Whole Life Insurance – keep or cash out and invest
Hello Terry,
I listen to you each week on WGN Radio. I’m 71 yrs old retired.
I am contacting you about a life insurance policy I have. It was originally issued as a Universal Life Policy with Lincoln Benefit Life, its being held by Allstate Insurance but that will likely change later this year.
Situation: policy issued 2003
-policy years 22
-benefit payment $500,000
-I purchased this policy thru my Allstate homeowner’s agent
-the original agent who wrote the policy for me is no longer with the company (he left over 10 yrs ago), the new agents who replaced the original agent were not overseeing the policy
-I’ve been paying in quarterly $1,060.80 x 4 payments/yr = $4,243 of payments/yr, these quarterly payments have been made for the past 22 yrs directly to Lincoln Benefit Life
-Recently I contacted Lincoln Benefit and I discovered my quarterly payments have not kept pace with the expenses of the policy. This happened because there was no agent keeping watch on the policy telling me to increase payments each year.
-According to Lincoln Benefit I need to increase the quarterly premium payments to $2,250 x 4 payments/yr for annual payments totaling $9,000/yr and pay this for 17 yrs to end of my 88th birthday for it to pay out as a death benefit of $500.000 (assuming I live to end of my 88th birthday)
-currently the policy is paying interest of 4%
-recent interest amount has been $2,548.36/qtr.
-paying the annual premiums of $9,000/yr for 17 yrs equals $153,000
-current surrender value is approx. $62,782.68
Question:
– should I keep the policy and pay the annual premiums at $9,000/yr for 17 yrs. (totaling $153,000 + interest) to my 88th birthday
-or should I cash out the policy to obtain a net surrender value of $62,782.68, and put that money into an interest bearing account, pay the quarterly amount of $2,250 (same as I would pay into the life insurance) for 17 yrs (approx. $153,000)
Terry Says
OMG — this is what is called a life insurance disaster! I wrote a column about it 8 years ago — and it describes your situation perfectly.
Please read this first: https://www.terrysavage.com/check-your-life-insurance-before-it-runs-out/
OK, now you know you’re not alone. I’m assuming — big assumption — that the NEED for the life insurance has now greatly diminished. That is, who is the beneficiary — and how badly will they need the money (vs. leaving your remaining savings to that person).
If, as I suspect, the need is no longer so great, you should take the cash out of the policy, and be very conservative about where you put the money.
BUT, there might also be an income tax bills that comes with the surrender! So be sure to ask what portion of the $62k would be considered taxable income. That wouldn’t change my decision — but it could impact your Medicare Part B and D premiums in coming years because of a one-time bump in taxable income. And you’d need to set some money aside for taxes.
