Should I Pay Back a $90K Loan on a Fully Paid Up ( from Disability Rider ) NYL Whole Policy or Let I

JPuleo1

New Member
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I have a $250,000 face value New York Life whole insurance policy that had a disability rider and after five years it was designated as " fully paid up " with a cash value of $77,000. Like most people, I foolishly borrowed quite a bit of that cash value about 10 years ago. The interest rate is 5% which has been added to the outstanding loan every year giving me a current outstanding loan of just under $90,000 and a shrinking death benefit currently sitting at $156,000. The current cash value is down to about $10,500. The interest for 2016 was about $4,500 and it paid a dividend ( to the loan ) $1,050. I started paying back $100 every other month two years ago just to keep the policy from lapsing. I'm currently 54 years old, collecting SS Disability and LTD insurance to make up 60% of what I was earning until age 67 when it will be just the SS. My wife and I have one son who is married and still in college. My 48 year old wife works full time with good health benefits for all three of us plus her own $100,000 term policy from her employer, 401K match and a building pension. Our only debt is our mortgage. We have no car payments or credit card debt. We have about $300,000 in assets including cash, stocks and real estate. So back to my question...should I pay back the insurance loan or let the paid up policy lapse and pay the taxes on the approximately $60,000 I borrowed? I just don't know what to do? Any help would be greatly appreciated! Thank you
 
Um... your taxes won't be based on the $60,000 borrowed.

It will be based on the total amount borrowed above your basis in the policy. What I don't know is if any premiums paid under the DI waiver of premium count as your basis or not.

You should call New York Life about your policy and ask about Phantom Income Tax Liability should you decide to lapse your policy. I'm not an expert on that, but I know enough that it's important to find out. (Maybe you did and it's still based on the original $60,000 loan, but I wanted to emphasize it.)

Hefty tax bills could lurk in failed life insurance policies

Now, you DID say that you had $300,000 in cash, stocks, and real estate. Is there any reason why you can't pay the loan interest due every year just to keep the policy afloat for a while? (I've heard that DJT wants to lower tax rates, so tax-year timing might be more favorable if you wait a year or two.)
 
Thank you for your feedback. Just by paying the $600 per year the past two years seems to be keeping the cash value from falling any lower than it currently is. However, with the death benefit shrinking by a few thousand every year I don't know if it would eventually stop going down or if it would actually go to zero?!

I do need to call NYL but they will just tell me to talk to my agent and I don't know if he would tell me what is best for me or what is best for him? I would be glad to pay the entire loan back if the policy would then earn interest as fast as it charges me interest on the outstanding loan.
 
Once your accrued loan interest goes past your current cash values ($10,500), your policy will implode and lapse/cancel on its own, regardless of any residual death benefit.

You've had the policy for a while, so any compensation being paid is just policy renewals - probably not much. There shouldn't be any compensation incentive to keep or lapse the policy.

One option to ask about could be to have a "reduced paid up" policy, but double check on any tax ramifications too.

Generally speaking, whole life policies can average 4-5% returns per year if you hold them long enough - say 20 years or so. I call it 'uninterrupted compound interest' that is only affected by dividend performance and the initial policy costs during the first few years.

New York Life is a good company with a decent contract. I'd hate to see you give it up, but I'm not sure it makes sense for you to keep it either.
 
Hi

If you are disabled and you have a disability waiver on this policy, you need to contact an agent of NYL so that they can waive all the insurance charges going back to day 1 of your disability. Once they do that it is unlikely your policy will lapse but we will have to see. Some contracts will also guarentee that if you took out a loan, the policy wont lapse if you are disabled but the devil is in the details. One issue you may run into is that it is all of work for an agent to get premiums waived and NYL does not pay its agents to service accounts like these. If you get stuck, please private message me here. I can find an old timer NYL agent who can help you. The number to call is 1800CALLNYL.

Thanks and good luck
 
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