<p>My elderly parents are naive and susceptible to scams. Everyone they talk to is “so nice,” and my mom in particular doesn’t want to hurt people’s feelings. They’ve called me for advice about a life insurance policy. I am three hours away so can’t see the policy and am clueless.</p>
<p>Apparently decades ago, my father, as a favor to a friend, bought a $35K life insurance policy. Maturity date is May 10, 2023, when dad would be 94. They’ve been paying $100/month, and it seems to currently have a cash value of $28K. For some reason, my mom decided to contact the widow of the man who sold them the policy. She is now a real estate agent and has never had much of anything to do with the business, but still has her dh’s records. She has told them (if they are explaining this correctly to me) that they have so much cash value built up that they can get the company to start paying the $100 monthly premium out of their cash value. Sounds like a good idea to my parents, but I’m wondering what the catch is. The woman says she has a $100K policy and had done the same – paying the premium out of the cash value. However, she wants my parents to call the company directly rather than have her be the go-between.</p>
<p>Anyone with insurance experience who can give me some advice or even some questions to ask this woman when I call her? My parents have money here and there and, between my dad’s military retirement and pension from his post-military job and what mom gets from Social Security, etc, their monthly income is about $4K. Their house is paid off, they are in pretty good health, they don’t need the money right now. However, would it be to their benefit to take the money and run? What penalties might be incurred? I’ve never heard of this insurance company, but it does have a website, regional offices, etc, so it seems on the up and up.</p>
<p>The wording my mom read me that worries me – and her – the most is “Based on the plan premium and contract guarantees, the policy terminates after 17 years and 11 months.” That was four years ago. What are they paying for now? I don’t get it at all.</p>
<p>Any guidance or thoughts would be appreciated.</p>
<p>What year was it issued?
Do you know the company?
Does it say “universal life” or “whole life”?</p>
<p>Universal life policies are something that pretty much began in the 1980s and are flexible interest based on market rates and flexible premiums. They should receive an annual stmt.</p>
<p>Part of your evaluation needs to be to determine whether they need/want the cash value or the death benefit more. Maybe they simply want to cash it in and use the $28k? Maybe they want to leave it there until death?</p>
<p>You really need to speak with an authority at the issuing company. My parents and DW’s parents each bought a $2000 policy on myself and DW respectively (probably both whole life) about the same time. One is now worth six times what the other is.</p>
<p>Any one with this situation can ask the company for a current in-force illustration- one based on continuing the planned premium and one based on not paying any additional premiums. The companies can usually fax or mail these to you in 2-6 weeks (depending on the company and the back up in that department) It is worth the wait to see all that info in writing</p>
<p>Talk to a exclusive term insurance agent.
Your parents policy was very common in the late 70s-80’s. There are a lot of gotcha’s but a few good features.</p>
<p>Your parents must contact the company. There are probably two alternative pay out plans - paying the premium out of cash value would likely lessen the ultimate payout, and continuing to pay premiums might provide a higher benefit in the event of death before age 94. The one benefit of life insurance paid at death is that currently the proceeds are not taxable. If there is a chance of estate taxes, this can be helpful. You have to have a substantial assets for the tax to kick in, so this might not be an advantage at all. </p>
<p>I don’t remember whether A+ is the best rating, but the size of the policy is well within the guarantee limits for most states anyway. (you know- if the company goes out of business).</p>
<p>One thing to consider , on cashing in to consider is whether there are taxes due, and what they will invest in instead. If this is a tax free investment (or they pay little to no taxes anyway) it may be easy to replace. In a higher tax bracket not so easy in current markets. </p>
<p>I am not a fan in general of insurance policies (life, annuities, etc.) due to the low rates usually paid on these investments. In this climate, a good company with prospects to pay may not be a bad thing.</p>
<p>Our office has some clients from the 1980s for whom I do policy service and those things have worked really really well, better then my stock investments from the same time period; perhaps not quite as well as some RE investments, but more liquid</p>
<p>By the same token, I talk to people every month with 80s UL policies that are not performing as designed and those people are unhappy and some of them are now uninsurable :(</p>
<p>Take the money. Why do they need the insurance? Your parents are paying too much premium a month (cash value is 28 and insurance is 35), the premium is either building up more CV or buying additional insurance. What monthly payment is used for: 1) pay for the insurance premum, 2) what’s left over is put into the cashvalue. CV could be invested or just earn a certain interest. In a good market, CV could go up faster. You wouldn’t take out cashvalue too early in the life of policy because there is a certain penalty to cash out early. But after a certain period, if there is any penalty, it is very little. Most insurance agents get their commissions the first few years of the policy. Many people would rather take out term life insurance (instead of whole life or universal life) because there is no CV. Insurance agents earn more commissions on whole life.</p>
<p>If I wasn’t too clear, CV is like another savings acct for your parents. If they believe the insurance company is investing wisely for them, then stay put, but if their financial advsor could do better for them, then cash out. If I were them I would take the CV, have some fun with it.</p>
<p>Many, many years ago I was an actuarial student. Some of this stuff still comes back to me. Of course, the best thing is to consult their financial advisor, not the insurance company.</p>
<p>The woman who suggested to your parents to have the premiums paid out of cash value is telling you the same thing that most here are telling you: Contact the insurance company and ask them about the various options. It is likely that the insurance company will not give you any information because you are not the policy holder. Perhaps you can get on the phone at the same time with one of your parents.</p>
<p>Thank you, all. It’s so frustrating to be far away and not be on-site to help them. They’ve ended up with credit cards they didn’t want (I took care of that one) and paid hundreds of dollars to grifters for a new driveway; the work was shoddy, and I d idn’t know about it until too late.</p>
<p>My brother, who does live in the same town as my parents, got involved last night, calling a friend who sells insurance. That friend walked them through their options, and everyone better understands what their options and will act accordingly.</p>
<p>I’m the first and only one in the family who went to college, and dad seems to think I majored in everything. But this liberal arts girl is lost where insurance is involved.</p>