Keep unneeded Universal life insurance?

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Topic Author
yysh
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Joined: Mon Mar 25, 2024 12:00 am

Keep unneeded Universal life insurance?

Post by yysh »

I purchased Univeral life insurance in 2000 and stopped to put more money into the account. I have about 15K in my account which will run out of new year or two. My insurance will not mature until 2037. I do not need insurance now as my daughter has a stable job. I am 63. I do not know what options I have. Any suggestions?

Lynn
Doctor Rhythm
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Re: Keep unneeded Universal life insurance?

Post by Doctor Rhythm »

Welcome to the forum

I’m not sure I understand the status of your policy from what you’ve posted. However, a good place to start is to request an in-force illustration if you haven’t already done so.

BTW, I recommend changing your screen name to something other than your email address (if that’s what it is) to protect your privacy.
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Stinky
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Re: Keep unneeded Universal life insurance?

Post by Stinky »

yysh wrote: Tue Mar 26, 2024 9:08 pm I purchased Univeral life insurance in 2000 and stopped to put more money into the account. I have about 15K in my account which will run out of new year or two. My insurance will not mature until 2037. I do not need insurance now as my daughter has a stable job. I am 63. I do not know what options I have. Any suggestions?

Lynn
Welcome to the Forum!

Your post isn't crystal clear, but let me see if I understand what you're saying -
--- You're 63 years old
--- You have no one who (dependent child, spouse, etc.) who is depending on your income from working
--- You don't feel that you need to keep the Universal Life policy
--- You aren't currently paying premiums on the policy
--- You have about $15,000 of surrender value available from the policy
--- If you do nothing, the $15,000 surrender value will be depleted soon

I suggest that you request an "inforce illustration" from either the agent or the life insurance company, to see exactly what progress your policy will make if you continue along the current path of premium payments (which sounds like you're not paying premiums).

If you truly don't need the life insurance, and if you're not in such terrible health that it is likely you will die in the near future, then I think that surrendering the policy for its cash value makes a lot of sense. You can request a "full surrender" either from your agent or from the insurance company directly.

Post back with questions.

(I also recommend that you change your user name to something other than your email address. You can send a "private message" to LadyGeek or one of the other administrators to change your user name.)
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Chardo
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Re: Keep unneeded Universal life insurance?

Post by Chardo »

If you are not in poor health, and don't need the insurance, don't even wait for an inforce illustration. Surrender the policy now and get your cash before it depletes any further.

If you are in poor health, it could make sense to keep it. That's when you would want an illustration to evaluate your options.

One last option. If you have paid a lot more in premiums than the surrender value, there are some tax strategies you could use. Not worth bothering if the numbers are small.
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yysh
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Re: Keep unneeded Universal life insurance?

Post by yysh »

Thanks for the advice! I will change my screen name soon.

A financial advisor took a look at my policy and one option she suggested is to turn it into a small annuity.

Lynn
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Stinky
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Re: Keep unneeded Universal life insurance?

Post by Stinky »

yysh wrote: Thu Mar 28, 2024 10:03 pm A financial advisor took a look at my policy and one option she suggested is to turn it into a small annuity.
Just to clarify what you would do with an annuity, if the advisor did not explain fully -

You would do a 1035 exchange from your UL policy into an annuity. If you want to have fixed income exposure, many Bogleheads would suggest a multi year guaranteed annuity (MYGA), rather than another product like an indexed annuity. If you want equity exposure, you should choose a low cost variable annuity like the Fidelity product.

Let’s say that your basis in your UL policy (typically your total premiums paid) is $25k, and the surrender value is $15k. You could exchange your UL into an annuity, and the first $10k (difference between basis and surrender value) of growth in the annuity would be tax free.

Depending on your tax situation, this strategy could save you something in the range of $2,000 - $3,000 in taxes over the years compared to investing the UL surrender value in a taxable account.

Post back if you have questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
yysh
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Re: Keep unneeded Universal life insurance?

Post by yysh »

The finacial advisor has not detailed the annuiety yet. I was told there is a promotion of Athena Agility 10 with 45% "match" on my investment. She suggested to have another zoom session to work on it. I am not sure if it's a good idea to continue to conversation with this finacial advisor. The finacial advisor is the person who doing this as a second job and was connected via a friend who also just entered this field.

Lynn
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Stinky
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Re: Keep unneeded Universal life insurance?

Post by Stinky »

yysh wrote: Mon Apr 01, 2024 8:45 am The finacial advisor has not detailed the annuiety yet. I was told there is a promotion of Athena Agility 10 with 45% "match" on my investment. She suggested to have another zoom session to work on it. I am not sure if it's a good idea to continue to conversation with this finacial advisor. The finacial advisor is the person who doing this as a second job and was connected via a friend who also just entered this field.

Lynn
I explained the annuity idea above, and suggested using a MYGA if you decided to go that route.

But that’s not what the advisor suggested for you. The advisor suggested an indexed annuity, which is a product that most Bogleheads stay away from because of the low consumer value.

I think that you’re right to “stay away from this advisor”, as you suggest above. He/she is trying to saddle you with a garbage policy.


If you want to pursue the MYGA idea, check in with one or more of the large MYGA sales groups, such as Blueprint Income, Stan the Annuity Man, or Annuity Advantage.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
yysh
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Re: Keep unneeded Universal life insurance?

Post by yysh »

Hi Stinky,

Thanks for your advise! Could I do 1035 exchange from your UL policy into an annuity myself?

Lynn
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Stinky
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Re: Keep unneeded Universal life insurance?

Post by Stinky »

yysh wrote: Mon Apr 01, 2024 9:37 pm Hi Stinky,

Thanks for your advise! Could I do 1035 exchange from your UL policy into an annuity myself?

Lynn
No, you can’t do a 1035 exchange without the assistance of an agent. You can surrender the policy without an agent, but you can’t buy an annuity policy without agent involvement.

There’s no out of pocket cost to you for using an agent. Their commission is embedded in the pricing of the product and is paid by the insurer.

I’d suggest you get in touch with one of the annuity agencies mentioned in my last post. They can help you through the process.

Post back with questions.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
123
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Re: Keep unneeded Universal life insurance?

Post by 123 »

The only possible advantage of a conversion to an annuity is tax deferment if the current cash surrender value of the policy is significantly greater than the sum of all the premium payments you have made for the policy. If the total of all the premium payments you have made on the policy is greater than the current cash value there is no point in exchanging the policy for an annuity.

With a universal life insurance policy the cost of the actual insurance component of the policy actually increases each year as you age. It generally increases and begins to consume the surrender value of the policy even though you may be paying a level premium.
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Stinky
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Re: Keep unneeded Universal life insurance?

Post by Stinky »

123 wrote: Mon Apr 01, 2024 9:59 pm The only possible advantage of a conversion to an annuity is tax deferment if the current cash surrender value of the policy is significantly greater than the sum of all the premium payments you have made for the policy. If the total of all the premium payments you have made on the policy is greater than the current cash value there is no point in exchanging the policy for an annuity.
Sorry, but your second sentence is not correct.

If the basis (usually the premiums paid) of the life policy is greater than the cash value, the earnings on an annuity issued as a result of a 1035 exchange will be tax free, up to the point where the annuity value is equal to the basis.

I estimated upthread that OP’s tax savings might in the range of $2-$3,000 over a period of years if she were to 1035 exchange into an annuity. Not a huge amount of money, but worth going after if OP is inclined to do so.
Last edited by Stinky on Tue Apr 02, 2024 5:04 am, edited 1 time in total.
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Jack FFR1846
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Re: Keep unneeded Universal life insurance?

Post by Jack FFR1846 »

I was in a similar situation when I joined Bogleheads. I got the in force illustration and realized that the cash value would go down every month even if I paid the premiums. That how UL policies work. Every year, they reprice the insurance part as if you just walked off the street. So every year it gets higher and so the cash value soon goes to zero and also the death benefit goes to zero at the same time. If your cash value is going to zero before the initial prediction of how long your insurance would last, it's not going to 2037, it's going a year or 2.

My advice and what I did was to surrender the policy immediately. For me, it was simple math. Insurance cost for me when I asked was $69 a month. My full annual premium was $395. Easy to figure where the cash value was going.

Oh, and the tax? I had to pay tax on $20. This was with $14,000 coming to me.
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Re: Keep unneeded Universal life insurance?

Post by LadyGeek »

yysh wrote: Thu Mar 28, 2024 10:03 pm Thanks for the advice! I will change my screen name soon.

A financial advisor took a look at my policy and one option she suggested is to turn it into a small annuity.

Lynn
The screen name has been changed. Please check your Private Messages. (Sorry to post in the thread, but I wanted to get the OP's attention.)
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