still married to his wife, who is about the same age. Both are in good health. All their children are grown up and independent.

- They live in a home that is paid off, in a relatively low cost of living area.

- In addition to their home that is paid off, they have about $800,000 in investable assets.

- They collect about $37,000 per year in Social Security benefits and some dividends/interest from their investable assets.

- The cash value component of this insurance policy has dropped to zero. However, this life insurance policy still has a death benefit of $100,000

- When the man purchased this life insurance policy 30 years ago, the monthly premium was MUCH MUCH less than $118 per month. It has slowly increased to $118 per month over the last 30 years. The premium will increase 10% per year (they have a max cap of 10% increase per year).

Questions:

1. Should he keep paying for this life insurance policy?
2. Are there any better life insurance products for this 67 year old man?
3. Any other tips on how to better handle this scenario?
The answer depends on whether this person's dependent (his wife) needs this life insurance to carry on after he passes. Typically, life insurance is purchased to replace (at least in part) the income stream of the deceased person. Once the couple is retired and living off their accumulated assets, there is often much less need to continue to keep up life insurance.

FWIW, I dropped the life insurance on me when I turned 50. Premiums increased considerably that year and since we were financially independent there was no reason to continue the policy. I could/should have terminated it earlier (as we were FI well before I turned 50), but honestly I just did not focus on it until the premium increased markedly upon my turning 50.

Now if this person was in failing health and expected to have a very short remaining life span, then it might be worth continuing. Although I suspect if this were the case the premiums would be much higher.
Real Knowledge Comes Only From Experience

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