Policies Are in Trouble - Need Help.

[scagnt83]

I agree now is a good time to adjust to make it do what he wants it to do. He did not reply if it was increasing db or not. But if it is a 1035 could make that policy sing. A lot of ifs. Without a couple inforces it is all just guesses.

The agent probably had a manager hammering him. Captives.

Yeah, I didnt even get to the DB option and possibly changing it. If it is increasing, then changing to Level could possibly be all he needs to do. It just all depends.

Thats the thing about UL, there are so many options on policy design. And to save a policy there are options that some agents are not even fully aware of.


OP, if you can post the inforce illustration, along with one ran at $250, we can give more precise advice.

 

[Moondoggy]

OK..... Here's a question for you all.

My $60,000 policy with company A has a cash value of around $7,300 and my $100,000 policy with company B has about $32,300 in cash value. Chances are that if either company had an option to take a guaranteed conversion to a paid up whole life policy there's not enough cash value with company A to buy anything but with company B I would probably to do something. If I surrendered the $60,000 policy can I take the cash value in that policy and do some sort of tax free roll over of the money into the $100,000 policy before I convert it to a paid up whole life policy? If I can't do that, can I do a tax free rollover into the new paid up whole life policy as part of the conversion process? What I was thinking is that if that $7,300 could be added to the $32,300 then perhaps I could buy just a slightly larger paid up policy.

Quite honestly, the way I'm looking at things right now, I'm beginning to conclude that my original intent of using these two policies (1) pay my final expenses (2) pay off any car and consumer loans and (3) provide some educational assistance to my grandkids is pure folly without having to sock a lot of additional premium down each year just to sustain the policies. If I reevaluate my need for life insurance right now I would say my only real concern is paying off my final expense and paying off any car loans and credit cards since my daughter will inherit half of my estate in my will anyway. Since my daughter and her family are already taken care of I'm beginning to think that I should either (A) hope that company B continues to pay 4.5% and let the cash value grow a bit more or (B) take my lumps now and take the paid up policy that should cover any of my final expense and outstanding consumer loans. What are your thoughts?

If I can't do a tax free roll over the $7,300 cash value in the policy from company A can anyone tell me what the tax consequences are for simply cashing in the policy for the cash?

I'm beginning to conclude that my options are very narrow and I wonder if its really worth socking more money into these policies. Right now I feel as if I have my finger on a slow leak in the dike and the leak is only going to get larger. Am I right? Are there any other options that anyone can suggest?

 

[WinoBlues]

OK..... Here's a question for you all.

My $60,000 policy with company A has a cash value of around $7,300 and my $100,000 policy with company B has about $32,300 in cash value. Chances are that if either company had an option to take a guaranteed conversion to a paid up whole life policy there's not enough cash value with company A to buy anything but with company B I would probably to do something. If I surrendered the $60,000 policy can I take the cash value in that policy and do some sort of tax free roll over of the money into the $100,000 policy before I convert it to a paid up whole life policy? If I can't do that, can I do a tax free rollover into the new paid up whole life policy as part of the conversion process? What I was thinking is that if that $7,300 could be added to the $32,300 then perhaps I could buy just a slightly larger paid up policy.

Quite honestly, the way I'm looking at things right now, I'm beginning to conclude that my original intent of using these two policies (1) pay my final expenses (2) pay off any car and consumer loans and (3) provide some educational assistance to my grandkids is pure folly without having to sock a lot of additional premium down each year just to sustain the policies. If I reevaluate my need for life insurance right now I would say my only real concern is paying off my final expense and paying off any car loans and credit cards since my daughter will inherit half of my estate in my will anyway. Since my daughter and her family are already taken care of I'm beginning to think that I should either (A) hope that company B continues to pay 4.5% and let the cash value grow a bit more or (B) take my lumps now and take the paid up policy that should cover any of my final expense and outstanding consumer loans. What are your thoughts?

If I can't do a tax free roll over the $7,300 cash value in the policy from company A can anyone tell me what the tax consequences are for simply cashing in the policy for the cash?

I'm beginning to conclude that my options are very narrow and I wonder if its really worth socking more money into these policies. Right now I feel as if I have my finger on a slow leak in the dike and the leak is only going to get larger. Am I right? Are there any other options that anyone can suggest?

Sounds like what I was recommending except you need to tell the company what face to lower it to. If it is $60k or less I would have both companies run illustrations showing the 1035 dump in and see which one does the best job.

I have my doubts you can get a guaranteed conversion to a whole life policy. If you name the company someone here may know.

 

[scagnt83]

If I can't do a tax free roll over the $7,300 cash value in the policy from company A can anyone tell me what the tax consequences are for simply cashing in the policy for the cash?

........

Ok. Easy question first.

When you cash in a life policy and just take the cash (not doing a tax free exchange), you are taxed on any value over your Basis (what you have paid in premiums).

So if you paid $90k in premiums and have $100k in Cash Value and you surrender the policy; you are taxed on the $10k.

If the Premiums exceed the Cash Value then there are no taxes.

----------

OK..... Here's a question for you all.

My $60,000 policy with company A has a cash value of around $7,300 and my $100,000 policy with company B has about $32,300 in cash value. Chances are that if either company had an option to take a guaranteed conversion to a paid up whole life policy there's not enough cash value with company A to buy anything but with company B I would probably to do something.

......

If I reevaluate my need for life insurance right now I would say my only real concern is paying off my final expense and paying off any car loans and credit cards since my daughter will inherit half of my estate in my will anyway. Since my daughter and her family are already taken care of I'm beginning to think that I should either (A) hope that company B continues to pay 4.5% and let the cash value grow a bit more or (B) take my lumps now and take the paid up policy that should cover any of my final expense and outstanding consumer loans. What are your thoughts?

Actually I think the solution might be fairly easy for you. It sounds like you feel that the $100k policy would be more than adequate.

You can do what is called a "1035 Exchange" (tax free) into a different policy.

So if you 1035 the $7k in Cash Value over to the policy with $30k in Cash Value, that would be like adding an additional 18 years of premiums (what you currently pay) to the policy.

With the added cash in the $100k policy, I would guess that only a very minimal amount of premium increase would be needed.... if any at all...


My suggestion is to have them run an inforce illustration for the $100k policy with these specs:
4.25% interest rate
$7,300 1035 Dump-In
$150/quarter premium

Do that and I would be highly surprised if the policy does not easily sustain itself out to 100+
And an extra $50/quarter is not much at all to keep a full $100k in force.




Side note:
It most likely would not be a good idea to convert to a paid up WL. A conversion usually means that they issue the new policy at your current age. Which means a higher cost of insurance vs. your current policy probably has. You could look at reducing the Death Benefit on the $100k policy (after the 1035) to the point that the UL is totally paid-up. That is if you just wanted to stop paying premiums all together.


Another side note:
Back to the agent who was frantically saying the policy is in trouble. The insurance company will actually send you a letter if your policy gets to the point of being in real serious trouble. But as mentioned earlier it is best to be proactive and not reactive.

 

[pfg1]

SC outlined another good option.

Have you requested or gotten the inforce illustrations yet? That is the first step. All the wondering and hypotheticals don't do any good until you see where you are.

 

[Moondoggy]

My suggestion is to have them run an inforce illustration for the $100k policy with these specs:
4.25% interest rate
$7,300 1035 Dump-In
$150/quarter premium

Thanks for the info. and I've asked the agent to provide me with inforce illustrations as you've suggested. Another avenue for me is to reduce the death benefit on that existing policy to reduce the cost of insurance. The reality is that I've been re-evaluating my insurance needs and what I plan to do with my estate and I've determined that my real need for insurance is to (1) pay for my final expenses, (2) pay off any existing car loan I might have and (3) pay off any consumer debt that I may have. When I consider these 3 things I can't imagine that I would really need over $50,000 in death benefits much less $100,000. If the inforce illustrations show the policy is viable with the 1035 dump in at a $150 premium I'll probably do that as my other policy is currently costing me $60 a quarter in premium so I'd be saving $10 a quarter but if it works it works.

The only reason why I was considering a paid up whole life policy is that they indicated that the death benefit that they could provide with my existing cash value, not considering any 1035 dump in, would be $62,286.00. Based on my analysis of needs, I could live with a $62,286.00 death benefit and who knows how much more the $7,300 dump in would buy me also. The advantage of the paid up policy would be that I would save $640.00 a year or $12,800 over 20 years in premiums and I'd never have to worry about insurance again. When I die, I'm covered and that that. My only concern about this is whether or not the company would guarantee the conversion of my existing policy to this type of policy without considering any current medical conditions I may have. So far the agent has not gotten back to me with an answer on the guaranteed conversion. Am I thinking wrong about the whole life option if they can provide me with a guaranteed conversion?

 

[LGilmore]

So far the agent has not gotten back to me with an answer on the guaranteed conversion

Usually, the whole life and UL are end products of conversion of term. I'm not aware of any carrier that let's you convert a UL into a whole life. It's been a long while since I looked at it and I could be wrong, but those two products are usually end products.

Trying to move you into a new product that is underwritten is going to be very hard $$$$ wise. The conditions you have are big red flags to underwriters on life policies.

What company are you insured by? You might get more specific help if we knew the carrier and the products you own.

 

[scagnt83]

The only reason why I was considering a paid up whole life policy is that they indicated that the death benefit that they could provide with my existing cash value, not considering any 1035 dump in, would be $62,286.00.

I would clarify the terminology being used here.

Personally I am not familiar with a UL product that would allow you to convert to a WL product. Or vice versa.

Conversion means no new underwriting. Basically in non-technical terms it is an internal trade of one policy for another.
Conversion privileges are laid out in the initial contract of the policy. But usually it applies to Term being converted into WL or UL.

Some UL/WL policies do allow you to convert to what is called a "Reduced Paid-Up" Policy. But that is simply lowering the DB to the point that the Cash Value in the policy is enough to contractually guarantee it is sustained until maturity. (which has already been pointed out as an option here on the thread)


Most likely, the agent is talking about 1 of 2 possible things.
1. Reduce current policy to point of being paid up.
2. 1035 exchange current policy for a NEW WL policy that is paid up, but charges insurance costs at your current age and health.


$62k is not bad if that is actually what the number will be for the paid up WL. But that number leads me to believe that again, 1 of 2 things are going on:
1. They are just reducing the current policy to be paid up.
2. They are assuming you will qualify for a new policy at your age and health..... and you might possibly if it is a Simplified Issue policy... you need to find out the specifics of the WL they are talking about.


If you can give us the names of the insurance companies then it will give us a lot more info. There are no laws or ethics to worry about if that is why you have not already... Is the name of the WL company the same as your current UL company?

Before doing any paperwork I would make sure to see it in writing that you are indeed able to do the conversion if that is what you go with. My guess is that there is some mix up in terminology here. Sometimes agents do not use exact terms or they generalize when speaking to clients.

 

[pfg1]

I would clarify the terminology being used here.

Personally I am not familiar with a UL product that would allow you to convert to a WL product. Or vice versa.

Conversion means no new underwriting. Basically in non-technical terms it is an internal trade of one policy for another.

Conversion privileges are laid out in the initial contract of the policy. But usually it applies to Term being converted into WL or UL.

Some UL/WL policies do allow you to convert to what is called a "Reduced Paid-Up" Policy. But that is simply lowering the DB to the point that the Cash Value in the policy is enough to contractually guarantee it is sustained until maturity. (which has already been pointed out as an option here on the thread)


Most likely, the agent is talking about 1 of 2 possible things.
1. Reduce current policy to point of being paid up.
2. 1035 exchange current policy for a NEW WL policy that is paid up, but charges insurance costs at your current age and health.

I don't know of UL's that convert to WL either. Could be that there are, but #2 is my bet. Given the amount of cash he said is in the policy, a new WL at his current age paid up comes to roughly about the DB he stated.

I agree that it would be most helpful to know what company you are dealing with. Likely someone here knows that company well. Without knowing that, nobody can give you solid information.

 

[Moondoggy]

I just received an email back from the agent regarding the guaranteed conversion of my UL to another variable UL or WL policy. Here's exactly what he said:

"We can discuss all this as well. Sometimes going through underwriting may turn out in your favor. If for some reason you were to be rated unfavorable, you can still keep current policy as is, that would not change. In short, going through underwriting (if needed) does not hurt you. I am working on several options, but if we keep the total insurance amount at $100,000, you would not need a physical. The only reason for underwriting is if we increase the death benefit amount. By adding money from a 1035 exchange, may cause your policy to become a Modified Endowment Contract (MEC) per IRS rules, so we could increase the death amount to avoid this, if you so choose. Having a MEC is not a big deal unless you plan on taking the “cash value” out of the policy. You would then be required to take the taxable amount out first vice last in a regular insurance policy. (clear as mud?) My calendar is filling up rather quickly and I am already into the 2nd week of March. Let’s either set a time to talk over the phone or in person."


So....... To me this sound as if they cannot guarantee a conversion to the Variable UL or to the WL policy as he lead me to believe. I'm not sure what he was talking about in regard to a MEC and my goal is not to increase the death benefit of my policy. If anything I would want to reduce the death benefit. Furthermore, if my existing contract would have to become a MEC and I had to increase my death benefit wouldn't my existing contract have to again go to underwriting to increase the death benefit? Is it even possible to increase a death benefit on an existing contract? This is so damn confusing and it seems like every time I find something that would work in my favor a roadblock is put in my way. Furthermore, it seems to me that when I'm thinking about X we're no longer talking about X but Y. No wonder people don't like to deal with questions about insurance.

Since people have asked, my $100,000 policy is with Thrivent Financial and my $60,000 policy is with Country Financial.

Can I get some comments on this MEC issue? What sounded good to me this morning was to either keep my existing UL with the guaranteed 4.0% return and hope that the interest paid on the cash value never goes below 4.25%, add $7300 cash value from my other policy via a 1035 and increase my premium payment from the current $100 per quarter to $150 per quarter or convert the policy to a paid up policy. I know the agent wants me to convert the policy to the Variable UL as I'm sure that this would generate him some commission on a sale and keeping my existing policy probably doesn't earn him a dime so I'm concerned that this agent, whom I really don't know, may not have my best interest at heart. I hate feeling that way but that's the way it is.