OT universal life insurance at 72 years old

[CSTRider]

Taxes aside for the moment (not enough info provided to consider), if the policy has a $150K cash value and a death benefit of $250K, then the way i see it, you're paying $4500 a year for a $100K death benefit.

If i had no debt to worry my loved ones after i'm gone, no immediately worrisome health issues, and a healthy lifestyle, i could probably think of a couple of other fun things to spend $375 a month on besides insurance.

[Ralph]

In addition to what I said above.....if me....and I wanted some cash out, and also wanted to stop the annual $4500 premium payment, I would probably not close the policy down...so as to avoid paying taxes on the gain in value.

Instead....would keep the policy in force....borrow out about 75-80% (interest rate spelled out in policy....but usually .5 to .75 % annualized...which is just added to loan....you don't write a check), which would be tax free because you haven't closed down the policy and loans are tax free, and leave enough cash value in policy to cover the annual premiums.

So.....you would have no premium payments, have most of your cash out, and still have a death benefit remaining of $250,000 minus the loan.

This is how you always get money out of a life insurance policy tax free. Never close one down.

Double check all this with the agent....to make sure this is the kind of policy you have. And go over with him the max amount he thinks you could borrow out, and leave enough behind to cover the annual payments. You don't want to borrow out so much it can't sustain itself and all proceeds to you then become taxable. A 1099 will show up in the mail. He can do an illustration of this for next 20 years, etc.

You can argue about whether or not life insurance is worth it or not, etc.....but almost always......if you have paid on one a long time....it's almost always in your best interest to keep it in force....even if you have borrowed all the money out. As said above...closing it down makes a big wind fall to insurance company. Money that can be yours and your heirs.

[GPrince]

I'm an economist and this seems to be a good policy. Assuming you use a discount rate of 4.5%, and the premiums do not increase over time and are maintained at this amount forever, then the breakeven for this policy is death at age 100. Before that you are better off. For example, if you die at 75, then you have paid out a PV of 12k and received a PV in benefits of 209k. I'm happy to send you the very simple spreadsheet I used to compute this. At age 100 the PV of the benefit is 69k while the PV of the payments is 70k. But again your discount rate might be different.

You might want to go to an insurance web site and compute your life expectancy (they ask some health questions so that gets at the cyclists part).

I'd didn't include taxes in this analysis but payouts are not taxed while premiums are after-tax income.

[benb]

Isn't this one of those life insurance plans with an annuity type investment plan glued onto the side of it?

That was my understanding of what "universal life" usually meant, and it also meant that they often keep your investment portion if you close the policy before it comes due.

That means something pretty different at 72 but at 72 you'd think you'd be cashing out/starting to take the annuity payments. When does the OPs policy mature?

I got a hard sell on universal life in my 20s before I was even married and eventually said "No Thanks". I have an $800k 30 year term policy for $600/yr that expires when I'm 65. I expect to have absolutely no need for life insurance after it expires.

[Idris Icabod]

I'm a complete novice when it comes to this but could you offer the premium payment to your children (assuming they are the beneficiaries)? It is a bit macabre but at $4,500 per year that pays out $250,000, if you do pass on in the next 55 years then they are ahead?

[mbrtool]

Thanks for all the replies. One thing I have to make clear the cash out is only $150.00. I had a straight term insurance policy until my 66th birthday which was very affordable but NY Life pushed me into the universal policy I currently have.

Ray

[Ralph]

Then I would probably let it go.

[sipmeister]

Insurance

[Ken Robb]

Originally Posted by Ralph

In addition to what I said above.....if me....and I wanted some cash out, and also wanted to stop the annual $4500 premium payment, I would probably not close the policy down...so as to avoid paying taxes on the gain in value.

Instead....would keep the policy in force....borrow out about 75-80% (interest rate spelled out in policy....but usually .5 to .75 % annualized...which is just added to loan....you don't write a check), which would be tax free because you haven't closed down the policy and loans are tax free, and leave enough cash value in policy to cover the annual premiums.

So.....you would have no premium payments, have most of your cash out, and still have a death benefit remaining of $250,000 minus the loan.

This is how you always get money out of a life insurance policy tax free. Never close one down.

Double check all this with the agent....to make sure this is the kind of policy you have. And go over with him the max amount he thinks you could borrow out, and leave enough behind to cover the annual payments. You don't want to borrow out so much it can't sustain itself and all proceeds to you then become taxable. A 1099 will show up in the mail. He can do an illustration of this for next 20 years, etc.

You can argue about whether or not life insurance is worth it or not, etc.....but almost always......if you have paid on one a long time....it's almost always in your best interest to keep it in force....even if you have borrowed all the money out. As said above...closing it down makes a big wind fall to insurance company. Money that can be yours and your heirs.

As we all should know by now. Ralph is a sharp cookie.

[Ralph]

Originally Posted by Ken Robb

As we all should know by now. Ralph is a sharp cookie.

I was operating under the assumption he had $150,000 cash value, death benefit of $250,000, and a $4500 annual premium.

He cleared that up by saying his cash value is $150. In that case, and if he doesn't need insurance, and wants to stop the $4500 annual premium, he can just close it down. let it lapse in insurance terms.

However...as some one above said.....using an average life expectancy table.....and if the premium remained at $4500 annually (big if).....it might make a good investment for someone to continue the payments. He can transfer ownership to anyone who has an insurable interest in him (kids). And still remain the insured....and kids the owners and beneficiaries. And gift the kids the money to make the premium payments. But depending on the policy fine print.....insurance premium may be increasing as you age. Kinda forcing you to let policy lapse before they have to pay out death benefit (one of the way they get out of paying death benefits).

[Ralph]

And strange as it might sound......there might be someone out there..... an investor......who might buy from you the policy....and take over the premium payments. On average you will probably live about 14-15 more years. Might make someone a good investment.

Most of the sales costs of life insurance are front end loaded and have been paid already. That's why it's a good idea to think carefully before you let a policy lapse you have paid on a good while.

[Gummee]

Originally Posted by Ralph

I was operating under the assumption he had $150,000 cash value, death benefit of $250,000, and a $4500 annual premium.

He cleared that up by saying his cash value is $150. In that case, and if he doesn't need insurance, and wants to stop the $4500 annual premium, he can just close it down. let it lapse in insurance terms.

However...as some one above said.....using an average life expectancy table.....and if the premium remained at $4500 annually (big if).....it might make a good investment for someone to continue the payments. He can transfer ownership to anyone who has an insurable interest in him (kids). And still remain the insured....and kids the owners and beneficiaries. And gift the kids the money to make the premium payments. But depending on the policy fine print.....insurance premium may be increasing as you age. Kinda forcing you to let policy lapse before they have to pay out death benefit (one of the way they get out of paying death benefits).

Shouldn't be a big if. The premium payments are almost always level.

There should also be a 'minimum amount' needed to keep that policy in force, but doesn't add to the cash value so the annual premium could be less than the $4500 in the OP

...add to that the fact that our OP should have coverage till he's over 100... Things change over time and he may need the insurance.

Check to see if there's a Long Term Care coverage rider too. That's yet another important thing 'for the future.'

M

[Irishgirl]

Originally Posted by Ralph

And strange as it might sound......there might be someone out there..... an investor......who might buy from you the policy....and take over the premium payments. On average you will probably live about 14-15 more years. Might make someone a good investment.

I wasn’t sure if those organizations/investors still existed...certainly maybe something for the OP to look into.


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[summilux]

If your annual outlay is $4,500 for a $250K benefit, you'd have to live 55 more years for your estate to lose out. If you don't want to pay the premium, then ask your kids to do so. It's a winning investment for them.

[cmg]

Originally Posted by summilux

If your annual outlay is $4,500 for a $250K benefit, you'd have to live 55 more years for your estate to lose out. If you don't want to pay the premium, then ask your kids to do so. It's a winning investment for them.

sounds like a great who done it movie. Kids have someone offed for the insurance money. the better bet is the insurance company will never pay it. cash out, the policy has served it's purpose.