DW and I both got 30-year level premium term policies when we were in our 30’s. They are pretty cheap, around $700/year, so we will keep these until the end. After the level premium expires I expect they will be so expensive as to not be worth it, plus we won’t need it for income replacement. Unless one of is on death’s door, in which case it might make sense to keep for a year or two.
I have a small whole life policy I’ve had since I was a kid, but the insurance component has gotten so expensive it is bleeding down the cash value, and the amount of coverage isn’t all that much. So I am looking into cashing it in.
I always relied on my employer provided insurance when I was working ( 2 or 3x salary, more I think if I died on a business trip) which actually was not enough, but that’s what I had. When I was unemployed in 1996 I signed up for 10 years of level premium term life insurance. I think it was a $250k policy, again, not enough but my wife had lots of earning potential so I felt I needed to give her a “cushion” if I died, but not necessarily a totally financially secure sit on the couch future should I tragically pass. I kept it even after I got a job. When the bill for the 10th year came up the boys were already in college with funds set aside so I passed on the last year of premium and had no term insurance. That was 2006, so I won that bet!
I read that also and my first response has been my ongoing project: to perform financial housekeeping (consolidate accounts if possible, close out redundant ones, make things easily accessible), get my files straightened out, and simplify.
Then I intend to prepare a simple to follow road map for H so he and I can discuss at length and agree on how to spend assets while in retirement.
At the appropriate age and time, our D will be fully apprised of finances so that she knows what’s there and how to handle things.
All of the above are in conjunction with estate planning.
Each step is more complicated than it appears but I’m doing the hard work now (including identifying the issues and vetting the experts) so they have less work.
@AttorneyMother – that is rather precisely our plan, though we’ve already started bringing D in on it. By the end of this year we will have all our financial accounts either at our bank or at Fidelity other than H’s 401K. I like the way you articulated it.
On this year’s list is also working with the bank and with Fidelity to get the appropriate docs signed so that D can handle affairs for us if needed. We learned, much to our dismay, that financial institutions will typically refuse to accept standard durable powers of attorney executed by lawyers. They each want their own forms. I don’t want to wait too long on that. (I find this very frustrating – we had everything in place elder care attorneys advise, and it was still hell to get different entities to accept those instructions. There is a real disconnect between what consumers are advised and what actually works.)
Yes, it is important to use the forms preferred by the financial institutions holding your money. Their legal teams must approve the forms because there can be liability if they release funds and it is later challenged as fraud. It is very common for folks to ASSUME that the blanket durable power of attorney they sign with the law firm will apply and be effective whenever it is needed and many folks find out to their great despair that no, a different form is needed for EACH financial institution–the institutions own. You are ahead knowing this NOW rather than later.
In situations like that, the fear of liability described by @HImom (and intractable bureaucracy of large institutions) will require the belt and suspenders approach. You will still want a durable POA for general financial affairs but need to make sure that you are covered at each financial institution. All the more reason to simplify and reduce the number of accounts and get that done now.
It may actually be harder to convince a financial institution to hand over control over accounts to an attorney-in-fact of a living person than to an executor because an executor will have Letters Testamentary issued by a probate court. The fear is of fraud and coercion. That’s why so many elderly end up adding beneficiaries as co-owners (JT), but that may interfere and conflict with estate planning.
It’s best to approach things with the big picture in mind but it is hard to face one’s mortality at the same time as planning for a happy retirement.
Sadly, there is a significant amount of “over-reaching” and “undue influence” of elders, especially by younger folks who want more than their assets can support. Often these people are supposed to be fiduciaries and may even be close relatives of the elders–their children or grandchildren or spouses. It’s very tough for the financial institutions AND the loved ones of the elders to be sure the assets will allow the elders to live their lives in comfort and that the assets will be distributed as desired.
You know how we help our child(ren) plan for SAT testing and college applications well in advance – by anticipating and helping them deal with manageable steps, I’m doing the same thing in a manner of speaking with retirement planning, so here’s a helpful guide (among many out there):
I have a cash value policy obtained in 1992. In recent weeks, I’ve dug up all the yearly statements and noted that, with the exception of market crashes circa 2000 and 2008-9, the returns have exceeded insurance costs. To figure out future (10 year) insurance costs, I’ll have to dig up the policy booklet and look up numbers, but I see no reason to wait until the insurance costs + administrative expenses eat away at the cash value before cashing it in, especially if the need for insuring my life goes away. Wouldn’t it be better to come out ahead?
Do you mind sharing how you are planning to perform your analysis?
Anyone else have thoughts and suggestions? Thank you.
I, too, was just starting to dig out insurance info to go over need vs cost and balances on some old universal life policies. It’s part of the financial planner’s discussions.
The death benefit on the policy is only about $120K. Cash value is around $5K, which isn’t much considering I’ve had the policy for more than 30 years. It makes about 4% per year right now, which is the minimum.
Currently though, the insurance component is about $60/month. That’s $720/year for a benefit of $120K.
The amount I pay every month is around $30. So I am losing $30-$40 month. In another 10 years the cash value will be gone and they will cancel the policy, or I will have to up my payment. And the insurance part isn’t going to get any cheaper…
For comparison, I looked up some rates on line. I can get a 10 year level premium term policy for about $300/year, or $25/month (if I qualify, which I should, I have no major medical problems). Or conversely, $250K level premium for 10 years for the same $60 I am paying now. A single year $120K policy would be around $20/month.
So the insurance portion of it is just a horrible deal, if not a rip off. And while a 4% guaranteed return is not all that bad these days, it’s only on $5000.
I don’t really need the insurance any longer (well…you never need your own life insurance. But DW doesn’t really need it either).
So, it’s an easy decision. If the insurance component were competitively priced I might think differently but it seems very overpriced.
I’m doing essentially the same analysis. Though my policy is a more expensive for insurance costs compared to yours incrementally.
Does your policy have an insurance premium schedule that is part of the contract so that your projected costs are reliable?
My cash value exceeds my basis, so it’s possible I’ll owe taxes and I’m sure that my agent will recommend I take a loan out against the cash value instead. Or something equally annoying. Do you know if surrender value exceeding basis is taxable as ordinary income?
H does not need the insurance on my life. D is the only one who might benefit. I’m inclined to get rid of it once I know what the tax bite is.
I don’t remember seeing a projection of the future insurance costs. I get a statement once a year telling me what they were for the last year. I think it is safe to say they won’t be going down.
That’s my understanding. I have no idea what the basis of my policy is, and I’m not digging through 35 years of records to figure it out, if I even have the records. My understanding is that the insurance company will 1099 me for the taxable amount. The income won’t exceed $5k so the hit wouldn’t be bad, even in the worst case of a zero basis.
If you are over 65 another option is to sell the policy, which you might be able to do for more than the cash value. It’s called a “life settlement”, if you are close to 65 it might be worth looking into.
I just looked and there is a schedule of charges attached to the policy (contract) but it’s expressed by $1000 of insurance. So, I’ll do the math and see what the projected annual charges are for the next few years to see if it makes ANY sense to keep it. I’m just glad that I didn’t put more money into the thing than I already have.
I tell every young person I know who needs coverage to buy level term. Lots of it while they need it when their dependents are young, etc. My policy was the result of a meeting with a “financial planner” 22+ years ago. It was an expensive lesson, but luckily it’s not material. Just really annoying.
DH age 60 has standard (not premium) rating. About 13 years ago the $250K coverage was I think around $800/yr. Now it is $1600… still not bad, but it will be going up at least a few hundred each year. We’re thinking the money would be better spent on LTC insurance for me. (He is older and already has it).
You should definitely look for the schedule of premiums that’s part of your policy. You may be surprised at how fast the insurance costs rise once your H goes up another age bracket.
