Another question re: keeping or selling life insurance policies

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Topic Author
golfrgirl
Posts: 60
Joined: Tue Dec 31, 2019 3:58 pm

Another question re: keeping or selling life insurance policies

Post by golfrgirl »

I’m looking for advice on whether to cash in current insurance policies for both my husband and I, as we feel have no need for life insurance coverage anymore. He’s 75 and I’m 63 years old, and he's retired but I plan to work another 5-7 years.

First, his policy is a whole life policy through Mass Mutual that we’ve had for somewhere around 20 years, and the base policy is for 100k. The monthly premium is around $250 and we get a yearly premium rebate or distribution back to us – not sure of the correct terminology here – that amounts to approximately the year’s premium amount. It lists a current cash value of rough 63k.

Second, I have a variable appreciable life policy through Prudential that I’ve had for a little under 30 years, with a stated cash value of 36k. Same death benefit amount of 100k, but an “excess death benefit” of an additional 23k. Monthly premiums are $73.
It looks like, after reading other posts on this topic, that this money could be invested more efficiently and that there will be tax consequences to cashing in. I’d appreciate any advice you might have. TIA
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Stinky
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Location: Sweet Home Alabama

Re: Another question re: keeping or selling life insurance policies

Post by Stinky »

golfrgirl wrote: Thu Jul 29, 2021 6:43 pm I’m looking for advice on whether to cash in current insurance policies for both my husband and I, as we feel have no need for life insurance coverage anymore. He’s 75 and I’m 63 years old, and he's retired but I plan to work another 5-7 years.

First, his policy is a whole life policy through Mass Mutual that we’ve had for somewhere around 20 years, and the base policy is for 100k. The monthly premium is around $250 and we get a yearly premium rebate or distribution back to us – not sure of the correct terminology here – that amounts to approximately the year’s premium amount. It lists a current cash value of rough 63k.

Second, I have a variable appreciable life policy through Prudential that I’ve had for a little under 30 years, with a stated cash value of 36k. Same death benefit amount of 100k, but an “excess death benefit” of an additional 23k. Monthly premiums are $73.
It looks like, after reading other posts on this topic, that this money could be invested more efficiently and that there will be tax consequences to cashing in. I’d appreciate any advice you might have. TIA
Just saw this post. Sorry that it seems to have slipped through the cracks.

You said it yourself above. “We have no need for life insurance coverage any more”. That removes any need to keep the policy for “insurance” purposes.

The only other reason to keep these policies is for “investment” purposes. Let’s look at the Prudential policy first. You should check out the policy to see if there’s an attractive rate on the “fixed” or “general account” option. If the rate is as high as 3-4%, you could view the Prudential policy as part of your “fixed income” allocation, for $36k. You would also want to check out the cost of insurance and other charges to see how much of that return is being chewed up by those items.

If the fixed rate is not attractive, I’d surrender the Prudential policy. You’re going to be eaten up by excess fund fees, cost of insurance charges, etc. Also, I’d surrender Prudential if the COI and other fees are eating into the fixed bucket return.

On the Mass Mutual policy, you could get an idea of the “return” on your $63k cash value by looking at the increase in the total cash value for a policy year, subtract out the premiums paid, and divide that amount by the $63k cash value. You should get an “inforce illustration” from the agent or the company to show you the numbers.

Please post back with questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
golfrgirl
Posts: 60
Joined: Tue Dec 31, 2019 3:58 pm

Re: Another question re: keeping or selling life insurance policies

Post by golfrgirl »

Stinky:
Thank you for your post. Yesterday I did, indeed, deal with each of these policies and have surrendered them. Doing some back-of-the-napkin math, the returns are lower than I would expect if I just invest the funds going forward. Now, the tax-avoidance is another issue, but I'm willing to bite the bullet on that after maxing out my IRA and other deductible contributions for the year.
Again, I thank you for your thoughtful advice.
tj
Posts: 9317
Joined: Wed Dec 23, 2009 11:10 pm

Re: Another question re: keeping or selling life insurance policies

Post by tj »

golfrgirl wrote: Tue Aug 03, 2021 1:30 pm Stinky:
Thank you for your post. Yesterday I did, indeed, deal with each of these policies and have surrendered them. Doing some back-of-the-napkin math, the returns are lower than I would expect if I just invest the funds going forward. Now, the tax-avoidance is another issue, but I'm willing to bite the bullet on that after maxing out my IRA and other deductible contributions for the year.
Again, I thank you for your thoughtful advice.
You could have 1035'd them into a MYGA if you wanted to avoid the tax and were satisfied with the interest rate. Then at maturity, you could 1035 them into another MYGA or SPIA if that's something you desire.
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