<p>If you did- my daughter’s college is paid and the only bill we have besides day to day expenses is a mortgage. Still 29 years left but only $1000 a month. For reasons that make sense for my family I have whole life insurance and it now has decent cash value but I am wondering if I should free up the monthly payment by either cashing in the policy or just letting the dividend pay whatever it will cover.
My wife does not work but if I die she will receive about $50,000 a year plus whatever she could make working. Other assets would provide about $200,000 in cash.
That $50000 would grow about $3000 a year for the next 3 years so if I passed 3 years from now she would get about $60k every year.</p>
<p>Like any middle class family we can make the insurance payment but dropping the policy frees up about $250 per month and if we cashed in the policies we would get about $60k in cash. We would have to pay some tax but we could cash some in 2010 and the balance in 2011 to mitigate some of the tax bite.
Has anyone had to make this decision and if you did what factors helped you decide?</p>
<p>It is kind of morbid posting this type of question.</p>
<p>We haven’t dropped ours yet, but probably will when our boys finish college. My husband and I both work, but his salary is much larger than mine, so his concern was always that the boys and I would be okay should he pass. We have saved money in our retirement accounts and have home equity. We want our retirement accounts at a certain amount before we cancel our policy, but we should be there by the time college is done. He also has a smaller policy through work that we will still have after we cancel our policy.</p>
<p>It doesn’t make sense to have whole life insurance, with a large CV, especially if the return isn’t great. I would cash out and get a term life if you think it’s necessary.</p>
<p>I got whole life very young, very inexpensive. When I realized that I did not need that expense, or that type of coverage, it was already worth alot of money. So I no longer pay premiums, and let the dividends pay for the premiums. There is enough left over that I continue to gain cash value. I actually have more than one policy. I have loans on one, and even then the dividends cover the premium, the interest, and what is left goes to repay the loan balance. And that one still increases in value. Given the market the last few years, I have left them alone and not cashed out. Since I still need coverage, it works for me.</p>
<p>I can’t tell you how many folks have said I was stupid for getting whole life. But many of those same folks do NOT have money in anything that is worth what my cash value is worth. Northwestern Mutual has been good to me. I grew up in a lower middle class family. I got through school on merit money and loans. My husband got through on loans. We did not have money to burn. But to be honest, the whole life payments forced us to save–errr put away money. At the time I didn’t know any better about whole life, and family had no knowledge to help advise me. Then when I finally had a real job after internship and residency, I immediately started a pension plan. Putting away money young in the way I did worked out for us. We don’t have stocks or bonds etc outside of pension money. But we have a hefty pension plan that is diversified, whole life, prepaid tuition plans and a 529’s. And I think we did OK. And my pension money ALL CAME OUT OF MY POCKET. Being self employed for a lifetime, any matching money was still my money. Am I wealthy, not by most standards. I also drive a 7 year old Volkswagen Beetle. But a little ignorance and a desire to save has worked out well. Now that I have an advisor, he says keep the life insurance. My kids are not out of school, my mortgage has 10 years, and my policies are doing quite well, thank you.</p>
<p>I have NWML also. Once I was married I realized very quickly my wife was very responsible paying bills but not so much saving money. I could never convince her that we should treat saving as a bill payment. I made the decision to force savings into whole life, a 529 plan , savings bonds and every retirement vehicle I could before it went in my paycheck. My cash accounts would be considered woefully inadequate by most financial planners but good credit and other means allow me to sleep at night with the way our finances are structured.</p>
<p>You would leave the CV if you think insurance company is doing a better job investing than you could get else where. Most WL policies have hefty commission upfront, and ongoing administrative fees, whereas a lot of mutual funds do not charge a fee. I generally do not like to mix things. If I am interested in return on investment, I try to go to firms that do it full time and have the best strategy. If I am looking for life insurance, I try to find the cheapest and the best rated company.</p>
<p>oldfort- I agree with you but as sunny and I have posted there are some issues that change the best of plans.
The change in my investing and savings style had to take into consideration the cost of divorce or lifelong arguments over money.</p>
<p>My wife has many wonderful qualities the fact that her saving style does not match mine meant I needed to find an alternative route to get where we needed to be. I think we will make it.</p>
<p>One consideration would be your pension/retirement; if you have access to some sort of monthly benefit that would pay out more if it were for your life only, rather than joint, then keeping that life insurance for your lifetime could provide a higher payout on your pension with the insurance to pick up the slack… For example, SS pays each of you a benefit, but once the first spouse dies the smaller benefit disappears.</p>
<p>I have both term and whole life policies; I could cash them in some day or keep them for life. I’ll decide later, but I’ve had RE & stock investments, too and I am not unimpressed with the steady small growth in CV. I do try to pay the premiums most years, but we have skipped some over these education expense years and the policies are still plugging along.</p>
<p>We had a pension rollover amount in the 1980s and it has been in the market all along, ups & downs and I am NOT impressed with the market dynamic; not to say that a visionary person could not have been in & out of the right stocks at the right time and have done far better than I did, but still, seeing the people who bought solid lifetime policies in the 1980s, I am impressed with how some of them have worked out. Of course the ones pre-1987 tax act have been much more amazing.</p>
<p>Last month I let my 20 year term ($27/mn -$100K coverage) go to renewable 10 yr term. ($21/mn -$15K). We really don’t have a need for the LI other than LI is outside of our estate and does not have to go thru an executor, wills have been inplace for 30 yrs. </p>
<p>Alternatives to your CV ins is an annuity. A lot of tax benefit$$ to this, among which the annuity tax value is the total of the payments you made into the CV ins. {$250/mn x 12 x N yrs} not the current CV (according to my accountant).</p>
<p>Tom1944, Lucky you didn’t die. Your W, would be so P***ed when she will discover that she could’ve had 3-6 times more insurance proceeds than the CV insurance.</p>
<p>Tom1944, don’t know how old you and your wife are, but if something happens to you before she is eligible for Medicare, you’ve got to assume a portion of the proceeds will be going to pat for health insurance. Non-trivial!</p>
<p>DH has a large term policy and has thought about reducing it once the kids are out of college. Problem is, if he goes first, I am left paying big bucks for good health insurance, and that’s non-negotiable since I have ongoing medical/pharma bills of ~$80k/year. I would need to hit principal on the life insurance proceeds for that. I also have a good-sized term policy and am keeping that since the rates are good and I’m uninsurable.</p>
<p>Actuarial deductions on a pre-retirement survivor benefit mean that I won’t get much from DH’s pension if something happened to him before he qualified for at least early retirement. </p>
<p>I’m thinking that he needs to keep the term covg at least til he’s 55.</p>
<p>We have always done saving as an automatic transaction like the bills – whether it’s the 401(k), direct deposit to a mutual fund, etc. – it’s a lot easier to live on what’s left of one’s paycheck if part of it never comes in the house to begin with.</p>
<p>Countingdown- we have the exact situation you describe. My wife has health issues and would lose HC should I die first. Her coverage is through my plan.</p>
<p>If you own your home free and clear, and your wife has a pension, and you have a lot of savings…then maybe it would be okay to drop your policy. But right now, your wife’s financial position would not be good if you were to die. The home is not free and clear, and your wife might not be able to get a job, let alone one with good health insurance.</p>