Whole/Permanent Life Insurance

[Turin39789]

I just found out that my parents started a whole life insurance policy for me when I was a few years old. It's a $15k policy with a current cash value of about $770. Current interest rate is 6%. Quarterly premiums of $16, and apparently it's adjustable so for the next day I have the option to bump it up to a $20k policy with a $17 premium, $25k w/ a $23 premium, or $30k with a $30 premium.


I'm 26 years old and I have insurance through work. Had never planned on getting a whole policy, plenty happy with my cheap term from my employer.


What do I do with this? I generally have always heard that term is better, whole doesnt have much value to it, you can grow your money better elsewhere and it has extra fees/less transparency - But now I have a 23 year old account. Any value in actually keeping it, or do I just cash it out and blow it on bourbon/scotch? I'm going to be assuming payments on it if I keep it, I guess my father forgot to tell be about it and has still been paying for it.

 

[xochi]

I was in a similar situation a few years ago. My dad let me know about a life insurance policy that he opened when i was a baby. It was a 10,000 whole life policy, but the cash value was a bit over 10K. (i'm 40 right now.)

The agent of the policy suggested i take out the cash value but continue making payments. It made sense to me. Came in very handy with a down payment for our house.

I would keep the policy at its current level, & take out cash value if you need the $$.

my .02

 

[Beattie]

Cancel it and take the cash. Whole life is ripoff garbage. If you are married/have kids get a good level term life policy for like 20 years. If not, you probably don't need any insurance on top of whatever your company gives you.

 

[whylaff]

Unless you can't afford it, I'd say keep it. That whole policy will never leave you. As you age and potentially develop other health concerns, your costs for term will rise whenever you renew.

 

[Beattie]

Originally posted by: whylaff
Unless you can't afford it, I'd say keep it. That whole policy will never leave you. As you age and potentially develop other health concerns, your costs for term will rise whenever you renew.

Level term means the premium doesn't change. And if you invest the difference in cost between term and whole life, you will end up with more cash than the whole life policy is worth at the end of the term.

 

[JS80]

*shudder* whole life.....

cash it out do term unless you are expecting to die early.

 

[Turin39789]

Originally posted by: JS80
*shudder* whole life.....

cash it out do term unless you are expecting to die early.

Well, my grandfather on my mothers side did have early heart attacks.

Like I said, I'd never have gotten one, just didn't know if it would be worth keeping and if the horrible fees have already been paid.

The account is at Thrivent

I'm leaning towards cashing it out, but I might make one payment on it and give myself time to think about it.

 

[richardycc]

how old are you now? whole life usually pays dividend. After about 15-20yrs, the div can usually cover the yearly premium, so you might not have to pay for the policy ever again and still have the coverage. you need to find out more details about your policy before you do anything.

 

[Skeeedunt]

Sell it quick, before your parents off you and make it look like an accident...

 

[lykaon78]

Too many Suzie Orman listeners here. Whole life has its place... so does term. It just depends on your needs and your goals. For most people in their 20-40s term insurance is afforadable and the most cost effective manner to protect the loss of your future income in the event of your death. For older people with estate protection needs, permanent insurance is the best choice. In the interest of full disclosure I work for a life insurance company.

I say keep it! The death benefit will grow at least equal to, if not faster than inflation, and when you croak your family will have a nice stash to pay for your funeral - even if thats 50 years from now. Term insurance becomes OBSCENELY expensive after the initial level premium period thus making it only cost effective for the terminally ill.

I would not take the bumps. Likely they are referred to as a guaranteed insurability option. And as you get older you may have some more options to bump up the face value. In general those options are significantly more expensive than the original 15k because the rates are based on your current age.

One other thing to check and a good tip for everyone: Most policies sold 26 years ago were issued before life insurance companies differentiated between non-smoker and smoker policies. You may be able to get an even cheaper rate if you don't smoke. Just call your company and ask. They'll likely have you fill out some kind of non-tobacco certification before they lower the rates.

Feel free to PM with other questions.

 

[Special K]

Originally posted by: lykaon78
Too many Suzie Orman listeners here. Whole life has its place... so does term. It just depends on your needs and your goals. For most people in their 20-40s term insurance is afforadable and the most cost effective manner to protect the loss of your future income in the event of your death. For older people with estate protection needs, permanent insurance is the best choice. In the interest of full disclosure I work for a life insurance company.

I say keep it! The death benefit will grow at least equal to, if not faster than inflation, and when you croak your family will have a nice stash to pay for your funeral - even if thats 50 years from now. Term insurance becomes OBSCENELY expensive after the initial level premium period thus making it only cost effective for the terminally ill.

I would not take the bumps. Likely they are referred to as a guaranteed insurability option. And as you get older you may have some more options to bump up the face value. In general those options are significantly more expensive than the original 15k because the rates are based on your current age.

One other thing to check and a good tip for everyone: Most policies sold 26 years ago were issued before life insurance companies differentiated between non-smoker and smoker policies. You may be able to get an even cheaper rate if you don't smoke. Just call your company and ask. They'll likely have you fill out some kind of non-tobacco certification before they lower the rates.

Feel free to PM with other questions.

Something I've always wondered about life insurance policies - are you required to get a thorough medical exam before buying a term life insurance policy, or do they just take you at your word when you fill out the application, but then if you die they do an investigation to see if you were telling the truth about everything?

I'm assuming a life insurance application will ask lots of questions about your medical history and health/fitness habits? I've never filled out a life insurance application before.

 

[lykaon78]

Most companies require some sort of medical examination to get the best rates they offer. The more insurance you want the more requirements a company will require to approve the policy. Companies generally request any of the following tests/requirements in different combinations: telephone medical history interviews, examination by a nurse (a basic medical history + height weight and blood pressure checks), blood samples, urine specimens, oral fluid tests, ekgs, criminal history checks, credit checks, driving records, and your doctor's records.

Most applications have a biographical section (age, gender, occupation), 10-15 medical questions, and additional questions about driving and hazardous sports, etc. Your application and some other stuff serve as the basis for your contract. Every state says that for the first 2 years a life insurance company can refuse to pay your death benefit if you lie on the application in a manner that would have caused the policy to be issued at a different premium had the correct answer been given on the application. After 2 years, the policy can not be contested unless it lapses and then the 2 years begins again (subject to re-qualification through a reinstatement process). Only a small handful of states say that the lie that you told has to be related to the cause of death to deny a claim. Every other state allows any lie to be a reason to deny. Lie about your smoking and die in a car wreck and you claim is denied.

Thats probably more than you ever wanted to know.

 

[lykaon78]

richardycc made a good point. You might even call and ask what would happen if you just stopped paying today? Whole life and other permanent insurance generally just doesn't lapse because of the cash value. Another advantage it has over term.