Would you hold onto 100k whole life policy?

[Anonymous]

I am gainfully employed in my early 40's. I have term life insurance through my kids' college years. I have a whole life insurance policy that costs about $65/month and has a cash value of about $11k. I called the insurance company to cash the policy out - thinking the cash could be better used for investments. The insurance company wants me to use the annual dividend to pay the premiums, which elimintaes the monthly cost and keeps the insurance intact (although not really growing in value because no dividends). Of course, they told me that the company has stopped selling these fabulous whole life policies, etc.

Assuming I continue to work until retirement and make good financial decisions, I don't see the need to leave this policy intact for my kids ($100k). What would you do - cash out or keep there using the dividends to pay the premiums?

Thanks in advance!

[Anonymous]

cash out.

[Anonymous]

First set up a good term-life policy (for you, I'd recommend a 20-year due to your age). Take it out at 10 times your annual salary at least.

As soon as that's in place, call and cancel this stupid whole-life policy immediately. There's not one single legit financial advisor who recommends them. When Dave Ramsey and Suze Orman agree on something, I listen.

[Anonymous]

Relevant discussion:

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=123397

[Anonymous]

Mine is higher than this, but it makes way more money than any of my investments. After about 9 years, I have reached the point where the cash value is more than I put in. I can use it for interest free loans. It has been a great investment.

[Anonymous]

Hold it. Insurance policies are outside your estate and not subject to tax, so it is a nice inheritance.

[Anonymous]

Anonymous wrote:Hold it. Insurance policies are outside your estate and not subject to tax, so it is a nice inheritance.

+1

In addition to this, most of the money in the policy will be considered tax free income after a certain point. great to have with retirement staring at you in the face.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Hold it. Insurance policies are outside your estate and not subject to tax, so it is a nice inheritance.

+1

In addition to this, most of the money in the policy will be considered tax free income after a certain point. great to have with retirement staring at you in the face.

This is a good example of why you need to be careful getting financial advice on these boards. It is not at all true that "insurance policies are outside your estate". It is possible to set up an irrevocable trust to hold your life insurance policy, but that sounds like it would be a waste of money in your circumstances. It's also not clear you care if it's outside your estate, since almost everyone can avoid estate tax simply by using their lifetime exemption of $5.3 million.

I would probably drop it because you can't rely on what the insurance co. is promising as to whether the dividends will continue to cover the cost of the insurance, and the more money you sink into the policy the more you will feel you should keep it.

[Anonymous]

Do not hold it. you will do better having the money to invest not having the insurance company have it for another 40 years.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Hold it. Insurance policies are outside your estate and not subject to tax, so it is a nice inheritance.

+1

In addition to this, most of the money in the policy will be considered tax free income after a certain point. great to have with retirement staring at you in the face.

This is a good example of why you need to be careful getting financial advice on these boards. It is not at all true that "insurance policies are outside your estate". It is possible to set up an irrevocable trust to hold your life insurance policy, but that sounds like it would be a waste of money in your circumstances. It's also not clear you care if it's outside your estate, since almost everyone can avoid estate tax simply by using their lifetime exemption of $5.3 million.

I would probably drop it because you can't rely on what the insurance co. is promising as to whether the dividends will continue to cover the cost of the insurance, and the more money you sink into the policy the more you will feel you should keep it.

You are only referencing federal exemption levels, and not considering state inheritance and/or estate taxes.

[Anonymous]

Cash out and invest.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Hold it. Insurance policies are outside your estate and not subject to tax, so it is a nice inheritance.

+1

In addition to this, most of the money in the policy will be considered tax free income after a certain point. great to have with retirement staring at you in the face.

This is a good example of why you need to be careful getting financial advice on these boards. It is not at all true that "insurance policies are outside your estate". It is possible to set up an irrevocable trust to hold your life insurance policy, but that sounds like it would be a waste of money in your circumstances. It's also not clear you care if it's outside your estate, since almost everyone can avoid estate tax simply by using their lifetime exemption of $5.3 million.

I would probably drop it because you can't rely on what the insurance co. is promising as to whether the dividends will continue to cover the cost of the insurance, and the more money you sink into the policy the more you will feel you should keep it.

You are only referencing federal exemption levels, and not considering state inheritance and/or estate taxes.

yes but Virginia doesn't have any, MD is moving towards not having an estate tax, it is still not true that "insurance policies are outside your estate" and it would still be dumb to establish an ILIT to avoid state tax.