Dividends Part of Surrender Value

[jdeasy]

I have a client that has an old State Farm Whole Life policy. He has had it since 1976. The statement says he has about $4,500 in cash value and slightly over 10,000 in dividends that accumulate interest.

His policy was originally 10,000 face amount but he called the local office and they told him it is now worth 15k in death benefit.

If he did a 1035 would the 10k in dividends be transferable to a new policy? If so, I can get him about 30k in a single premium at his age.

I ran across one of these SF policies in the field yesterday. Several years old. he had a $10K policy. The dividends and PUA's have made it a little over $13,000 death benefit. It has $5900 cash value. He also has a $4000 loan against it.

We got SF on the phone. If he died now they would pay his bene a little over $9K. The $13K minus the loan.

If he cash surrenders he would get about $1900.

I can get him a $10K whole life for $20/mo less than he's paying SF.

He has all the numbers. He's deciding now how, or if, he wants to proceed.

 

[TwiLight]

based on what you are saying, the dividends and DB ,it is a 90% probability that there is a loan against the policy you are not contemplating.

This loan amount will reduce the cash available to about $5k most likely. Also a 1035 would also transfer the loan, which may or may not be advantageous to the client.

beware of dividend policies from A+ carriers that are 40+ years old. Rarely can a new policy benefit the client.......

Skipper

 

[VolAgent]

The fact this policy wasn't on PUAs from day one is depressing. We can only imagine how much insurance he would have at this point and what cash value. This policy is written with mortality tables and tax law that simply doesn't exist anymore. The annuitization tables in the policy are absolutely fantastic because they used mortality tables from 40 years ago.

 

[pfg1]

Op said State Farm.

LOL, man I need to read better!

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The fact this policy wasn't on PUAs from day one is depressing. We can only imagine how much insurance he would have at this point and what cash value. This policy is written with mortality tables and tax law that simply doesn't exist anymore. The annuitization tables in the policy are absolutely fantastic because they used mortality tables from 40 years ago.

I agree.....

 

[LostDollar]

I ran across one of these SF policies in the field yesterday. Several years old. he had a $10K policy. The dividends and PUA's have made it a little over $13,000 death benefit. It has $5900 cash value. He also has a $4000 loan against it.

We got SF on the phone. If he died now they would pay his bene a little over $9K. The $13K minus the loan.

If he cash surrenders he would get about $1900.

I can get him a $10K whole life for $20/mo less than he's paying SF.

He has all the numbers. He's deciding now how, or if, he wants to proceed.

I have been puzzling over this from time to time as I think about it.

I guess this gives me a bit of an idea why you might be interested in talking with people with life insurance as I think you suggested elsewhere.

Other than clearing out a loan, I don't think I understand what the advantage to the client might be of changing. He has a death benefit of over face of the original policy and would be past the initial contestability period. If dividends are increasing paid up ins by at least $250-$300 per year, he is, in essence, getting insurance benefit from the $20 premium difference.

What are the reasons he should switch?

 

[jdeasy]

I have been puzzling over this from time to time as I think about it.

I guess this gives me a bit of an idea why you might be interested in talking with people with life insurance as I think you suggested elsewhere.

Other than clearing out a loan, I don't think I understand what the advantage to the client might be of changing. He has a death benefit of over face of the original policy and would be past the initial contestability period. If dividends are increasing paid up ins by at least $250-$300 per year, he is, in essence, getting insurance benefit from the $20 premium difference.

What are the reasons he should switch?

Basic math, He has a $9K death benefit now. I'm proposing $10K for $20 less per month.

There plenty of other reasons too. But that's the bottom line. More coverage for less payment..

 

[scagnt83]

Old State Farm WL policies break out the values differently than modern WL policies. Ive dealt with a few over the years.

Most carriers combine the dividends along with the other cash value. State Farm separates the two out on the statement. The Dividends are essentially the same as CV for talking purposes.

The guy has $14,500 in Cash Value/Dividends and he has $15k in DB.

This policy does not fall under TAMRA/TEFRA/DEFRA regulations. Meaning it is the ultimate tax advantaged savings account. He would be a fool to 1035 to a new policy. He should be using this WL policy as a supercharged savings account.

The Guaranteed Values of excess premium would blow away any CD or Annuity rate he could find out there. Most old SF WLs I see are humming along at a 4%-5% CV return on Premiums.

Assuming he can contribute more premium and it wasnt a 10 or 20 pay; hopefully the OP will do the moral thing and inform him of the massive tax advantages his current policy gives him. If he still wants a new policy then fine... but after hearing they can get a tax free 4%-5% return with no IRS limits whatsoever... most people opt for keeping the policy and putting more money into it.

 

[jboussea]

Old State Farm WL policies break out the values differently than modern WL policies. Ive dealt with a few over the years.

Most carriers combine the dividends along with the other cash value. State Farm separates the two out on the statement. The Dividends are essentially the same as CV for talking purposes.

The guy has $14,500 in Cash Value/Dividends and he has $15k in DB.

This policy does not fall under TAMRA/TEFRA/DEFRA regulations. Meaning it is the ultimate tax advantaged savings account. He would be a fool to 1035 to a new policy. He should be using this WL policy as a supercharged savings account.

The Guaranteed Values of excess premium would blow away any CD or Annuity rate he could find out there. Most old SF WLs I see are humming along at a 4%-5% CV return on Premiums.

Assuming he can contribute more premium and it wasnt a 10 or 20 pay; hopefully the OP will do the moral thing and inform him of the massive tax advantages his current policy gives him. If he still wants a new policy then fine... but after hearing they can get a tax free 4%-5% return with no IRS limits whatsoever... most people opt for keeping the policy and putting more money into it.

I long for the day where I have a client who is in that situation .. I wouldn't care about not writing a new policy

 

[scagnt83]

I long for the day where I have a client who is in that situation .. I wouldn't care about not writing a new policy

When doing the right thing means you dont make a sale, it often leads to other sales in the near future. The first time that happened to me with an old SF policy, I ended up writing an annuity on them 2 months later.

 

[WinoBlues]

When doing the right thing means you dont make a sale, it often leads to other sales in the near future. The first time that happened to me with an old SF policy, I ended up writing an annuity on them 2 months later.

Also creates a lot of in bound calls over the years. clients asking to buy and asking you to please help their friends and family.