<p>Decades ago, my dad bought a universal life insurance policy. It appears that he stopped making payments around 2004, and the cash value has been covering the premiums. Now they’ve gotten a letter from the insurance company stating that the cash value remaining will not cover future premiums, and that he must begin paying again to continue the coverage. </p>
<p>Mom is in a panic and wants to immediately send the requested payment. She says that they’ve put all that money into it, and she doesn’t want to lose it after all this time. Dad is getting a little fuzzy and hasn’t really expressed an opinion, but he is the one who taught me that insurance is insurance, and investments are investments, and the two shouldn’t be mixed up. Personally, I’m a term-life girl, and re-upping this policy seems like throwing good money after bad.</p>
<p>Dad is 84 years old. His health isn’t terrific, but he’s stable and gets fabulous medical care, and he might well live another decade or more. Between their Social Security, pensions, long-term care benefits, and investments, they should be comfortable for the rest of their lives. They own no property and have no debt. Their portfolio is 100% liquid.</p>
<p>The death benefit on the policy is $40,000. The premium (“increased to cover the insurance costs,” according to a letter from the company) is about $4,000 annually. </p>
<p>I agree with you about not throwing good money after bad. Life insurance is a sore point for me. My father-in-law bought a policy on my mother-in-law’s life about four years ago. The death benefit is $675,000. Generous, right? But the yearly premiums are $30,000, and although my MIL is already 85 and has Alzheimer’s disease, her mother lived to age 101 with Alzheimer’s! This just doesn’t seem like a sustainable policy to me, and I think they should get out now, rather than wait however many years until they run out of money. Sigh.</p>
<p>Paying $4,000 a year for $40,000 of coverage seems nuts…especially for someone who really doesn’t need the coverage at his age to protect the financial security of someone he’s leaving behind.</p>
<p>Perhaps you can convince them to put the $4,000 a year into a separate account earmarked to pay for death expenses. At the end of a decade, they’ll have the $40,000 the policy would have paid off (plus interest) and no more “premiums.”</p>
<p>I’m 51 and am terminating my life insurance policy today. The premiums have risen to about 0.4% of the payout. I have twice as much life insurance from my employer (it’s much cheaper because life expectancies have been going up and the company is fairly young on average) and have many, many times the amount of the payout in savings and investments. Paying 10% premiums is nuts. An interesting exercise would be to see the total amount paid in premiums.</p>
<p>We’re older than BCEagle and cxled our term life policies after DS and step grand-S graduated college. Would have been nice to keep, as they were a reasonably generous amount that would have gone to them when the time comes.</p>
<p>However, stock market reversals etc and not really “needing” life insurance made the decision for us. We’ll end up spending their inheritance if we live long enough, but…after all, they did both get debt-free college educations courtesy of us.</p>
<p>The OP situation of $4k in premiums for a $40k policy seems absurd (except for the insurance company for whom it is a nice deal).</p>
<p>We have several policies on H & none on me. My brother (early 50s) just stopped life insurance on him & his wife as he figured the premiums were not justified & they have enough assets not to need it anyway.</p>
<p>We were thinking about what to do with H’s policies and are leaning toward just letting them be. One policy is paid up & sends us a dividend check every year. It has a significant cash value if we ever want to redeem it before H’s death. Another policy is with his employer & will drop to 25% of its face value if we don’t pay premiums on it after H retires (in the near future). We talked with an insurance agent and she looked at all our assets and recommended not to both with paying premiums on the policy to keep it at full face value but using those premiums on other things.</p>
<p>It occurs to me that life insurance companies are probably profiting mightily from older policy holders overpaying for policies that have no economic logic.</p>
<p>Naturally, when you are mid-80s, it would seem like a potentially winning bet to buy 40,000 of life insurance for $4,000. I’m not at all sure that is a fair rate, especially for someone who has paid in premiums over the years to what sounds like a whole life type policy. And, further, the insurance doesn’t make any economic sense unless some income or asset is lost on the death of the insured.</p>
<p>50 is the age where premiums really start to accelerate and that’s the decision time on whether or not you’ve accumulated enough assets to be able to terminate life insurance. Other factors are the mortgage and college tuition. If these are non-issues, then it is hard to justify escalating premiums.</p>
<p>Life insurance is supposed to cover expenses that loved ones need to pay after you’re gone. This policy doesn’t fit that criterion.</p>
<p>Seems to me your relatives just want to get the certain payout when they die, rather than looking upon this as financial protection for the survivors.</p>
<p>Actuarially speaking, an 84 year old man has an average life expectancy of about 6 years. So a 10% premium on a life insurance policy is not unreasonable. That premium will go up every year, too.</p>
<p>Does it make sense for an 84 year old man with no economic reason for needing life insurance, to have life insurance? Probably not.</p>
<p>DW and I got 30 year level premium term policies about 12 or 13 years ago. Cost is around 0.1% of the payout and is fixed until retirement, after which we really won’t need the insurance.</p>
<p>Thanks for all the input. I’m glad I’m not the only one who thinks it would be crazy to keep this policy in force.</p>
<p>I called the company today and learned: First, as several of you mentioned, the premium will increase every year, by who knows how much. Second, the $4K premium includes an 8.5% administrative fee. :eek: And third, it’s insurance and admin fee only; it doesn’t even create a cash value which might be paid to the survivor in addition to the death benefit. </p>
<p>The woman really didn’t try to sell me on keeping the policy. She asked if he has any debt that would need to be paid after his death (he doesn’t), and if he has enough to pay final expenses (he does). Then she said, “Wellllll, you know, he might not even need life insurance.” Duh!</p>
<p>Now I just have to convince Mom, who seems to think they would be walking away from invested money. <em>sigh</em></p>
Dad is getting a little fuzzy and hasn’t really expressed an opinion, but he is the one who taught me that insurance is insurance, and investments are investments, and the two shouldn’t be mixed up. Personally, I’m a term-life girl, and re-upping this policy seems like throwing good money after bad.</p>