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Wife’s single premium whole life insurance from the 80s- wwyd
Posted on 5/23/23 at 7:44 am
Posted on 5/23/23 at 7:44 am
My wife’s grand parents bought her a single premium whole life insurance policy at a cost of $10,000 in the 80s. It’s now worth about $400,000 cash value (I honestly need to look again). The life insurance policy is only $1 million. I say only because the cash value is so high that’s relatively small now all things considered. Right?
So realistically it’s been a damn good investment. But, moving forward, is there a reason we should keep this? It’s a diversified tax advantaged asset for us and I doubt my FIL would allow my wife to sell it off.
But I was looking at our portfolio, and this just is an odd piece.
My thoughts are we could buy a 20 year term policy for $1-2 million (or more) and invest the rest? 99.9% chance we would be much better off.
Thoughts?
So realistically it’s been a damn good investment. But, moving forward, is there a reason we should keep this? It’s a diversified tax advantaged asset for us and I doubt my FIL would allow my wife to sell it off.
But I was looking at our portfolio, and this just is an odd piece.
My thoughts are we could buy a 20 year term policy for $1-2 million (or more) and invest the rest? 99.9% chance we would be much better off.
Thoughts?
8
Posted on 5/23/23 at 7:52 am to baldona
How old is your wife? Why does she need a big policy on her life? Not trying to be contrary, just looking for the facts of your situation.
Posted on 5/23/23 at 8:18 am to baldona
9.7% ror
10k for 40 yrs = 400k.
That is good. Why would you dismiss this?
1. Does this policy pay dividends?
2. What's the borrowing rate?
Consider keeping the policy, borrow the money, invest the money, service the interest with the dividend, and deduct the interest if you itemize. Rental property creates other advantages combined with this move.
The asset is 1 million income tax free. Keep assets. Leverage it.
10k for 40 yrs = 400k.
That is good. Why would you dismiss this?
1. Does this policy pay dividends?
2. What's the borrowing rate?
Consider keeping the policy, borrow the money, invest the money, service the interest with the dividend, and deduct the interest if you itemize. Rental property creates other advantages combined with this move.
The asset is 1 million income tax free. Keep assets. Leverage it.
Posted on 5/23/23 at 8:23 am to OTIS2
Late 30s. $1-2 million isn’t really a lot. If I lost her that wouldn’t cover her salary at 4% not to mention her help.
Posted on 5/23/23 at 8:27 am to baldona
Obviously you may want to get more insurance then, but don't sacrifice the asset you described. My .02.
Posted on 5/23/23 at 8:51 am to BestBanker
I need to pull the details up. Like I said this was purchased by the grandparents when she was very young and it was always just viewed as a bonus. But my FIL approached me a couple years ago with a half arse “this is hers’ if you think something else makes sense”.
As the cash value increases closer to the insurance value, it makes less and less sense financially right? It seems obvious it does to me?
So I’m just not sure it doesn’t make more sense now that it’s worth a lot to cash out and by a difference life insurance policy?
It’s through NWM I need to figure out how the investment works some more.
As the cash value increases closer to the insurance value, it makes less and less sense financially right? It seems obvious it does to me?
So I’m just not sure it doesn’t make more sense now that it’s worth a lot to cash out and by a difference life insurance policy?
It’s through NWM I need to figure out how the investment works some more.
Posted on 5/23/23 at 8:56 am to BestBanker
quote:
9.7% ror 10k for 40 yrs = 400k. That is good. Why would you dismiss this? 1. Does this policy pay dividends? 2. What's the borrowing rate? Consider keeping the policy, borrow the money, invest the money, service the interest with the dividend, and deduct the interest if you itemize. Rental property creates other advantages combined with this move.
First of all, good thoughts thank you.
All dividends or interest are returned yearly into the cash value. There maybe other options to be honest I’m
Not sure.
Not sure on interest rate for borrowing but not really interested in that risk even if low.
Where I was getting at, is while this is very valuable now as it approaches $1 mil cash value it becomes dumber and dumber to keep right? When I could get her a $1 mil term policy for $500/ year I mean.
Posted on 5/23/23 at 9:28 am to baldona
You're welcome!
There is no risk in borrowing the money from the policy. Leverage the asset. You can change your dividend option to be paid in cash or to service the policy.
And it is not dumb to own a million dollar, liquid tax free asset. It is valuable. The worst thing you can do is just let it sit there and not reuse the cash, and yet, it's still going to have worth. Heck, you could start taking the annual dividend as cash.
You already understand that you can cash out the policy, take the cash and invest it. What you don't understand is that you can keep the policy and use the cash to create another asset. When you borrow from a life insurance policy it's not like borrowing from a typical lender. Again, only my .02
There is no risk in borrowing the money from the policy. Leverage the asset. You can change your dividend option to be paid in cash or to service the policy.
And it is not dumb to own a million dollar, liquid tax free asset. It is valuable. The worst thing you can do is just let it sit there and not reuse the cash, and yet, it's still going to have worth. Heck, you could start taking the annual dividend as cash.
You already understand that you can cash out the policy, take the cash and invest it. What you don't understand is that you can keep the policy and use the cash to create another asset. When you borrow from a life insurance policy it's not like borrowing from a typical lender. Again, only my .02
Posted on 5/23/23 at 9:46 am to baldona
Multiple things to consider. Since it is a policy from a mutual company, the dividends are non taxable. You could withdraw the dividends and keep the remaining paid up policy. You also need to know if it is a Modified Endowment Contract. If it is, you probably will have to pay a tax penalty of 10% if your wife is the owner and under 59&1/2 on the cash value. You need to reach out to New York Life and get your options. Is your spouse still medically insurable? If not this is important. Remember the cash value could include the the guaranteed cash value and the value of paid up additions. Call New York Life. Also congrats on a valuable asset.
This post was edited on 5/23/23 at 10:17 am
Posted on 5/23/23 at 10:12 am to baldona
Call up the Dave Ramsey show and talk up whole life. Will be fun.
On a serious note, I have no legit advice.
On a serious note, I have no legit advice.
Posted on 5/23/23 at 10:31 am to dwr353
I went back and re-read your post. I would assume it is indeed a MEC. It has a issued face value death benefit on the policy page. If the dividends were used to buy additional coverage, the death benefit has increased as Paid up Additions to the original policy amount. I did not work for NYL, but can say it is a good company. Knew several good agents of NYL. Their policy language may be phrased differently as to dividend options I would not know as I did not sell them. I again recommend you contact NYL and take into consideration tax consequences, guaranteed return rates, and future projections based on current conditions. Again congratulations and thank the original purchaser, they did well.
Posted on 5/23/23 at 11:33 am to baldona
quote:
Thoughts?
Borrow against the cash value of the policy if you want access to cash.
Posted on 5/23/23 at 11:56 am to baldona
Don’t touch the policy - that is an asset many would love to have.
Posted on 5/23/23 at 12:23 pm to BestBanker
quote:
There is no risk in borrowing the money from the policy
I mean, you could lose it.
Posted on 5/23/23 at 12:39 pm to dwr353
quote:
You also need to know if it is a Modified Endowment Contract.
I'm not sure. I'll pull the statement when I'm home tonight.
Its through Northwestern Mutual btw, same difference as NYL probably.
quote:
Remember the cash value could include the the guaranteed cash value and the value of paid up additions.
I'm not sure what this means? My understanding is it just accumulates interest/ dividends within the policy and that we can EITHER cash out or you get the life insurance at death.
Her grandparents have since passed and I know that whatever type of deal this was they only allowed for a couple of years because it was a great deal, basically. I think that was the IRS.
We have been basically using it as a retirement diversification and life insurance since we were married.
But I realized yesterday that as the value approaches $1 million in cash, it may make more and more sense to cash out and buy other life insurance.
Posted on 5/23/23 at 1:59 pm to BestBanker
quote:
Keep assets. Leverage it.
Yea, I honestly can't think of many good reasons to even consider getting rid of the policy. It has gotten a great rate of return and is tax free. If you need the cash for something, use it as a personal line of credit, but otherwise, it is costing you nothing, just let it rock and roll as a continuously compounding appreciating asset with no market exposure. You can use the cash to fund other assets or investments, the policy will still calculate its interest/dividend on the policy value even though you've taken cash out of it. That is about as good of a situation as one can be in.
This post was edited on 5/23/23 at 2:59 pm
Posted on 5/23/23 at 1:59 pm to baldona
quote:
But I realized yesterday that as the value approaches $1 million in cash, it may make more and more sense to cash out and buy other life insurance.
Why?
Posted on 5/23/23 at 2:56 pm to baldona
You are correct in Northwestern Mutual being a good company. A quick call to them will give you the information you need. How old is your wife and is she the owner or your FIL?
Posted on 5/23/23 at 3:28 pm to baldona
So if you want the million now....
Posted on 5/23/23 at 4:08 pm to baldona
You’ve gotten some very good, informed replies in this thread. And although NWM and NYL are different companies, we might assume that the policy structures would be similar, so their advice is still valid.
But being that you and your wife are in your late 30s, this statement confused me a bit:
What does he have to do with the situation or her financial decisions? I don’t think that she should, but what’s his involvement?
But being that you and your wife are in your late 30s, this statement confused me a bit:
quote:
I doubt my FIL would allow my wife to sell it off.
What does he have to do with the situation or her financial decisions? I don’t think that she should, but what’s his involvement?
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