Unlocking the Benefits: How AI Legalese Decoder Can Guide You Through Cash Out Whole Life Insurance
- December 8, 2023
- Posted by: legaleseblogger
- Category: Related News
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FAMILY FINANCES: Considering Cashing Out a Whole Life Insurance Policy
My grandfather set up a whole life insurance policy for me when I was born, and now that I am 26, I am weighing my options with the policy. The current cash value of the policy is $65,000 with a death benefit of $500,000.
Recently, I purchased a home with an assumable mortgage, and in order to do so, I had to take on a 40,000 Home Equity Line of Credit (HELOC) with an 8.5% interest rate to cover the equity of the previous owner. Due to this, I have depleted my liquid cash reserves, as I used all of my savings for the down payment on the home to reduce the HELOC debt.
I am now considering cashing out the whole life insurance policy and taking the approximate $53,000 after tax to help rebuild my savings and eliminate the HELOC. However, I am unsure if this is the best financial decision for my current situation.
AI LEGALESE DECODER: In your situation, AI Legalese Decoder can provide valuable assistance by analyzing your whole life insurance policy documents and breaking down the complex legal jargon into easy-to-understand language. This can help you fully understand the terms and conditions of cashing out the policy, including any potential tax implications and the impact on the death benefit. Additionally, the AI technology can provide personalized financial advice based on your specific circumstances and help you make an informed decision regarding whether cashing out the policy is beneficial for your financial goals.
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Verify your ownership of the policy and your tax basis in the policy. This will let you know the tax cost of cancelling the policy and taking the cash (no taxes due if you borrow your own money). Ask NWML what can you withdraw as loan while converting policy to Guaranteed paid up policy. Whatever plan provides most after tax dollars to you is your smart choice.
26 years x $200 = $62,400 in premiums paid. The cash value is $65k. That should tell you all you need to know about this ÔÇÿinvestmentÔÇÖ.
I would absolutely do this, yes. If you actually “need” life insurance at this point in your life (i.e., you have dependents who rely on your income), you can get a Term Life policy for relatively cheap.
Wait, youÔÇÖre still making monthly payments on this??? Cash it out
IÔÇÖm sure this is going to get a million down votes. Because whole life = bad. But the loan rate on that policy I bet is less than 7%. If you take a loan out against the policy the cash value still grows, also, is everyone in here just ignoring the fact that the policy could probably be offset at this point and he can keep the DB have an asset & no pay premiums?
Everyone slams on whole life for the rate of return because they compare apples (the stock market) to bowling balls (whole life) and yes IÔÇÖm being very literal with that analogy they are so different itÔÇÖs not even funny.
You need to provide more info on the policy.
Whole life insurance policies are typically bad, and most people will tell you to cash it out. ThatÔÇÖs because the heavy front loaded costs and fees.
But in your case, those are behind you, and the math changes. It may actually not only pencil, but be a good asset.
It depends on the particular of the policy.
We were in a similar position but ended up taking a loan out instead of cashing it out. The loan will be paid back by the annual premiums and part of the death benefit. It was a better option because we would have to pay capital gains on cashing out the policy.
I would 100% cash it out. That money sitting there isn’t doing you any favors. Eliminating a 8.5% mortgage and contributing more to savings are both going to put you ahead.
First, do you even need $500k of life insurance, as in are there family members that rely on your income?
Second, mortality tables have changed in the past 26 years. If you do need insurance, you might explore whether it makes sense to convert your policy into a new one based on current mortality rates which might lead to lower premiums. As an example of what I did, I took *some* of my existing cash value and bought a new policy at lower rates. Simultaneously I lowered the face value as my kids are all on their own now and don’t depend on me. The rest of the cash value of the old policy was used to pay off my mortgage debt.
Look into taking a loan from the policy as an option to pay off the HELOC…
What would the rate be borrowing $40k from the policy instead of cashing out.
You have posted zero helpful details, nobody can give you accurate advice without knowing your premiums, term limit, life insurance needs, etc. It could very well be a mistake to cash out a whole life policy that is far into its term.
First thing I did when I got married was cashing out my wifeÔÇÖs whole life policy her parents had started at birth.
Talk to a CPA or few-based advisor about the tax implications of cashing out versus a 1035 exchange into a different plan or annuity. I don’t know how anyone could confidently tell you to cash it out without details.
You need to determine what the year end dividend is and how is it paid out? Is the dividend used to buy more insurance (paid up additions)? What is your yield? How much cash value do the premiums add to your policy each year. Most likely you’ll be better off taking a policy loan and paying yourself back.
Keep it at this point ThereÔÇÖs sunk cost to get here but now the benefits outweigh the costs YouÔÇÖll have a low cost high limit life policy that you can cash out later while leave in place a low premium good limit policy for future beneficiaries There are many haters Decide for yourself This policy is 26 years old The fact that you you over spent on a house is the real issue here
Whole life insurance is a scam and anybody telling you otherwise is part of the insurance industry. Cash out
You should call the insurance company and make sure you fully understand the vehicle. Some of these policies let you borrow against the cash value and on paper it is a loan. If it is a loan against the cash value, it may not be taxed as income. These vehicles are designed for flexibility, and it sounds like it was issued in the late 90s, so there could be a lot more to it.
If they can’t give you that, you might be interested in rolling that cash value into a new one with that feature so you retain your death benefit. The need for insurance is unclear with your stated information, but a need would exist if you were married, had dependents, and anyone who would be financially impacted with obligations in the event of your death.
However, taking the cash value and eliminating the HELOC is, in my own opinion, a smart move because the investment is likely not outpacing the 8.5% interest rate. You are basically arbitraging in the bank’s favor.
You might be able to afford a month or two of doing this research and shopping around, but if you feel stressed about it and pressed for time then I’d understand if you preferred the cash value and closed the policy.
I know this may get some down votes, but at this point your cash value is an asset on your balance sheet and you can use it. If I were you, I would not cash out your life insurance, and instead take a loan out against the cash value. Just make sure the loan + interest doesnÔÇÖt exceed the cash value. Chances are the interest on the policy loan with be less or the same as the heloc, but there is no set maturity date on policy loans, so you can pay as youÔÇÖd like. Also, because you will technically be borrowing the insurance companyÔÇÖs money, your cash value will continue to earn uninterrupted compound interest. Whole life policies are like airplanes. The longer the airplane flies, the more efficient it becomes because it has less fuel in the tank and reduces the weight of the plane, in result you have a lighter plane with the same power engine.
Absolutely do NOT cash it out. Your grandfather left you a terrific asset with a very substantial cash value/death benefit.
ThereÔÇÖs no reason for you to be using a HELOC though. Simply take a policy loan from your cash value, and overtime pay back that policy loan just like you would your HELOC. The rate is cheaper, and the loan terms are MUCH better (interest is only compounded annually, for one).
Keep the policy. You can use it for all sorts of things with policy loans moving forward, while still maintaining the death benefit.
I donÔÇÖt have an answer to your question, but IÔÇÖm super curious about the HELOC paired with the assumption. IÔÇÖve never heard of this before. What was that process like?
Do you have any health issues now that might affect your ability to buy term insurance?
You might be able to do half this tax year, half the next! Find out if that saves you a bracket!
I am not a tax accountant, you might want to check with one. I don’t think you will pay taxes. I heard premiums are cost so if there was $65k or more in premiums paid over 26 years, you pay no taxes because you didn’t gain anything.
Many of these policies let you borrow against the cash value. I have several clients with policies like this with interest rates capped at 4.75%. This might also help you not get taxed on some of the withdraw.
Are you sure the policy has a death benefit of 500k and not 50k? That seems awfully high for a baby. If it is 500k then are you sure itÔÇÖs a whole life policy?