Life Insurance!

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aeoluxz
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Joined: Sat Jun 27, 2020 8:46 pm

Life Insurance!

Post by aeoluxz »

Hello everyone, been an avid reader of this forum. But not sure if this is the place for a question like this, if not, I apologize.

To start off, I am 31 years old right now. planning to get married this year or the next, depending on the situation with covid. Making 52k a year living in NYC, I have about 136k in savings, using it as a downpayment for a house that we're still looking for, and around 45k in investment in 401k/ira.

Since 2009, at the age of 20, I brought life insurance with Metlife. It is a whole life policy worth 250k, and I pay a premium of $1730 per year, and I have been paying it for the last 11 years. I feel a little sheepish saying this, but I've never really thought about, lets just say I was easily influenced by a family member as a youngster.

Having finally taken a look at it this year. It is telling me that I have $14,203.26 for net cash amount available, with a base cash value of $12,650.83.

I guess my question is, how is this deal for someone in my situation? Is an insurance policy of this type even worth it at my age? Would it be wise to surrender the amount and put the money to work for me in other ways? Or if there are other insurance companies that is a better value than what I am getting.

Sorry for rambling, would love to hear all your thoughts in this regards. Thanks!
Flyer24
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Re: Life Insurance!

Post by Flyer24 »

Topic moved to Personal Finance.
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Nate79
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Re: Life Insurance!

Post by Nate79 »

If you have a need for insurance, which if getting married and buying a home soon likely on a joint income then I would get an appropriate amount of term (maybe 10x income) for you and your spouse and then cancel the whole life. Simplify your life, increase your return, reduce expenses.
Bobby206
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Re: Life Insurance!

Post by Bobby206 »

I would first apply for $500k of term and make sure you qualify. Check rates for 10 and 20 year.

Once that is in place then take out the cash from the whole life and let it die.

That's what I would do in your shoes.

Good luck!
Grt2bOutdoors
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Re: Life Insurance!

Post by Grt2bOutdoors »

Do you have an insurable need? Does someone depend on your income for support? You are getting married, you are buying a home, if something were to befall you and you want your spouse to maintain a relative stable standard of living for a period of time you may want to get enough insurance to perhaps payoff the mortgage and/or a bit more for a few years living expenses.
A policy of 10x gross income may be enough.

First shop for a term life policy, do not give up your current policy until you have a new one in place. Term life is exactly like it says - it’s pure insurance in return for a premium. You stop paying premium and the policy lapses, after 30 days of non payment- it terminates. You can generally select 20 or 30 years. Try the calculator at www.term4sale.com to see the various term and policy costs based on your answers to various questions. Then pick a policy and call one of the agents listed if you are interested in getting the policy. Generally you want an insurance company with an A- or better rating and you’ll see it listed on the calculator.
After you pass the various tests and new policy is issued, then you can cancel the whole life policy. But don’t cancel it until you are formally approved by term life issuer.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
aeoluxz
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Joined: Sat Jun 27, 2020 8:46 pm

Re: Life Insurance!

Post by aeoluxz »

Nate79 wrote: Wed Sep 16, 2020 7:19 pm If you have a need for insurance, which if getting married and buying a home soon likely on a joint income then I would get an appropriate amount of term (maybe 10x income) for you and your spouse and then cancel the whole life. Simplify your life, increase your return, reduce expenses.
Thank you so much, simplifying my life, love it!
Topic Author
aeoluxz
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Joined: Sat Jun 27, 2020 8:46 pm

Re: Life Insurance!

Post by aeoluxz »

Bobby206 wrote: Wed Sep 16, 2020 7:22 pm I would first apply for $500k of term and make sure you qualify. Check rates for 10 and 20 year.

Once that is in place then take out the cash from the whole life and let it die.

That's what I would do in your shoes.

Good luck!
Just checked on policy genius, rates seem much better than what I am getting, basically double payout for about 2/3 of the price that I am paying for 20 years. I know this is just the website trying to show me best-case scenarios before I fully commit by giving them my info. But it seems like a good alternative, something to discuss with fiance. But definitely going to take the money out of whole life. Question about that, would that be in anyway taxable? From what I can tell in metlife's websites, there are dividends involved with the policy.
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Nate79
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Re: Life Insurance!

Post by Nate79 »

I prefer Zander.com a little more than the others.
Topic Author
aeoluxz
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Re: Life Insurance!

Post by aeoluxz »

Grt2bOutdoors wrote: Wed Sep 16, 2020 7:33 pm Do you have an insurable need? Does someone depend on your income for support? You are getting married, you are buying a home, if something were to befall you and you want your spouse to maintain a relative stable standard of living for a period of time you may want to get enough insurance to perhaps payoff the mortgage and/or a bit more for a few years living expenses.
A policy of 10x gross income may be enough.

First shop for a term life policy, do not give up your current policy until you have a new one in place. Term life is exactly like it says - it’s pure insurance in return for a premium. You stop paying premium and the policy lapses, after 30 days of non payment- it terminates. You can generally select 20 or 30 years. Try the calculator at www.term4sale.com to see the various term and policy costs based on your answers to various questions. Then pick a policy and call one of the agents listed if you are interested in getting the policy. Generally you want an insurance company with an A- or better rating and you’ll see it listed on the calculator.
After you pass the various tests and new policy is issued, then you can cancel the whole life policy. But don’t cancel it until you are formally approved by term life issuer.
These are all definitely things to think about with my fiance. Thank you very much for your guidance, a question about what you mean by "terminates". I pay for the policy annualy, July to be precise. Do I have to wait until 2021 for it to die on it's own? What are differences between letting it die vs requesting a cash surrender? Are there any tax related problems that I should know about?

Thank you very much once again!
Bobby206
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Re: Life Insurance!

Post by Bobby206 »

aeoluxz wrote: Wed Sep 16, 2020 7:53 pm
Bobby206 wrote: Wed Sep 16, 2020 7:22 pm I would first apply for $500k of term and make sure you qualify. Check rates for 10 and 20 year.

Once that is in place then take out the cash from the whole life and let it die.

That's what I would do in your shoes.

Good luck!
Just checked on policy genius, rates seem much better than what I am getting, basically double payout for about 2/3 of the price that I am paying for 20 years. I know this is just the website trying to show me best-case scenarios before I fully commit by giving them my info. But it seems like a good alternative, something to discuss with fiance. But definitely going to take the money out of whole life. Question about that, would that be in anyway taxable? From what I can tell in metlife's websites, there are dividends involved with the policy.
I am not a tax expert but I believe everything you can take as a loan is tax free and that's probably most of the policy.
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Stinky
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Re: Life Insurance!

Post by Stinky »

aeoluxz wrote: Wed Sep 16, 2020 8:03 pm Thank you very much for your guidance, a question about what you mean by "terminates". I pay for the policy annualy, July to be precise. Do I have to wait until 2021 for it to die on it's own? What are differences between letting it die vs requesting a cash surrender? Are there any tax related problems that I should know about?

Thank you very much once again!
You can surrender your policy now (or as soon as you get term life in place). No reason to wait until next July. You will get a refund of your premium paid in advance.

You would have taxable income if your surrender value exceeds your premium paid. If you’ve paid for 11 years, you’ve paid about $19k in premium, and your surrender value is less. So it sounds like no taxable income for you.

I would definitely surrender after term is in force. I like Zander.com for term insurance.
It's a GREAT day to be alive - Travis Tritt
Grt2bOutdoors
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Location: New York

Re: Life Insurance!

Post by Grt2bOutdoors »

aeoluxz wrote: Wed Sep 16, 2020 8:03 pm
Grt2bOutdoors wrote: Wed Sep 16, 2020 7:33 pm Do you have an insurable need? Does someone depend on your income for support? You are getting married, you are buying a home, if something were to befall you and you want your spouse to maintain a relative stable standard of living for a period of time you may want to get enough insurance to perhaps payoff the mortgage and/or a bit more for a few years living expenses.
A policy of 10x gross income may be enough.

First shop for a term life policy, do not give up your current policy until you have a new one in place. Term life is exactly like it says - it’s pure insurance in return for a premium. You stop paying premium and the policy lapses, after 30 days of non payment- it terminates. You can generally select 20 or 30 years. Try the calculator at www.term4sale.com to see the various term and policy costs based on your answers to various questions. Then pick a policy and call one of the agents listed if you are interested in getting the policy. Generally you want an insurance company with an A- or better rating and you’ll see it listed on the calculator.
After you pass the various tests and new policy is issued, then you can cancel the whole life policy. But don’t cancel it until you are formally approved by term life issuer.
These are all definitely things to think about with my fiance. Thank you very much for your guidance, a question about what you mean by "terminates". I pay for the policy annualy, July to be precise. Do I have to wait until 2021 for it to die on it's own? What are differences between letting it die vs requesting a cash surrender? Are there any tax related problems that I should know about?

Thank you very much once again!
My reference to termination of policy is as it applies to a term policy. In other words, if you don’t pay the premium when is due then you won’t be covered and the policy will expire permanently.

You have a whole life policy which currently has a cash value. If you stopped paying your premium you would find the insurance company using the cash value to pay the premium thereby reducing that balance for the next year. If you want to terminate your whole life you need to make a formal request to withdraw all of your cash value from the account and stop paying the premium - that will cause the policy to lapse.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
afan
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Re: Life Insurance!

Post by afan »

Since it seems your cash value is less than the total of premiums paid, you have another option. Get a statement from the insurance company that shows your total premiums paid and the SURRENDER value. This is the actual amount of money you would get if you cash out the policy.

If the surrender value is less than the total premiums paid then a 1035 exchange into an annuity becomes potentially appealing. You would not have income tax due anyway. By getting an annuity you can let the annuity grow until its value matches the total premiums paid. Then cash out the annuity with no tax. This was more worthwhile when annuity growth rates were higher. Now you would wait a long time until your annuity caught up with your premiums.

Another option for old whole life policies if you you do not need the money: leave it in force. Since interest rates were higher years ago, many whole life policies had guaranteed returns that would be quite high by today's standards. Although a new whole life policy is a terrible investment, holding on to an old one can be good.

Another consideration: at some point the surrender charges go away completely. If you are close to that point, it could be worth holding the policy until that happens. Getting out from under the surrender charge could put more cash in your pocket, even after paying another premium. The insurance company can send you an illustration that includes the surrender values so you can see whether this applies to you.

All of the above assumes that you would want a low risk, low return investment for this money. If you need it for expenses, then holding the policy or exchanging for an annuity might not the best use.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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