Is this too much for life insurance?

[NoTine42]

Even term rates go up massively when starting past 60

I don’t know if they are the best, but Nerdwallet showed a 70 y/o getting a 10 year Term $4M policy would be at least $32K/year. So the $38k rate for mid 70’s may not be too far off.

When I worked in insurance, i saw term policy’s normally had (2) rate charts. The nice affordable term they sold, and then the really expensive, continued annual renewal after that term expired. Most people cancel after the term, and don’t keep large amounts of insurance after retirement.

 

[monkeydelmagico]

Life insurance for old rich people is stupid. I would seriously question the credibility of their supposed estate planner.

 

[s0me0nesmind1]

Life insurance for old rich people is stupid. I would seriously question the credibility of their supposed estate planner.

This.

 

[Cozarkian]

Life insurance for old rich people is stupid. I would seriously question the credibility of their supposed estate planner.

An estate planner can only work with what he/she is give. Likely the lawyer told them it is a bad idea to have the entire estate tied up in non-liquid assets, but they refused to consider liquid investments because all they know is land and they refused other reasonable suggestions.

Given that, the lawyer probably advised that they at least take what cash they can spare in a year and buy life insurance so to at least help the heirs pay the estate tax without having to sell the property undervalue.

 

[monkeydelmagico]

Given that, the lawyer probably advised that they at least take what cash they can spare in a year and buy life insurance so to at least help the heirs pay the estate tax without having to sell the property undervalue.

Still seems unwise. Structure a loan against the assessed land value instead. That's only if they are really worried about passing and leaving their kiddies in the lurch on the taxes.

 

[Darwin333]

Yes, it does sound like having all of the estate tied up in land is going to be a problem. like dullard said there are fairly safe stock investments (S&P 500 index fund) that don't require hiring an investment manager and paying them 1% to make bad choices. It might also make sense to start selling some properties and converting to something even safer like bonds, CDs, or bond index funds. With bonds / CDs / index fund / ETF shares you can sell just enough to cover the estate taxes, and they are also easy to split up between several heirs.

The parents could also take some of the money and have fun with it, though I'm bad about that myself.

But again, I'm not a CPA or estate planner, just someone who's been investing for awhile.

I just automatically assumed that they weren't going to convince a 70 year old man who has evidently done very well in property so far and thinks that the property he now owns will see a 500%+ increase in the near future to sell it would be possible.

 

[DaveSimmons]

I just automatically assumed that they weren't going to convince a 70 year old man who has evidently done very well in property so far and thinks that the property he now owns will see a 500%+ increase in the near future to sell it would be possible.

Quite possibly. But if they have multiple properties and some of them have less chance for growth in value then selling 1 or 2 to move to cash and stocks would make settling the estate much easier on the heirs.

Selling in your own time on your own terms is likely to fetch a better price than being forced to sell immediately to pay the taxes.

 

[PowerEngineer]

I share the aversion to whole life insurance policies that other posters have already expressed. However, I am not facing a situation where my estate could be as much as $50M (and I doubt other posters are either). In their happy situation, it may in fact make perfect sense. I may have this wrong, but it sounds as if they are using the whole life policy as a means of accumulating the cash needed to pay the estate taxes on the property when they pass on. If I recall correctly, benefits paid out by life insurance policies are not taxable which may be one reason to make premium payments rather than invest the money in another way.

OP, your parents may be more financially savvy than you think. That said, it might be wise for you and the other beneficiaries to understand how these trusts are set up and who controls them.

My two cents...

 

[VirtualLarry]

Life insurance for old rich people is stupid. I would seriously question the credibility of their supposed estate planner.

How about not-rich older people, that barely have enough money to live on? (Living in elderly housing, subsidized.)

 

[monkeydelmagico]

If I recall correctly, benefits paid out by life insurance policies are not taxable which may be one reason to make premium payments rather than invest the money in another way.

Nope. If the estate is so large as to incur estate taxes the life insurance payout will be taxed as well.

How about not-rich older people, that barely have enough money to live on? (Living in elderly housing, subsidized.)

Depends. One common scenario is they don't want burial costs to burden children so they take out a life insurance policy. This may be foolish. In your case of a person who is receiving subsidies for their housing, they may qualify for state or VA burial assistance.

 

[tynopik]

Life insurance for old rich people is stupid. I would seriously question the credibility of their supposed estate planner.

not necessarily, whole life insurance can have it's place in certain (admittedly rare) situations

you have to think of it less as actual 'insurance' and more 'tax avoidance account'

you're not hoping to get more out than you put in, but rather to get back (most) of what you put in tax free

 

[monkeydelmagico]

not necessarily, whole life insurance can have it's place in certain (admittedly rare) situations

you have to think of it less as actual 'insurance' and more 'tax avoidance account'

you're not hoping to get more out than you put in, but rather to get back (most) of what you put in tax free

Agreed but it has to be done the right way. After the $5mil estate cap is exceeded all additional proceeds will be taxed. That would include the additional life insurance payout. The only way this scenario works is if the payout goes into a trust. Otherwise it increases the tax burden.

I still think it's foolish to pay exorbitant life insurance premiums when a loan against the assets does the same thing for far less money.

 

[Darwin333]

Quite possibly. But if they have multiple properties and some of them have less chance for growth in value then selling 1 or 2 to move to cash and stocks would make settling the estate much easier on the heirs.

Selling in your own time on your own terms is likely to fetch a better price than being forced to sell immediately to pay the taxes.

Oh I don't disagree with that one bit.

 

[manly]

I'd highly recommend that they get an estate lawyer to walk them through a plan. I'm not really sure how it works but if they truly think that property will be worth 5X as much when they pass it would be beneficial to transfer as much as they can to you before it appreciates in price. Maybe they can put it in a trust and then transfer a percentage of that below every year that is right at the yearly gift limit? Like I said, not sure how it works but that is why you need an estate lawyer.

Edit: There are plenty of legal "loopholes" for avoiding a decent amount of the estate tax but per the spirit of the law you'd owe over $10M in estate taxes on the beach property alone so $4M won't even begin to cover it.

Hiring an estate planner is a must, but I'm fairly certain the rest of your suggestion is just flat out wrong.