Gifted a Whole Life Insurance Policy

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jt13
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Gifted a Whole Life Insurance Policy

Post by jt13 »

Hello all,

My grandfather (86 y.o.) put small amounts money away from each paycheck into an insurance product (unknown type) for a number of years for the purposes of leaving his 3 grandkids a sum of cash as an inheritance/gift. Last year he converted whatever type of policy/annuity/savings he had for us into 3 separate whole life policies. These whole life insurance policies were set up on us with my mother as the owner/recipient of death benefit as a temporary solution at the time with the intent to continue to pass them to the grandkids. The time has come to continue the process and we are having the policies transferred to us. I have read all I can about these policies and it seems like the best thing to do is to get rid of it, buy term life, and invest the rest either in retirement or as a down payment on a house. I have attached some portions of the policy.

Questions:

General impressions?
Explanation of "OPP RIDER"?
What are the tax implications of surrendering the policy?
Are there any benefits to keeping the policy in place?
Is there a benefit to removing most of the cash value but leaving enough to pay the premiums to keep the life insurance instead of getting term?
If I do as in the previous question, am I taxed on what I remove?
Any suggestions as to investing vs repaying debt?

Image

Basics:
30 y.o. male
Married- wife 27 y.o
Household income- $155,000 (95k hers/60k mine)
Savings- $45,000 cash/emergency fund + 15% of salaries go into our 401k/457b plans + my state defined benefit pension plan
Debt- $67,000 student debt @ 1.65% / $21,000 @ 0.9% car loan / $18,000 @ 3.9% car loan / Rent @ $700/mo
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David Jay
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Re: Gifted a Whole Life Insurance Policy

Post by David Jay »

In this case, the difference between the cash value ($34K) if you surrendered the policy versus the death benefit ($305K) is huge.

I would consider keeping the policy, as your grandfather is 86 years old. Also investigate whether the dividends ($28K+) can be used to pay the annual premium ($5410) for the next 5 years, meaning no cash out of your pocket during those 5 years.

There are no taxes on death benefits, so the $305,000 is free-and-clear.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Stinky
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Re: Gifted a Whole Life Insurance Policy

Post by Stinky »

Welcome to the Forum! Glad that you posted your question.

First, a basic question - who is the person insured by this policy, and who is the owner? It looks like you are the insured, and ownership is now being transferred from your mother to you. Is that correct? (If it is, I don't understand how Grandpa would have insurable interest to buy a policy on your life. But that's a question for another day.)

Here's what I read from the document provided. I was a senior financial person in the home office of a major life insurance company for my entire career, and I never heard of "OPP". That being said, here are the policy parameters as I understand them now:
--- Total death benefit - $305,169
--- Total surrender value - $33,915
--- Total annual premium - $5,410
--- Total taxable "gain" if the policy were surrendered right now - $7,595

It looks like assume that Grandpa has given you a gift of $33,915 less ordinary income taxes on $7,595 - so probably a little over $30,000. You could choose to monitize that gift right now, surrender the policy, and use the cash proceeds to whittle down some of your debt.

But if you keep that policy, you've got an additional annual premium obligation of $5,410, or right at $450 per month. That's what's necessary to keep this $305k death benefit policy in force. That's a heavy burden for a whole life policy that you didn't want and don't need.

I would advise you to (a) surrender the policy, and (b) purchase adequate term life insurance, if any is needed. If you and spouse are both working, and you don't have kiddos, then you may very well not need any term life insurance at this time. But if kiddos come along, and/or DW becomes a stay-at-home spouse, you should get term life insurance on you.

Please post back with questions. Especially, let me know that you're the insured person.
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David Jay
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Re: Gifted a Whole Life Insurance Policy

Post by David Jay »

Stinky wrote: Wed Jul 21, 2021 6:55 pmEspecially, let me know that you're the insured person.
I assumed that the Grandfather was the insured person.

If it is the poster, or his mother, then I withdraw the suggestion to keep the policy. In that case, cash out the policy, take the $33,914, pay taxes on $7595 of gains and you will end up with something over $32,000 free-and-clear. Nice gift!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Rex66
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

It has to be the younger person unless additional information is missing. At that age, the cash value for whole life (not universal) has to be closer to the death benefit.

Isn’t that a PUA rider?
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jt13
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Re: Gifted a Whole Life Insurance Policy

Post by jt13 »

David Jay wrote: Wed Jul 21, 2021 5:22 pm In this case, the difference between the cash value ($34K) if you surrendered the policy versus the death benefit ($305K) is huge.

I would consider keeping the policy, as your grandfather is 86 years old. Also investigate whether the dividends ($28K+) can be used to pay the annual premium ($5410) for the next 5 years, meaning no cash out of your pocket during those 5 years.

There are no taxes on death benefits, so the $305,000 is free-and-clear.
Sorry I wasn't clear enough. I am the insured person on this policy, not my grandfather.
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jt13
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Re: Gifted a Whole Life Insurance Policy

Post by jt13 »

Stinky wrote: Wed Jul 21, 2021 6:55 pm Welcome to the Forum! Glad that you posted your question.

First, a basic question - who is the person insured by this policy, and who is the owner? It looks like you are the insured, and ownership is now being transferred from your mother to you. Is that correct? (If it is, I don't understand how Grandpa would have insurable interest to buy a policy on your life. But that's a question for another day.)

Here's what I read from the document provided. I was a senior financial person in the home office of a major life insurance company for my entire career, and I never heard of "OPP". That being said, here are the policy parameters as I understand them now:
--- Total death benefit - $305,169
--- Total surrender value - $33,915
--- Total annual premium - $5,410
--- Total taxable "gain" if the policy were surrendered right now - $7,595

It looks like assume that Grandpa has given you a gift of $33,915 less ordinary income taxes on $7,595 - so probably a little over $30,000. You could choose to monitize that gift right now, surrender the policy, and use the cash proceeds to whittle down some of your debt.

But if you keep that policy, you've got an additional annual premium obligation of $5,410, or right at $450 per month. That's what's necessary to keep this $305k death benefit policy in force. That's a heavy burden for a whole life policy that you didn't want and don't need.

I would advise you to (a) surrender the policy, and (b) purchase adequate term life insurance, if any is needed. If you and spouse are both working, and you don't have kiddos, then you may very well not need any term life insurance at this time. But if kiddos come along, and/or DW becomes a stay-at-home spouse, you should get term life insurance on you.

Please post back with questions. Especially, let me know that you're the insured person.
Yes, I am the insured person.

A question for you:
If one were to keep the policy, what percentage of the paid premiums go towards the cash value? (I think thats how it works, right?)
Rex66
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

Request an inforce illustration

Post it and we can explain your options

If you did want to keep this, pay premium yearly and not monthly bc they charge you for that.

Also ask for an illustration using your rider with maximum funding to just below mec levels with dividend set to buying paid up additions. This will require more premium but would build cash value faster

Likely going forward your return is around3.5%-4.5%. Again that’s going forward in cash value. That would be tax deferred. Death benefits are tax free IF you keep it until death.

Most people dump these by the way.
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Stinky
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Re: Gifted a Whole Life Insurance Policy

Post by Stinky »

jt13 wrote: Wed Jul 21, 2021 8:14 pm
A question for you:
If one were to keep the policy, what percentage of the paid premiums go towards the cash value? (I think thats how it works, right?)
You would ask the insurance company for an "inforce illustration". That will be a projection of future cash values and death benefits based on the current dividend scale of the company.

The amount of the paid premiums going to the cash value is not fixed. It varies year by year.

In order to find the "return" on the "investment" (which is the cash value), you would determine the increase in cash value during a policy year, subtract the premium paid, and divide that answer by the beginning of year cash value. Many policies that have been in force for decades or more will have a return in the 3-5% range. But your policy is pretty new, so the "return on investment" might be lower, or even negative, for the next few policy years.

The only way to answer your question is to get an inforce illustration. You can request that from the agent or directly from the company.

If you want help in working through the numbers once you have the inforce illustration, post back with the information.
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7eight9
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Re: Gifted a Whole Life Insurance Policy

Post by 7eight9 »

Option to Purchase Paid-Up Additions Rider
A rider which allows you to increase your death benefit protection and build more cash value. OPP premiums are used to purchase additional, paid-up life insurance that has cash value and loan value, and is eligible for dividends. Please see your contract for specific details.
https://www.newyorklife.com/articles/glossary#o
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Stinky
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Re: Gifted a Whole Life Insurance Policy

Post by Stinky »

With all due respect, I would never advise my child, who has over $100k in debt and less than $50k in savings, to take on an additional premium obligation of $5,400 per year for a whole life policy that my child doesn’t need.

Especially when the alternative is to get over $30k in cash which could pay down a lot of debt.

Sorry if I’m sounding blunt.
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Nate79
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Re: Gifted a Whole Life Insurance Policy

Post by Nate79 »

Get term insurance in place then cancel the WL insurance which will help dig out of your deep debt
hole (besides it's a horrible product).
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Nestegg_User
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Re: Gifted a Whole Life Insurance Policy

Post by Nestegg_User »

agree Stinky

OP - - - cash in policy ( cash surrender value less cost basis is low, ~$7k, so shouldn't result in much tax given the numbers you cited)

I'd say pay off the car @3.9% interest, dump another $5k into emergency fund, and any remaining to the student loans
Rex66
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

Well the rate of return might be greater than the interest on his debt

Absolutely I’d never recommend buying one but if the rate of return is higher than the interest and there is a death benefit, then at this point it’s ok
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Stinky
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Re: Gifted a Whole Life Insurance Policy

Post by Stinky »

One other possibility occurs to me.

Sometimes in situations of a parent or grandparent purchasing a whole life policy on a child, there is a reluctance to immediately surrender, because “it might hurt grandpa’s feelings to surrender the policy”.

It may that this policy could be converted to paid up status, which means that no more premium payments would be due. This would have the effect of reducing the death benefit, freezing the policy, and maintaining the current surrender value, with slow growth in the surrender value and death benefit in the future.

In this case, the death benefit would probably be about $180k, and the surrender value would remain at about $34k. Both would grow slowly in the future. The policy could be surrendered at any time.

If you were interested in this option, the insurance company could provide you with an illustration on a “paid up” basis.
Rex66 wrote: Wed Jul 21, 2021 9:48 pm if the rate of return is higher than the interest and there is a death benefit, then at this point it’s ok
I believe that it would be borderline irresponsible for OP to take on an obligation to pay $5400 per year for a whole life policy which he doesn’t need, while he remains deeply in debt. In my view, OP’s free cash flow should be directed to paying down debt, rather than to purchasing whole life whose return might be marginally higher than the interest rate on the debt. My two cents.
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Rex66
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

That’s fine but OP uses 15% for savings so it could be that the OP has a different view on very low interest debt.
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galawdawg
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Re: Gifted a Whole Life Insurance Policy

Post by galawdawg »

Stinky wrote: Thu Jul 22, 2021 4:52 am One other possibility occurs to me.

Sometimes in situations of a parent or grandparent purchasing a whole life policy on a child, there is a reluctance to immediately surrender, because “it might hurt grandpa’s feelings to surrender the policy”.

It may that this policy could be converted to paid up status, which means that no more premium payments would be due. This would have the effect of reducing the death benefit, freezing the policy, and maintaining the current surrender value, with slow growth in the surrender value and death benefit in the future.

In this case, the death benefit would probably be about $180k, and the surrender value would remain at about $34k. Both would grow slowly in the future. The policy could be surrendered at any time.

If you were interested in this option, the insurance company could provide you with an illustration on a “paid up” basis.
Rex66 wrote: Wed Jul 21, 2021 9:48 pm if the rate of return is higher than the interest and there is a death benefit, then at this point it’s ok
I believe that it would be borderline irresponsible for OP to take on an obligation to pay $5400 per year for a whole life policy which he doesn’t need, while he remains deeply in debt. In my view, OP’s free cash flow should be directed to paying down debt, rather than to purchasing whole life whose return might be marginally higher than the interest rate on the debt. My two cents.
Agree. Look into converting the policy to "paid up" status. If that is possible, then keeping the policy at this time is a viable option. You can always surrender it down the road without having paid more in premiums.

Otherwise, having a lifetime expense of $5,400/yr added to your current expenses is not a wise approach. In that case, surrender the policy and use the proceeds to payoff your 3.9% car loan and invest the remainder. Then you can consider a term policy and/or a policy available as an employee benefit for your life insurance needs.
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Re: Gifted a Whole Life Insurance Policy

Post by afan »

Agree and it does not require Stinky's knowledge of insurance to see why. The argument for keeping an old WL policy when the guaranteed rate of return is higher than current low market interest rates starts with the assumptions of low debt and ample liquidity to pay the premium. Here, neither is the case.

This is an early career couple with debts and no kids.

They might need life insurance to protect each other- depends on financial information not included here. But it would be absolutely wrong to pay that high premium for the policy. EVEN IF IT HAD A HIGH RETURN. OP needs to pay down debt and accumulate liquid savings, not build cash value in a life insurance policy.
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Re: Gifted a Whole Life Insurance Policy

Post by Litfury »

Your grandfather is very thoughtful for leaving you all this, thinking of the future etc. that being said. I agree to cash it out. Unfortunately whole life policies are just awful.

I would be interested to know what the gift would have been if grandfather had just invested into a brokerage account or almost any other investment vehicle. It’s too bad he fell prey to a con artist (whole life salesman). Anyone reading this should steer clear of whole life policies, for themselves or as future gifts to others.
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Re: Gifted a Whole Life Insurance Policy

Post by galawdawg »

Litfury wrote: Thu Jul 22, 2021 5:40 am Your grandfather is very thoughtful for leaving you all this, thinking of the future etc. that being said. I agree to cash it out. Unfortunately whole life policies are just awful.

I would be interested to know what the gift would have been if grandfather had just invested into a brokerage account or almost any other investment vehicle. It’s too bad he fell prey to a con artist (whole life salesman). Anyone reading this should steer clear of whole life policies, for themselves or as future gifts to others.
If OP's grandfather invested $450/mo in VTSAX for OP beginning when OP was ten (10) years old, that portfolio would have a balance now of about $371k. If OP's grandfather invested the same $450/mo in VFINX beginning at OP's birth, the portfolio would now be worth over $1 million.

Of course, we don't know the details of how OP's grandfather structured this gift, which is thoughtful and generous even though it was a poor investment vehicle, so the actual results could have varied significantly.
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

afan wrote: Thu Jul 22, 2021 5:37 am Agree and it does not require Stinky's knowledge of insurance to see why. The argument for keeping an old WL policy when the guaranteed rate of return is higher than current low market interest rates starts with the assumptions of low debt and ample liquidity to pay the premium. Here, neither is the case.

This is an early career couple with debts and no kids.

They might need life insurance to protect each other- depends on financial information not included here. But it would be absolutely wrong to pay that high premium for the policy. EVEN IF IT HAD A HIGH RETURN. OP needs to pay down debt and accumulate liquid savings, not build cash value in a life insurance policy.
I’m no fan of WL but the math is the math and then there is the death benefit on top of it. Getting an inforce illustration is good for his education if nothing else
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jt13
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Re: Gifted a Whole Life Insurance Policy

Post by jt13 »

Stinky wrote: Thu Jul 22, 2021 4:52 am One other possibility occurs to me.

Sometimes in situations of a parent or grandparent purchasing a whole life policy on a child, there is a reluctance to immediately surrender, because “it might hurt grandpa’s feelings to surrender the policy”.

It may that this policy could be converted to paid up status, which means that no more premium payments would be due. This would have the effect of reducing the death benefit, freezing the policy, and maintaining the current surrender value, with slow growth in the surrender value and death benefit in the future.
Along with obtaining an inforce illustration, this is something that I will look into before pulling the trigger on anything.
afan wrote: Thu Jul 22, 2021 5:37 am This is an early career couple with debts and no kids.

They might need life insurance to protect each other- depends on financial information not included here. But it would be absolutely wrong to pay that high premium for the policy. EVEN IF IT HAD A HIGH RETURN. OP needs to pay down debt and accumulate liquid savings, not build cash value in a life insurance policy.
Yes, early careers and no kids. Ill add some more details if that helps.

Life/debt: In 2014 my career started (law enforcement) and kept us afloat until my wife finished her physicians assistant graduate program in late 2017. She had about $120k in private student loan debt at 5.15% interest which we have paid down and recently refinanced to the $67k @ 1.65% mentioned above. By late 2018, we eliminated all the credit card personal loan debt we accumulated from 2014-2017 which was about $12k. No credit card, personal loan, or high interest debt since then. In 2019, my 14yr old truck died and I purchased a replacement ($18k @ 3.9% loan). In 2021, my wife's 8yr old SUV met the same fate and was replaced ($21K @ 0.9% loan). We have high hopes that they will last even longer than the vehicles they replaced and plan on keeping them for the long haul. Only other debt that I haven't bothered to mention is my federal student loans which are enrolled in the PSLF program and will be forgiven in Oct-24 when I hit the 120 on-time minimum payment mark (+/-$250 mo.) which has no benefit to paying early or extra, we just have to ride that one out.

Retirement: I have a defined benefit pension plan that I will be eligible for at 55y.o. that will pay approximately 75% of my 3 year high-average salary and a 457b plan. My pension contributions are %6.25 and will be fully vested in March of 24' and I started 457b contributions in late 2019 @ 15%. In the pension and 457b plan there is about $45k total accumulated. My wife has a standard 401k though her employer and has been contributing %11 + 4% match since late 2017, approx. $50k total.

Savings: We have $45k cash/emergency fund in a savings account that we have accrued over the last 3.5yrs. We roughly planned on keeping half as emergency savings and using the other half as down payment on a house when that time comes. We have always rented and have been at the same location since 2017, our rent ($700) is low for what were getting and like where we are at. The cash value from the whole life policy would be spent on either paying debt or using for a higher downpayment on a house.

Insurance: My wife and I both have group policies through our respective employers, approximately $150k each. The premium on my policy is currently $79/year but is tied to our employment and premiums will increase with age and time.
Litfury wrote: Thu Jul 22, 2021 5:40 am I would be interested to know what the gift would have been if grandfather had just invested into a brokerage account or almost any other investment vehicle. It’s too bad he fell prey to a con artist (whole life salesman). Anyone reading this should steer clear of whole life policies, for themselves or as future gifts to others.
He treats the guy like he is his financial advisor and not an insurance salesman. I cant even imagine all the money that he has lost, I believe that all of his savings and retirement is through insurance products and has been so for about 10 years.

I come from a generally financially illiterate people. My family members have lost a home to foreclosure, pulled all their money out of the market at rock-bottom and never bought back in, cashed in 401k's to buy a camper and a jet-ski, ruined credit scores by ignoring debt for years, pay every bill late, etc. I am trying to get on the right track before I am doomed to follow the same path. My grandfather is a saint and we are extremely grateful for all that he has given us. His family has and will always come first.
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Stinky
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Re: Gifted a Whole Life Insurance Policy

Post by Stinky »

jt13 wrote: Thu Jul 22, 2021 9:10 am
Stinky wrote: Thu Jul 22, 2021 4:52 am One other possibility occurs to me.

Sometimes in situations of a parent or grandparent purchasing a whole life policy on a child, there is a reluctance to immediately surrender, because “it might hurt grandpa’s feelings to surrender the policy”.

It may that this policy could be converted to paid up status, which means that no more premium payments would be due. This would have the effect of reducing the death benefit, freezing the policy, and maintaining the current surrender value, with slow growth in the surrender value and death benefit in the future.
Along with obtaining an inforce illustration, this is something that I will look into before pulling the trigger on anything.
afan wrote: Thu Jul 22, 2021 5:37 am This is an early career couple with debts and no kids.

They might need life insurance to protect each other- depends on financial information not included here. But it would be absolutely wrong to pay that high premium for the policy. EVEN IF IT HAD A HIGH RETURN. OP needs to pay down debt and accumulate liquid savings, not build cash value in a life insurance policy.
Yes, early careers and no kids. Ill add some more details if that helps.

Life/debt: In 2014 my career started (law enforcement) and kept us afloat until my wife finished her physicians assistant graduate program in late 2017. She had about $120k in private student loan debt at 5.15% interest which we have paid down and recently refinanced to the $67k @ 1.65% mentioned above. By late 2018, we eliminated all the credit card personal loan debt we accumulated from 2014-2017 which was about $12k. No credit card, personal loan, or high interest debt since then. In 2019, my 14yr old truck died and I purchased a replacement ($18k @ 3.9% loan). In 2021, my wife's 8yr old SUV met the same fate and was replaced ($21K @ 0.9% loan). We have high hopes that they will last even longer than the vehicles they replaced and plan on keeping them for the long haul. Only other debt that I haven't bothered to mention is my federal student loans which are enrolled in the PSLF program and will be forgiven in Oct-24 when I hit the 120 on-time minimum payment mark (+/-$250 mo.) which has no benefit to paying early or extra, we just have to ride that one out.

Retirement: I have a defined benefit pension plan that I will be eligible for at 55y.o. that will pay approximately 75% of my 3 year high-average salary and a 457b plan. My pension contributions are %6.25 and will be fully vested in March of 24' and I started 457b contributions in late 2019 @ 15%. In the pension and 457b plan there is about $45k total accumulated. My wife has a standard 401k though her employer and has been contributing %11 + 4% match since late 2017, approx. $50k total.

Savings: We have $45k cash/emergency fund in a savings account that we have accrued over the last 3.5yrs. We roughly planned on keeping half as emergency savings and using the other half as down payment on a house when that time comes. We have always rented and have been at the same location since 2017, our rent ($700) is low for what were getting and like where we are at. The cash value from the whole life policy would be spent on either paying debt or using for a higher downpayment on a house.

Insurance: My wife and I both have group policies through our respective employers, approximately $150k each. The premium on my policy is currently $79/year but is tied to our employment and premiums will increase with age and time.
Litfury wrote: Thu Jul 22, 2021 5:40 am I would be interested to know what the gift would have been if grandfather had just invested into a brokerage account or almost any other investment vehicle. It’s too bad he fell prey to a con artist (whole life salesman). Anyone reading this should steer clear of whole life policies, for themselves or as future gifts to others.
He treats the guy like he is his financial advisor and not an insurance salesman. I cant even imagine all the money that he has lost, I believe that all of his savings and retirement is through insurance products and has been so for about 10 years.

I come from a generally financially illiterate people. My family members have lost a home to foreclosure, pulled all their money out of the market at rock-bottom and never bought back in, cashed in 401k's to buy a camper and a jet-ski, ruined credit scores by ignoring debt for years, pay every bill late, etc. I am trying to get on the right track before I am doomed to follow the same path. My grandfather is a saint and we are extremely grateful for all that he has given us. His family has and will always come first.
Thank you for the additional information.

It sounds like you have an excellent handle on your financial situation. If you continue to follow your plan, you will be on a FAR better track than your relatives who have done foolish things with their money.

In my view, your workplace life insurance is adequate for your current needs. You can reassess this if kiddos come on the scene.

I think that your plan to use the proceeds of the life insurance surrender value to pay down debt or boost a house down payment is excellent. Based on what you posted, the only reason you should keep the policy is if surrendering it would offend your grandpa, whom you clearly respect and adore.

Please post back as you move through your decision process on the life insurance.

Best to you.
It's a GREAT day to be alive! - Travis Tritt
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David Jay
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Re: Gifted a Whole Life Insurance Policy

Post by David Jay »

jt13 wrote: Thu Jul 22, 2021 9:10 amI am trying to get on the right track before I am doomed to follow the same path.
Great attitude.

Here are what I consider to be the ultra-basics:
1. LBYM (live below your means) - spend less than you take home
2. Pay off consumer debt (everything but a mortgage) - this is where the insurance policy cash-out will be a big boost
3. Establish an emergency fund (so you don't use consumer debt for every little surprise)
4. Pay cash for all lifestyle upgrades - this includes cars. If you have to borrow for a lifestyle upgrade, you can't afford it.
5. Save 20% of your income. Work up to this level by saving 50% of every increase in salary (raise or COLA).
6. Invest your savings in a Boglehead manner: Utilize tax-advantaged accounts, keep your portfolio simple and low cost.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Rex66
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Re: Gifted a Whole Life Insurance Policy

Post by Rex66 »

Once you get the illustrations especially using the rider, you might find that putting the emergency money there will produce a much higher return than you current savings vehicle.

Given your combined income, you can be fine with any choice frankly.

The problem with changing to paid up status is that it then negates the paid up addition rider.
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