I am wondering if I should cash-in or keep some universal life policies that we have held for 30 years. The cash value is about $12,000 for each, and the face value is $100,000 for each. Given the annual insurance cost, these will use all the cash value up in 10 years, so keeping them would only cover us until we are 72 & 74 respectively, unless we anti up by increasing our premium payment. If they were held to to term we would have to pay $3,000 in annual premiums from age 72 to 90. Would term insurance be more economical? How much insurance should one keep in retirement? Our family is all grown up and quite independent financially, so for the two of us, what would be responsible. Our current IRA's and social security should provide for our living expenses, so why not take the money?
Why not have a couple of insurance brokers do some proposals for you on the cost and type of replacements available to you? I recommend using 3 or more so as to get something that you can compare.
Let's think first about what you want/ need from your life insurance policy. I'm assumming that you are both 62 and 64 respectively, since in ten years you would be 72 & 74. The cash value is some $24,000.00. You didn't state how much your policies cost per month now, but would suck dry the $24,00.00 over the next 10 years and you would be left with zero dollars the day after your policy runs out. Let's say that both policies are around $50.00-$100.00/ month, or an additional $6,000.00- $12,000.00 over the next ten years. Now, if you cash in these two policies at this time, you will keep $24,000.00 and not pay out an additional $6-12,000.00 over the next ten years. My wife and I purchased two whole life poilices about ten years ago when we were both 56. Both together, is approximately $280.00/ month. Or, about $3,400.00 as an annual preminum, much as you state above. But, you are stating above, starting at age 72 -90. That's an age difference of 16 years! I have priced term life insurance at todays rates, and they are about the same as what our whole life polices are now. Therefore, no difference. But, the term policies would run out with no renewal, at age 80. I'm assumming that at age 90, you cannot renew your's either, if you go to term. I'm kind of skeptical of the term premimum annual cost at age 72.
Now, let's look at the total picture that you have in front of you. If you go ahead as you suggest, at ages 72 & 74, you would have gone through some $36,000.00, $24,000 cash value now, plus $6-12,000.00 in additional annual policy costs. Then for 72 to 90 years of age 90, you will go through another $54,000.00; $3,000.00/ year for 18 years. That's $90,000.00 for $100,000.00 of coverage, if you don't died the day after your policy runs out and you are no longer covered, you will collect $0.00. Therefore, you must die before age 90 to come out ahead! If you take the $24,000.00 cash value today, and put the remaining policy monthly cost into a simple savings account, after the next 28 years, you will have your $100,000.00 and hopefully still be alive. The insurance companies are betting that you don't die before you turn 90. That way, they have your $100,000.00 and you get nothing.
So, what do you want to do? At this point in your lives, is everything paid for? Do you have money in savings? Do you have a house that's too big and you need to down-size into a smaller, less expensive home. Maybe you need to make a ten year plan, as to exactly where you might want to be in ten years. Really, you might want to move to a state where there isn't a state income tax. This could enhance your retirement life style, since you would keep that portion you are now paying state taxes where you live now. There are several states that don't require state income taxes. This is the time in your life that you need to look really hard into that looking glass and into both your lives. Are the kids, if any, gone, moved out of state, out of the county, etc. Are you holding onto the present house because they were born and raised there? Are you holding onto it for them or for you? This is what I'm asking you to do. PLEASE, don't get to a point in your lives where you are facing the possiblity of signing up your home with a reverse mortgage just to be able to make ends meet. Really, the $24,000.00 could make a really great down payment on a new retirement home. One that's located in a warmer climate, with no state income tax, etc.
Another thought, if and when only one of you passes away, would the one left behind, would they continue that one policy and, if you did, why? Something to talk and think about. It's best to plan while there are options, before there aren't any left.
Very thought provoking advice to consider. Thank you for your comments. They helped to give me some perspective on the effects of various options, especially the part about having to die before reaching age 90 in order to come out ahead! I think that I'm coming out ahead presently because premiums are now at $1,200 per year for both policies. Replacement policies would definitely be more monthly cash outlay, as comparable to working off the cash value. The real litmus test is whether our long term needs require insurance as a backstop, and whether investing the cash in another way can provide a better outcome. I think the insurance option wins out on both counts, and I will gladly trade $100,000 to live past 90.
I agree with LBS that you must consider why you have life insurance. For many of us it is to protect the surviving spouse from loss of income when the income earner dies. In this case, life insurance may become unnecessary once the income earner dies -- providing, of course, that you have sufficient funds saved for retirement in the first place.
My husband is fortunate to receive a pension for us to live on during retirement, and we have additional funds in our 403(b) plans plus my social security to supplement his pension. Should either of us die, the remaining spouse will have adequate income to live comfortably. What is of more concern to us is the likelihood that one or both of us will require long-term care at some point in our lives. Such an event could quickly wipe out our savings. (Average cost in Ohio at the moment is about $6,000/month for a nursing home, and in-home care is almost as expensive.) We took our long-term care insurance about five years ago. When my husband retired recently, we dropped our term life insurance (with the approval of our financial advisor) and put that money toward the cost of the long-term care insurance instead.
Since we took out the LTC insurance, I have attended a couple of informational sessions on long-term care and learned that there are some new hybrid insurance products that combine life insurance with an LTC provision. You may want to look into something like that. In any case the advice to consult an insurance broker is a good one. Everyone has different needs, and you need a knowledgeable person who can look at what is available and then present you with several options. Make your choice of the best policy you can afford, buy it, and don't second guess yourself. The longer you wait , the more it will cost.
Thank you for your comments regarding L T C insurance. It seems LTC hybrid policies can be both life insurance and LTC insurance. I will be exploring this more with a broker, to see if my existing policy (s) can be put to better use with this type of product. Although I am pretty sure we have enough financial assets for a surviving spouse to live comfortably, the potential cost of long term care could drain those assets significantly, making a surviving spouse's longevity more challenging. Investing in LTC insurance would be a good use of my old Life policies.
As you investigate LTC, I recommend you take a look at some resources on the community:
LTC - again...
The basics of long term care insurance
Understanding long-term care insurance benefit triggers
Re: Why keep Life insurance - does it pay to cash-in
I cashed in my whole life policy last year after having it for about 30 years. During the early years it served as a good protection for my family including our daughter. Now I have life insurance from my job, and our daughter has her graduate degree and a good job. The graduate degree was very expensive. After careful consideration, I decided to save myself the $grand per year for continuance of the policy, and put the cash value towards the principle of my daughter's graduate school loans. While I may not live past 90, there is no better time than now to help the next generation get out of school loan debt. Every little bit counts.
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