Insurance Company Draws on Cash Accumulated?

[Savana]

Hi, I have a $100K whole life policy since 1988 with a major financial company. I pay about $60 per month in premiums. In speaking with a customer service rep today, I have accumulated tax-free $23k in cash savings, for lack of a better term. I have never borrowed against that cash.
However, the rep also stated the cost of insurance has risen, so in the last few years they have withdrawn about $6K from the cash savings to help cover this additional cost of insurance for me. Needless to say, I'm unhappy and surprised.
Is this a common practice? My husband and I are in fairly good financial shape and as we age, this policy becomes less important to us. I'm tempted to surrender it before they whittle the amount down further. Thank you in advance, Savana

 

[BNTRS]

It's not Whole Life Insurance, it's Universal Life Insurance. Whole Life cost of insurance does not change, it's guaranteed fixed at issued.

If they are pulling out money, it means the $60/mo that you are paying is not covering the cost of insurance any more. Meaning the money you put in isn't going towards any savings, it's not even covering the charges.

Yes you can move the money and there are a couple of different ways you could go about this.

If you still wanted insurance without the rising cost of insurance, you could move to whole life. If you don't care about the cash value, but want the death benefit, something called Secondary Guaranteed Universal Life is the primary method for fixing this situation (not because it's super great but because the industry fell in love it with over the course of the past several years).

If you don't care about the death benefit you could just surrender the policy. You do have a taxable gain so you'd owe income taxes if you just flat out surrendered the policy. You could make use of a 1035 exchange and move the money to something like an annuity to ensure no more mortality expenses, but keep the money growing tax free. You could also use a single premium whole life product to ensure no more charges (continued growth of money) and maintain a death benefit.

What you have now, won't work, so some form of action will be required. This isn't exactly unusual for Universal Life insurance, I'm afraid, and circumstances like yours aren't exactly unique for those who made purchases of this product back in the 80's.

 

[mikichan]

I agree, I think it's probably not whole life, but universal life. You should check your policy and see if it says whole life or universal life. They're not the same thing.