Took Out a Loan 4 Years Ago on a 30+ Yr Old WL Policy....

[mgz]

Hi -- hoping you all might help me with this question.

My parents opened a $10,000 Whole Life Insurance Policy for me the year I was born (1978) at an annual premium of $94. In 2009, I took out a $4,000 loan on the policy at a 5% interest rate to pay down some high-interest credit cards. Unfortunately, I have not made payments on the loan and the cash value on the policy is essentially zero at this time (and the loan has increased to over $5K). If I do not start to pay back the loan by next month , I will lose the policy (close to $16,000 total coverage between the base coverage and interest-sensitive additions), however I still have debt which exceeds the loan I owe to this company.

Does it make sense to start to pay back to the loan and keep the policy or does it make better fiscal sense to close this one and go for a term life policy with greater coverage? I recognize this is not a lot of coverage, however given the age of the policy, I am unsure if it makes sense to just close it based on the return rate it would be getting. I do not own a home and would like to put money towards a down payment vs a losing situation.

Thanks for any advice.

 

[Mattschmidt]

Hi -- hoping you all might help me with this question.

My parents opened a $10,000 Whole Life Insurance Policy for me the year I was born (1978) at an annual premium of $94. In 2009, I took out a $4,000 loan on the policy at a 5% interest rate to pay down some high-interest credit cards. Unfortunately, I have not made payments on the loan and the cash value on the policy is essentially zero at this time (and the loan has increased to over $5K). If I do not start to pay back the loan by next month , I will lose the policy (close to $16,000 total coverage between the base coverage and interest-sensitive additions), however I still have debt which exceeds the loan I owe to this company.

Does it make sense to start to pay back to the loan and keep the policy or does it make better fiscal sense to close this one and go for a term life policy with greater coverage? I recognize this is not a lot of coverage, however given the age of the policy, I am unsure if it makes sense to just close it based on the return rate it would be getting. I do not own a home and would like to put money towards a down payment vs a losing situation.

Thanks for any advice.

You may want to visit with your financial professional to review your Entire financial picture and discuss your goals with him...

 

[PaperHanger]

I tried to run a quote at RNA for their Essential Life product...if you're in good health you can get min $25k WL for about the same dollar value, probably $20-25 mo.

The RNA quote is down right now, but here's the link:

Configuration Error

Overall, if you are in good health and otherwise insurable...I think if you're an average mid 30 year old, you've received your 'value' from this policy after taking out $4k and now 'owing' $5k.

Before you can decide, you have to know what replacement coverage you can get....i'm thinking you can get a similar deal w/o paying the 4k

for example, i recently ran a quote for 15mo old Female for $50k WL. It was $20mo.

So, your example, a baby 10k at $7mo is high.

Annual policy fee will hike up the premium on a small premium policy like that too....could be a large portion of that annual premium.

 

[WinoBlues]

$16,000 of coverage on a $10,000 policy? Possible that you have borrowed from the cash values but still have values in the paid up additions. I run into this all the time. You may be able to surrender these to pay off the loan.

Whether or not that is a good idea? You need to speak to an insurance agent. You may be better off resetting.

There are several agents on this site that could figure this out for you.

Lee

Hi -- hoping you all might help me with this question.

My parents opened a $10,000 Whole Life Insurance Policy for me the year I was born (1978) at an annual premium of $94. In 2009, I took out a $4,000 loan on the policy at a 5% interest rate to pay down some high-interest credit cards. Unfortunately, I have not made payments on the loan and the cash value on the policy is essentially zero at this time (and the loan has increased to over $5K). If I do not start to pay back the loan by next month , I will lose the policy (close to $16,000 total coverage between the base coverage and interest-sensitive additions), however I still have debt which exceeds the loan I owe to this company.

Does it make sense to start to pay back to the loan and keep the policy or does it make better fiscal sense to close this one and go for a term life policy with greater coverage? I recognize this is not a lot of coverage, however given the age of the policy, I am unsure if it makes sense to just close it based on the return rate it would be getting. I do not own a home and would like to put money towards a down payment vs a losing situation.

Thanks for any advice.

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A 34 year old could do a larger 30 ROP Term policy with a paid up policy at age 64. Or a 30 - 20 year pay GUL for a fairly low price. Use any SV to buy down the premium or pay off debt. IMHO.

I tried to run a quote at RNA for their Essential Life product...if you're in good health you can get min $25k WL for about the same dollar value, probably $20-25 mo.

The RNA quote is down right now, but here's the link:

Configuration Error

Overall, if you are in good health and otherwise insurable...I think if you're an average mid 30 year old, you've received your 'value' from this policy after taking out $4k and now 'owing' $5k.

Before you can decide, you have to know what replacement coverage you can get....i'm thinking you can get a similar deal w/o paying the 4k

for example, i recently ran a quote for 15mo old Female for $50k WL. It was $20mo.

So, your example, a baby 10k at $7mo is high.

Annual policy fee will hike up the premium on a small premium policy like that too....could be a large portion of that annual premium.

 

[VolAgent]

Just doing some rough numbers, it looks like you have received more out of the policy than was ever put into it. I have no idea what the tax rules were regarding life policies in 1978, but you may end up with a few thousand in phantom income.

Would adding a few thousand to your income for tax purposes be a big deal to you? If it so, you might need to find out if and how much phantom income it would generate and then see if you are better off rescuing the policy.

Even so, odds are you probably still need more insurance as well.

 

[xrac]

$16,000 of coverage on a $10,000 policy? Possible that you have borrowed from the cash values but still have values in the paid up additions. I run into this all the time. You may be able to surrender these to pay off the loan.

Whether or not that is a good idea? You need to speak to an insurance agent. You may be better off resetting.

There are several agents on this site that could figure this out for you.

Lee

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A 34 year old could do a larger 30 ROP Term policy with a paid up policy at age 64. Or a 30 - 20 year pay GUL for a fairly low price. Use any SV to buy down the premium or pay off debt. IMHO.

Wino is right. There are several agents on here who can give you good advice. What state are you in and what company is the policy with?

 

[timmyl777]

$94 a year ×34years =$3196. If you got 4000 dollars out of it then you got your money's worth! It might be the smarter thing to do by just starting a new policy. And just for information, that's just my opinion.

 

[blue_wynd]

Hi -- hoping you all might help me with this question.

My parents opened a $10,000 Whole Life Insurance Policy for me the year I was born (1978) at an annual premium of $94. In 2009, I took out a $4,000 loan on the policy at a 5% interest rate to pay down some high-interest credit cards. Unfortunately, I have not made payments on the loan and the cash value on the policy is essentially zero at this time (and the loan has increased to over $5K). If I do not start to pay back the loan by next month , I will lose the policy (close to $16,000 total coverage between the base coverage and interest-sensitive additions), however I still have debt which exceeds the loan I owe to this company.

Does it make sense to start to pay back to the loan and keep the policy or does it make better fiscal sense to close this one and go for a term life policy with greater coverage? I recognize this is not a lot of coverage, however given the age of the policy, I am unsure if it makes sense to just close it based on the return rate it would be getting. I do not own a home and would like to put money towards a down payment vs a losing situation.

Thanks for any advice.

My opinion, going by what you said, is to see if your annual dividends is able to cover the interest. It sounds like you have a Par policy as your current coverage is 16k and your parents only brought it for 10k face value. Did you call the agent that is servicing this policy? Ask them if you can do a partial surrender to pay off the loan. Probably not since your loan is already a big part of the cash value, might not really have much left over. It's tough to give opinions without having the policy in place. My suggestion? Again, call the person servicing this policy.

 

[mgz]

Thanks for all the responses; very helpful and I did speak with an insurance professional who had similar thoughts.