"akrafka" <akrafka[at]zeiss.com> wrote in message
news:bdc72ca8fc72d3c93cf2a4459741d883[at]localhost.talkaboutinvestments.com

At this point I contribute my max to my 401k which is about $3k per year and employer match of $1200, I have life insurance through my employer and we have a term (20yrs) policy ($250k) for my husband. We have a piddly 529 college savings plan for my son which we contribute a mere $25 per month to. We have fairly new vehicles which are paid for in whole and $5,000 in our savings account. We are currently saving for land and to build a home. The land will come at a fair price as it is currently owned by his father.

My question is this....my husband has a whole life policy that we are paying $70 per month for. It provides for 50,000 in life insurance which I dont feel we need and gives us a payment of $16 per month at the age of 72. It is something he started when he was out of highschool...I think its a ripoff. The cash value right now is $4500. I would like to cash it in, take the tax hit and save the $70 each month for our home. Then maybe invest the money left in a CD. Time frame to buying land/house is about 2 1/2 years.

Does this make sense or should I consider another option. I'd love to hear your thoughts and input on this matter.

Thank you very much!

A. Krafka


Hy there;

You mention that you currently have "in-force" a 20 year term policy. You do NOT state whether you are the OWNER of that policy, or if it is some form of Employer Paid or Group contract.
If it is one of the latter, then you do NOT have any guarrantee that it will STAY in-force...........
If it personaly owned, then I suggest that you consider your possible situation when the policy E N D S, and your husband is only 50 to 55 years old.............................

I would suggest that if you can afford to continue the premium, that you DO SO. There are MANY options that will be available to you later on in life with that contract, including using the dividends (provided it IS a dividend earning contract) to pay FUTURE premiums for you.
Cal Lester CLU

if you need any further clarification, cantact me at Cal-lester[at]comcast.net

"akrafka" <akrafka[at]zeiss.com> wrote in message
news:a8c2b59693211a8f705ec4fc12ca0473[at]localhost.talkaboutinvestments.com

Thank you for the inorfmative reply, I had asked my husband to check into converting the policy and he gave me a quicky "no no we can't do that" answer but I am not sure if that is based onteh policy provisions or his own personal opinion.

There is NO Conversion of a Whole Life Policy. What was suggested to
you was to "excersise" one of the "Non-Forfiture Provisions" of the policy.

The OWNER of the policy, that appears to be your husband, cal ALWAYS
elect to use one of those options


Tell me....why is it that if we cash this in there is no tax hit? Don't we have to pay taxes when we surrender the policy? How about the 10% penalty?


A) there is NO 10% penalty involved in the surrender of a personally
owned Life Insurance policy
B) There WILL be Federal (and possibly State) Income tax to be paid
ONLY if the Surrender Value EXCEEDS the TOTAL of ALL
Premiums paid in to date (the company can tell you what that
figure is)

In the end I am hoping to do as you suggested first and purchase a paid up policy. Then if we need the money we can get it...I wonder though. How is it that it keeps the same cash value? The policy is with American General Life Insurance.

There is NO PURCHASE involved, simply the excersize of an OPTION

how it retains the C/V was explained earlier

Cal Lester CLU

"akrafka" <akrafka[at]zeiss.com> wrote in message
news:a8c2b59693211a8f705ec4fc12ca0473[at]localhost.talkaboutinvestments.com...
- quote -

answer but I am not sure if that is based onteh policy provisions or his own
personal opinion.

Standard Non-forfeiture law requires Reduced Paid-Up as an option, as well
as some others. Your husband just doesn't know, or has another agenda.

- quote -

penalty?

Cash surrender values (CSV) are subject to ordinary income tax to the extent
that the CSV exceeds basis, or premiums paid, less any withdrawals or
dividends accepted in cash.

- quote -

it that it keeps the same cash value? The policy is with American General
Life Insurance.

If you have a child, you most likely need MORE insurance than what you
currently have. Electing the reduced paid-up option, and purchasing new term
coverage with the premium savings is mostly likely the better course,
although it doesn't necessarily put a significant immediate cash flow
savings in your pocket.

Do some quick math -- how long can you make it if one of you died today?

Round figures, it takes $300,000 of cash to produce $500 per month from
liquid savings today ([at] 2%), and the typical widow/widower will likely stash
the money in a bank for many months, even several years, following an
unexpected death. While one can obtain higher returns by accepting risk, or
locking up the money in a CD or annuity, over history, withdrawal rates
greater than 4% have ever increasing risk of exhausting capital. Using 4% as
an assumption, one can produce $500 per month with $150,000 in the bank. If
you're married, you'll get Social Security Survivor benefits until your
youngest child is 16 (they get benefits another 2 or so years). The only
really practical rule of thumb about SS benefits in these situations is it
is NEVER enough. I've delivered more than my share of death claims, so I'm
speaking from practical experience.

Brent D. Gardner, ChFC
Chartered Financial Consultant
http://members.cox.net/brentdgardner1378/

"Be ever questioning. Ignorance is not bliss. It is oblivion. You don't go
to heaven if you die dumb. Become better informed. Learn from other's
mistakes. You could not live long enough to make them all yourself." - Hyman
George Rickover (1900-86), Admiral, US Navy, advocated development of
nuclear subs & ships

The Chartered Life Underwriter (CLU) and Chartered Financial Consultant
(ChFC), designations owned and exclusively offered by The American College,
signify the highest standards of academic study and professional excellence
in the financial services industry.

"akrafka" akrafka[at]zeiss.com, you asked:

<< <i> Thank you for the inorfmative reply, I had asked my husband to check into
converting the policy and he gave me a quicky "no no we can't do that" answer
but I am not sure if that is based onteh policy provisions or his own personal
opinion.</i> >
Whether or not you can actually do it is shown in the section of the policy
under Non-Forfeiture Options. Then, as you suggest, your DH's response may be
his personal feelings on the matter.

<< <I> Tell me....why is it that if we cash this in there is no tax hit? Don't
we have to pay taxes when we surrender the policy? How about the 10% penalty?
</I> >
When you surrender such a policy, if the amount one has received is equal to or
less than the total premiums that have been paid, there would be no tax. In
effect, you've gotten what's left of your principal back. You'd only be
taxed on amounts received in excess of that principal (not referring to loans,
though upon surrender, outstanding loans would be brought back into the
equation).

You said your DH was age 34 and that he that he started this policy out of high
school. So if I do a little interpolation, that would mean he's had the policy
about 15 years. 15 years X $70 mo. = $12,600. You said the current cash value
is at $4,500. $4,500 < $12,600 - therefore . . . no apparent tax is due. Of
course, I'm also assuming there is no outstanding policy loans on the contract
too.

I've noticed too that given the size of the monthly payments being made and the
current cash value, it appears there there's more going on here. I suspect
this because $70 month for a $50,000 life insurance policy issued at about age
19 seems particularly high for someone who's in good health. Perhaps he was a
smoker then and there are other policy riders . . . ??? If he's not a smoker
know and the rider are wanted, the premiums might be able to be reduced by
almost half. These issues may be important to review in detail too if one
looks to the paid up non-forfeiture option.

<< <I> In the end I am hoping to do as you suggested first and purchase a paid
up policy. Then if we need the money we can get it...I wonder though. How is
it that it keeps the same cash value? The policy is with American General Life
Insurance.</I> >
It keeps the same cash value as it's paying for much less life insurance. This
all has to do with how it's paying for the insurance over a lifetime. I guess
it would help you to better understand just what the "cash value" of a policy
really is. So, let me cut and paste something I've written before and I think
that will help you understand why there is cash value in a policy and help
answer your question:

"<i> I thought I might throw out some information that may prove helpful to
some. Please understand this is not to try to convince anyone to like it or
that they should have any of it. This is simply help with a better
understanding of it and how it works. I see so much written about life
insurance that is full of misinformation, some of which is almost correct but I
feel can lead people to very incorrect ideas as to how it all works.

So first, I will point out that life insurance is NOT designed to replace lost
income as it's so often said. Life insurance is designed to pay immediate cash
out to a beneficiary in the event of an insured's death. Please look at that
sentence closely again. While it's obviously that a great majority of the time
such cash is needed to replace income and so that's what life insurance is used
for most of the time. But there are many other situations where there may be a
need/want for immediate cash at the time of someone's death. And life insurance
can do that because that's what it's designed to do.

Now here's something that might take some people a little getting used to until
it's understood what's going on with life insurance. ALL life insurance is
really term insurance. Many of the issues argued about really have to do with
how we may want to pay for that term insurance and/or how long we should need
or want it.

What you really pay for each year in any life insurance contract is akin to
yearly renewable term insurance. And as you get older, that cost/premium for
that term insurance (yearly mortality and expense costs) gets higher and higher
like an exponential curve. As the insurance is kept over whatever period one
may choose to look at, the choice is really how you might prefer to pay and you
might choose to pay each premium directly from earned income or from your
investments. You also have a choice too of whether to use enough of your
after-tax dollars to pay for the insurance, or . . . .you can pay for some of
it with pretax earnings on amounts you choose to deposit with the insurance
company.

Almost everyone chooses the latter these days. If you think not . . . just ask
around and see who actually buys yearly renewable term insurance. Very often,
if not most often, you'll find people buying 20 yr. level term, which has much
higher premium than the yearly renewable term. When buying 20 yr. level term,
excess premiums are paid to the insurance company, which goes into the
company's general account and is set up as reserves, to keep premiums level and
the insurance company invests that excess premium to help pay for the higher
cost of insurance as it rises over the years. So, why are they doing that when
they might do better to buy yearly renewable term and "investing the
difference?"

Whole life and other types of permanent life insurance work exactly the same
way. One of the main differences of course is the length of time the coverage
is to last. The longer the level premium payment period is the higher the
premium (just like in level term contracts), because you must deposit more with
the insurance company to pay for future cost of insurance. You're over paying
in the early years, the reserves compounding on a tax-free basis, as those
premiums become insufficient to pay for the insurance in later years.

Because permanent life insurance contracts are collecting so much in the early
years, provisions are made to return what's held in the reserves should the
policy be surrendered, as those reserves are no longer needed to pay for future
life insurance costs at that point. While the policy is in force the value of
those reserves that will be returned is what's called the Cash Value. It is not
a "savings account" and it is not a cash value "account" - though it's often
thought of in those terms. And you really don't make "deposits" to an account
or to the insurance company, you PAY a premium, which is used as I've
described.

As a slight side step, what happens to this excess-amount/Cash-Value upon
death? Another facet of keeping the premium level is that the actual amount of
pure insurance coverage decreases as the Cash Value increases (particularly in
a whole life type of contract - in universal life contracts there is an option
to keep it level, but I won't get into that here). The amount of actual
insurance coverage is referred to as "amount at risk." The Death Benefit
actually consists of two parts, the Cash Value plus the amount at risk. So, if
or when you hear the non-sense that the insurance company "keeps your money,"
what you're hearing is really something ignorant of how it really works. The
insurance company always pays out "your money."

As the reserves are compounding to pay future costs of insurance, they are
afforded special tax treatment in our tax code. And it's the tax advantages of
both the policy's reserves as well as the death benefit that can make permanent
policies very effective and attractive in many situations.

And since a certain amount of reserves must be maintained to cover the future
costs, insurance companies also provide liberal loan arrangements against the
reserves of the policy. Since amounts received from "loans" are never taxable,
the liberal loan provisions in these policies can be used in a very low cost
and effective way . . . much like other types of collateralized loans might.
There are no immediate payback requirements for such loans, you don't have to
try and qualify for such a loan, and the loan does not show up on any credit
report.

The better it's understood how and why life insurance contracts work as they
do, along with the associated tax and legal rules associated with them, the
more ways one can find where they become a very effective financial tool. Which
is why there's certainly many more uses than just replacing lost income -
particularly as you get older and you're financial situations become more
complex.</i> "

Thank you for the inorfmative reply, I had asked my husband to check into converting the policy and he gave me a quicky "no no we can't do that" answer but I am not sure if that is based onteh policy provisions or his own personal opinion.

Tell me....why is it that if we cash this in there is no tax hit? Don't we have to pay taxes when we surrender the policy? How about the 10% penalty?

In the end I am hoping to do as you suggested first and purchase a paid up policy. Then if we need the money we can get it...I wonder though. How is it that it keeps the same cash value? The policy is with American General Life Insurance.

"akrafka" akrafka[at]zeiss.com you asked:

<< <I> At this point I contribute my max to my 401k which is about $3k per year
and employer match of $1200, I have life insurance through my employer and we
have a term (20yrs) policy ($250k) for my husband. We have a piddly 529
college savings plan for my son which we contribute a mere $25 per month to.
We have fairly new vehicles which are paid for in whole and $5,000 in our
savings account. We are currently saving for land and to build a home. The
land will come at a fair price as it is currently owned by his father.

My question is this....my husband has a whole life policy that we are paying
$70 per month for. It provides for 50,000 in life insurance which I dont feel
we need and gives us a payment of $16 per month at the age of 72. It is
something he started when he was out of highschool...I think its a ripoff. The
cash value right now is $4500. I would like to cash it in, take the tax hit
and save the $70 each month for our home. Then maybe invest the money left in
a CD. Time frame to buying land/house is about 2 1/2 years.

Does this make sense or should I consider another option. I'd love to hear
your thoughts and input on this matter.</I> >
Why take a "tax hit" when you don't have to . . .and from the numbers you've
stated, it doesn't sound like there would be any tax issue anyway??? There are
other options, which are listed in the policy itself that may be more
beneficial. Just look under the section for the Non-Forfeiture Options. If
after you read them you find you don't quite understand them, you would want a
good experienced agent to help you determine just which option might be the
better one for you.

The option you may want to give particular attention to would be the one where
you can covert the policy to a reduced paid up policy. Taking this option
would provide a very small policy, but one that is paid up and still retains
the same cash value, only you now there are not payments to make. By keeping
it there, the cash value is still useful to be used towards your Emergency Fund
(remember, you should always maintain an Emergency Fund - even as you play to
buy property and build a home).

Though I might be in favor of this option, it really still depends on the
details of the whole life policy itself. Not all whole life policies are
created equal and I would say that most whole life contracts are probably not
worth keeping giving what you're trying to and what I feel it might be good
for. But if it were one a good participating policies from one of the main
mutual companies, then the option I mention would be a good one for serious
consideration. IMHO

In article
<bdc72ca8fc72d3c93cf2a4459741d883[at]localhost.talkaboutinvestments.com> ,
akrafka <akrafka[at]zeiss.com> wrote:

- quote -

That is a no-brainer. If you keep the policy, you are going to pay
almost $32,000 more to get this trivial $16 per month. What kind of
a deal is that???? Cash it out and get involved in something that
is a bit more sane. Remember, they call it whole life because you
get screwed for your whole life span.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================


======================================= MODERATOR'S COMMENT:
Posters are reminded that while all points of view are welcome here, those with concise and objective backup usually carry more weight.

My husband & I met after both going through a divorce and were still digging out of our respective holes. I am 29 and he is 34. We have since had 1 child together. We do not own a home and I actually filed bankruptcy in order to remove my name from a mortgage I held with my ex. I mistakingly singed off my interest in the property without removing myself from the mortgage.

At this point I contribute my max to my 401k which is about $3k per year and employer match of $1200, I have life insurance through my employer and we have a term (20yrs) policy ($250k) for my husband. We have a piddly 529 college savings plan for my son which we contribute a mere $25 per month to. We have fairly new vehicles which are paid for in whole and $5,000 in our savings account. We are currently saving for land and to build a home. The land will come at a fair price as it is currently owned by his father.

My question is this....my husband has a whole life policy that we are paying $70 per month for. It provides for 50,000 in life insurance which I dont feel we need and gives us a payment of $16 per month at the age of 72. It is something he started when he was out of highschool...I think its a ripoff. The cash value right now is $4500. I would like to cash it in, take the tax hit and save the $70 each month for our home. Then maybe invest the money left in a CD. Time frame to buying land/house is about 2 1/2 years.

Does this make sense or should I consider another option. I'd love to hear your thoughts and input on this matter.

Thank you very much!

A. Krafka