All Life Insurance Tips

Do I keep old whole life insurance policies? Or cash them in for term?

My father just gave me five (5) $10k insurance policies he had on me to me (i'm now 33 and married). They are about $100/year each ($500 total a year for $50k). I would think I would need a lot more coverage and get a term policy - but is there an advantage to keep the others? or just cash them out (worth less than $4k)

Public Comments

1. Depending upon how old they are, you might be able to take them as paid up policies. Meaning they are paid up for life but will never be worth anymore then face value of $10k each. Then go and purchase a new policy if you feel the need. I personally do not like term policies. I have universal policies from Metlife.
2. Holy cow. You can buy $500,000 of term coverage for about $350 a year. OTOH, the cash value MIGHT be $100. But I sure as heck wouldn't throw good money after bad, keeping those whole life policies in force.
3. if you need higher coverage term is the answer. but you need to know the right coverage amount that suits your current needs.
4. You may want to keep at least one of those policies active, depending on what you decide to do overall. (That way you might at least have enough to cover expenses if you were to outlive the term policies you speak of.) However, if you decide you no longer want the whole life policies, depending on the value of them you probably won't want to cash them outright. That's because you would have to pay taxes on whatever cash value you got out of the whole life policies. There's a way around this, though. You can do what's known as a 1035 rollover of the funds from your whole life policy to a few different types of life insurance contracts WITHOUT having to pay taxes on the cash values. However, you cannot roll the cash value to a term policy. There's another option to keep in mind. You could roll the funds to a universal policy -- which is, in a lot of ways, like a term policy on steroids. Basically, a universal policy will build cash value for a little while, but it will ultimately start to dwindle pretty quickly. Still, you can keep your guaranteed death benefit till at least age 95 (and some of them extend as far as age 120 -- effectively for the rest of any foreseeable lifespan.) That means you wouldn't lose the cash value of the whole life policies, you wouldn't have to pay taxes on it either, and, if you're in good health, you can still probably by quite a bit more coverage for the same price. With universal policies, you could even set it up so that you'd only have to keep paying for x number of years, after which the policy is yours. (I typically set these up so that payments stop about the same age where my clients indicate they'd plan to retire.) Don't be too hasty in cashing out those old policies until you get more info on your options.
5. There is no value in term insurance. Personally, I do not recommend term insurance for someone your age. I believe VUL is the way to go to truly build the best cash value if you decide to do anything else with your whole life policies. Basically, stick with policies that have a guaranteed minimum return on your investment should the time come you cannot invest in them any longer. With term, you have nothing accumulating for your investment. Be sure to go to an established Financial Advisor who has a proven track record and does a full risk management assessment on your household before advising you what to do with ANY of your life insurance or any other investments, present or already accumulated, you are contemplating moving.
6. To answer that question one would need to know your financial goals. You may want to speak with a local insurance professional and request a needs analysis.
7. How about cashing them in for a universal life or term. These juvenile policies are a horrible deal as adults (really for kids too). Focus on the amount of insurance first, then the type. Talk to a fee-only financial planner or an independent agent.
8. The first question to answer is what is your life insurance needs? i.e. how much coverage makes sense for you? What would be the financial impact of your death besides burial? Are there children? If so, are you a major source of income for the family? Usually life insurance is to replace income or provide for expenses that would be a burden for those left behind e.g. burial, children's education, pay off the mortgage,replace your income etc. Once you determine how much you need or will need shortly and the expenses you are trying to replace you can plan you insurance coverage. The most important needs are usually to cover children's expenses - raising them, college etc until they are in their early 20's. This is a temporary need best covered by term insurance. You get more insurance for your money with term. The price goes up as you get older but since your needs are for 20 years or so that shouldn't be a major problem. Term rates are extremely low because life expectancy is getting higher. You could probably by $500,000 of term insurance for the $500 you are spending now. The next thing is to cover your burial and some possible end of life expenses - Some of the policies your father gave you might do the trick but you may not need all of it. Please do yourself a favor and don't buy insurance combined with investments. Universal Life or Variable Life. They are very expensive and complicated. Put your investment money in a few good mutual funds hopefully in a Roth IRA. I recommend Vanguard, Fidelity or T Rowe Price funds. The choices are better and much cheaper. If you are afraid you won't have the discipline to save for investment-have $ 100 or more a month taken out of your checking account and automatically invested in your mutual funds. One final note don't think because you have life insurance coverage at work you are safe. If you lose your job you probably lose coverage when you can least afford it.
9. Do you really need more coverage? Why? Funeral costs, final expenses, that sort of thing? Maybe pay off the mortgage? You, my friend, need the services of a "CFP," a "Certfied Financial Planner," someone who really, really, can look at the big picture and tell you what makes the most sense -as a budgetary considertion. IN GENERAL (<- note the weasily word, "general") whatever scenario you calculate in terms of cost to your family (the funeral, the mortgage, the credit card debt, etc.) is best covered with term insurance IF THERE ARE NO SUFFICIENT ASSETS OTHERWISE to pay them. So, you do what's called a "lump and dump" in our business, which simply means add it all up and insure that amount or some portion or maybe with a little extra. Having 5 policies floating around is probably NOT the most efficient way to do this. It is possible that the company they are with will do the conversion for you. In any case, first determine the need, then determine best way to meet it. For example, it might be possible to convert one of the policies to a BIG sum -and cancel the others. Believe me when I tell you that the carrier will kock itself out trying to keep your business. The absolute WORST thing is to look at Life Insurance as an investment. Guaranteed returns, maybe, but who will guarantee HIGH returns? Nobody. So -talk to a CFP, and while you're at it, discuss the whole financial picture with that person -so everything fits together. At 33, this is a very good time to "get a grip." My qualifications? Licensed Life agent 25 years -NOT a CFP- who knows what's right for the customer.