4 Years of Whole Life Insurance

[Harry Nguyen]

Hey guys, I have Penn Mutual and I put in about $4.8/y and it's been 4 years. I know I won't breakeven until maybe 7/8 years because of the fees and stuff but wanted to know after 7+ years, the whole IRS with the MEC thing, I heard that I no longer have to pay into the policy anymore. So my base is $150, my overfund is $250. Should I reduce the overfund pay? Or should I start a new policy? Thanks.

 

[Life Hawk]

Hey guys, I have Penn Mutual and I put in about $4.8/y and it's been 4 years. I know I won't breakeven until maybe 7/8 years because of the fees and stuff but wanted to know after 7+ years, the whole IRS with the MEC thing, I heard that I no longer have to pay into the policy anymore. So my base is $150, my overfund is $250. Should I reduce the overfund pay? Or should I start a new policy? Thanks.

Why not ask the agent that provided the plan to you?

 

[Allen Trent]

Pay into it as long as you can or stop now & elect reduced paid up. 7 years has nothing to do with anything based on what you are saying

 

[scagnt83]

Hey guys, I have Penn Mutual and I put in about $4.8/y and it's been 4 years. I know I won't breakeven until maybe 7/8 years because of the fees and stuff but wanted to know after 7+ years, the whole IRS with the MEC thing, I heard that I no longer have to pay into the policy anymore. So my base is $150, my overfund is $250. Should I reduce the overfund pay? Or should I start a new policy? Thanks.

You can choose a Reduced Paid Up option to stop premiums.

Now that 7 years has passed, you should not have any issues with it becoming a MEC.

If you just want to stop the overfunded portion (the Paid Up Additions) then you do not need to do Reduced Paid Up. Just stop the PUA Rider payments and keep paying the Base premium.

But a lot of it depends on what you want. If you want to keep putting money into WL, then dont stop anything, just keep the premiums going. No reason to start a new policy unless you just need more DB. Keep the current policy going if you want to keep putting money into WL, its more efficient now that its an older policy.

 

[scagnt83]

Pay into it as long as you can or stop now & elect reduced paid up. 7 years has nothing to do with anything based on what you are saying

Actually 7 years does effect the policy being a MEC or not.

RPU prior to y7 on a WL almost always creates a MEC.

 

[pfg1]

Stopping the overfunding (or funding at all) the policy won't help anything, in fact it will be detrimental long term.

If it was mine, I'd fund it every year up to the max allowed - until you plan to retire. Then you can RPU, and have a nice bucket of cash that you can access tax free.

 

[Harry Nguyen]

I remember reading a blog, the question was when do we stop funding the policy. The author wrote never, but I'm going to just reduce to PUA. Just wanted to confirm but yeah, I think that makes sense to keep the old policy building. I just hit 30 so still young, I love it.

When I was still in the beginning stages, I thought about cancelling so many times but I'm glad I didn't. My agent told me I would regret it. How did you guys got started?

 

[Allen Trent]

Actually 7 years does effect the policy being a MEC or not.

RPU prior to y7 on a WL almost always creates a MEC.

true, but highly unlikely being a MEC is an issue. It is very unlilkely to have any gains today or anytime in the future when going RPU so early in todays product offerings. If it is merely to have a paid up policy to hold forever, MEC still has a tax free death benefit.

but I get what you are saying in theory

 

[scagnt83]

true, but highly unlikely being a MEC is an issue. It is very unlilkely to have any gains today or anytime in the future when going RPU so early in todays product offerings. If it is merely to have a paid up policy to hold forever, MEC still has a tax free death benefit.

but I get what you are saying in theory

Policy does not have to have gains to be a MEC.

MEC looks at premiums in the first 7 years, and if they are more than what is required for the policy to be fully paid up. There is a "7-pay premium" listed on the illustration, which is the annualized amount.

Overfund a policy to the max, RPU in y6 and tell me what warning message it gives you. Its a MEC. You can short pay an IUL less than 7 years and avoid a MEC, but not WL, not from my experience.

 

[Allen Trent]

Policy does not have to have gains to be a MEC

Correct. I am just saying a MEC without any gains is a non issue because there is no gains to be taxed on as last in first out of a MEC.

I am only saying that a policy being a MEC is no big deal in some scenarios like this where there is no gains or just going with paid up for final expenses. No 1099 on distributions if there is no gain in policy & tax free death benefit

Plus other scenarios where there will be gains like senior clients buying single deposit life. Sure, MEC, but not buying for tax free access to supplement retirement, but buying for CD or NQ annuity alternative