I have a life insurance issue (wordy!)

[ohgillian]

Props in advance for anyone who gets through this. 

DH's parents bought him a life insurance policy when he was a child, which they paid premiums on his whole life and turned over to us at some point. It's "Adjustable Life." I assumed this was something we should just get rid of (b/c I totally think of "life insurance on kids" as scammy), but when we got life insurance about a decade ago, USAA counseled us to keep that policy because they said that the $150,000 of insurance represented by the policy was cheaper than adding another $150k to the USAA term policy that we were getting and that we still have. (DH is particularly expensive to insure.)

For context, this adjustable life policy is about $50/month, which is a small part of our overall life insurance bill monthly.

Now the "adjustable life" people are contacting us wanting to talk and I got them to send me an email to summarize what they want to talk about and they say this:

"His current certificate is an interest based product and with interest rates not being so great it hasn't performed like it was intended to perform. In order to keep the certificate from lapsing you would need to make monthly premiums of $176.79 which I don't recommend. The current certificate has a cash value of $8536 which could be exchanged in to new certificate that would only cost about $75/month with savings of about $100 dollars. The new certificate has great cash value growth which could used to help supplement retirement. I've attached a copy of an illustration and you want to focus on the chart on the far right. If nothing is done the certificate will lapse."

I don't want life insurance to "supplement retirement." We have retirement savings. That line alone has my radars going off.

I'm going to call the USAA advisors and get them to help me interpret this, and honestly we'll probably just let this $150k of coverage lapse*, but I'm just throwing it out there in case anyone actually understands insurance and has some clue what's happening here. Thanks!


*Without this policy I think DH will still have $600,000 of term coverage, plus maybe another $100k through work. I a few years ago wanted to cancel all the life insurance and just call us "self-insured" but this board talked me out of it, lol. 

[dr.girlfriend]

I don't quite understand, but for context when I was 35 I got a $1 million 30-year policy for around $600 a year, and it sounds like even before this recent weirdness your DH was paying that much for $150k. Now granted I don't know anything about his age and health but I think if you have him insured elsewhere I would consider this throwing good money after bad to extend it further.

[sometimesrunner]

I don’t understand this either, but just this week I got a 20 year, $125k policy on my 38 year old H for $12.50 per month. We needed it to close on our SBA loan. I would definitely let this lapse.

[sadlebred]

Is there anyway to "cash out" the policy for a payout now? If not, I'd let it lapse.

[clairebear]

So if you keep it the only option is to pay $176.79 a month for $150,000 payout? That seems expensive and not worth it. I would cash it out now if possible, and then let it lapse. You have other, more valuable insurance on your H so I wouldn't be concerned about trying to keep the extra $150,000. 

[heygrey]

I don't entirely understand their sell (the cost seems high for the pay out), but I look at life insurance as what I need to survive for a reasonable amount of time should H die. I don't expect to never work again, but I'd like to not worry about our mortgage (if the mortgage was gone, my income is fine month to month) or saving for college. I'd figure out that number for you and back up from there to the cheapest policy.

I don't count on LI for retirement at all. I view it similar to car insurance, home owners insurance, etc. I need it for the portion of my life where I don't have the resources to be self insured vs. cost of premiums.

[orval]

I would cash out -- the actual cash out is the $8k? I am about to cash out a small policy my parents had on me as well. I would definitely check the cash out and not just let it lapse.

[ohgillian]

Feb 14, 2021 23:04:20 GMT -5 clairebear said:

So if you keep it the only option is to pay $176.79 a month for $150,000 payout? That seems expensive and not worth it. I would cash it out now if possible, and then let it lapse. You have other, more valuable insurance on your H so I wouldn't be concerned about trying to keep the extra $150,000. 

I *think* the other option is $75/month for $150k coverage. Which still is pricier than the relative cost of our main USAA policy.

Feb 14, 2021 22:16:51 GMT -5 sadlebred said:

Is there anyway to "cash out" the policy for a payout now? If not, I'd let it lapse.

Yes, this is what I want to understand, too. I think so?

[ohgillian]

Thanks for the replies. I feel like I should have emphasized that H has a health condition that makes his insurance expensive, so while I know that the $50/month we've paid for this coverage to date seems astronomical to some, it was in line with our other coverage on him. That said, there's no way we're going to pay $175/month.

I guess I'm wondering what it means that it was an "interest-based product." Does anyone understand that part?

I haven't actually explored the attachment he sent me b/c I doubt it makes any sense, but I'll look at that and talk to H.

[zaneyzoo]

It is probably some sort of indexed life policy, which personally, I like. The premium does seem expensive.

If you want to cash out the policy and take cash, ask what the tax could be. You could also ask about doing a reduced paid up meaning, the amount of cash value will be $xx of life insurance. It's paid up and depending on the policy, may grow to some extent. That way the policy is always there and isn't costing you anything.

If you do not wish to use life insurance to supplement retirement, I would not do the new policy.

Just my 2 cents

[ellipses84]

The premium seems expensive, but considering his health issues, you need to compare the payout to the premium. Could he do better increasing the amount of his other LI? If you were at the point of wanting to cancel all LI, I don’t think you need the extra policy. My inclination would be to cash it out and invest it, whether in a retirement account or otherwise. You may not need it for retirement, but the payout will go to his beneficiaries. If in a worst case scenario, you or another beneficiary would need cash before retirement age, do a non-retirement investment. Your other insurance could cover funeral expenses, as an immediate need.

[ohgillian]

Feb 15, 2021 10:02:07 GMT -5 zaneyzoo said:

It is probably some sort of indexed life policy, which personally, I like. The premium does seem expensive.

If you want to cash out the policy and take cash, ask what the tax could be. You could also ask about doing a reduced paid up meaning, the amount of cash value will be $xx of life insurance. It's paid up and depending on the policy, may grow to some extent. That way the policy is always there and isn't costing you anything.

If you do not wish to use life insurance to supplement retirement, I would not do the new policy.

Just my 2 cents

Thank you so much. You sound like you know what you're talking about, whereas I definitely do not know what I'm talking about. 

The new policy is "Flexible Premium Adjustable Indexed Life."  I definitely don't want to use it to supplement retirement, or even to cover final expenses. We're set in those areas.  It sounds like you're saying that one option may be a policy that we pay a lump sum up front, and then have $0 premiums on? I will inquire about that. 

[flygirl]

If you can, cash out and take the cash value. A lot of those policies will start to eat away at the cash value until there is nothing left, then it will lapse.

[zaneyzoo]

Feb 15, 2021 12:27:06 GMT -5 ohgillian said:

Feb 15, 2021 10:02:07 GMT -5 zaneyzoo said:

It is probably some sort of indexed life policy, which personally, I like. The premium does seem expensive.

If you want to cash out the policy and take cash, ask what the tax could be. You could also ask about doing a reduced paid up meaning, the amount of cash value will be $xx of life insurance. It's paid up and depending on the policy, may grow to some extent. That way the policy is always there and isn't costing you anything.

If you do not wish to use life insurance to supplement retirement, I would not do the new policy.

Just my 2 cents

Thank you so much. You sound like you know what you're talking about, whereas I definitely do not know what I'm talking about. 

The new policy is "Flexible Premium Adjustable Indexed Life."  I definitely don't want to use it to supplement retirement, or even to cover final expenses. We're set in those areas.  It sounds like you're saying that one option may be a policy that we pay a lump sum up front, and then have $0 premiums on? I will inquire about that. 

You won't pay a lump sum up front.  They would take the $8k cash value and use it to pay up the policy.  So the death benefit would go from the $150k it is now to whatever that $8k cash value allows ($25k? $50k?)  Benefit is that you will always have that policy.  If it is a dividend producing policy, it could continuing growing in face value and cash value.  

[awkwardpenguin]

It sounds like you are adequately insured without the $150k policy. I’d talk to them and do some reading about adjustable life, but it seems like you should take the cash value.

[ohgillian]

Feb 15, 2021 12:32:53 GMT -5 awkwardpenguin said:

It sounds like you are adequately insured without the $150k policy. I’d talk to them and do some reading about adjustable life, but it seems like you should take the cash value.

Thanks. I think this is the bottom line -- when we got the USAA policies a decade ago, we didn't have adequate savings to go with a lower coverage level. At this point, I think we do. 

[ohgillian]

Feb 15, 2021 0:54:16 GMT -5 heygrey said:

I don't entirely understand their sell (the cost seems high for the pay out), but I look at life insurance as what I need to survive for a reasonable amount of time should H die. I don't expect to never work again, but I'd like to not worry about our mortgage (if the mortgage was gone, my income is fine month to month) or saving for college. I'd figure out that number for you and back up from there to the cheapest policy.

I don't count on LI for retirement at all. I view it similar to car insurance, home owners insurance, etc. I need it for the portion of my life where I don't have the resources to be self insured vs. cost of premiums.

This has always been my view, also. I will say that when I was interested in eliminating all life insurance (maybe this was like 3 years ago? 5?), the board pointed out that I was only thinking about one of us dying tomorrow, and that I hadn't considered the financial devastation that a long-lasting terminal illness/ accident can bring. That is ultimately why I've kept our insurance. If one or both of us died right now, the surviving spouse (or, just the kids) would be fine financially. But the board pointed out that we could basically spend down our entire life savings in advance of one of us dying, and that was a perspective I hadn't considered. I toss this out here as a general comment on this topic; it's not really directed at you per se. 

[ETA: had bolded the wrong part by accident.]

[heygrey]

Feb 15, 2021 12:41:32 GMT -5 ohgillian said:

Feb 15, 2021 0:54:16 GMT -5 heygrey said:

I don't entirely understand their sell (the cost seems high for the pay out), but I look at life insurance as what I need to survive for a reasonable amount of time should H die. I don't expect to never work again, but I'd like to not worry about our mortgage (if the mortgage was gone, my income is fine month to month) or saving for college. I'd figure out that number for you and back up from there to the cheapest policy.

I don't count on LI for retirement at all. I view it similar to car insurance, home owners insurance, etc. I need it for the portion of my life where I don't have the resources to be self insured vs. cost of premiums.

This has always been my view, also. I will say that when I was interested in eliminating all life insurance (maybe this was like 3 years ago? 5?), the board pointed out that I was only thinking about one of us dying tomorrow, and that I hadn't considered the financial devastation that a long-lasting terminal illness/ accident can bring. That is ultimately why I've kept our insurance. If one or both of us died right now, the surviving spouse (or, just the kids) would be fine financially. But the board pointed out that we could basically spend down our entire life savings in advance of one of us dying, and that was a perspective I hadn't considered. I toss this out here as a general comment on this topic; it's not really directed at you per se. 

[ETA: had bolded the wrong part by accident.]

This is a really good point and maybe I need to rethink my own strategy. We live in Canada so medical expenses wouldn't really exist with a long term illness, but if one of us needed a leave of absence to be a caregiver we would go through savings to supplement our income. 

[emma]

Since he has other coverage I would surrender the policy for the cash value and fully fund his iRA or just put it towards investments/savings. They want to take his $8500 and put it into another policy. I would not do that.