Whole life insurance -cashing in ???

[clarabelle]

My parents bought 1000.00 whole life insurance on us (3 kids) when we were babies.

Recently my Mom handed me my policy and said that I could have it and cash it in. My parents are the beneficiaries though. So don't they have to cash it in?
Does anyone know?
Thanks!

 

[badiggio]

It doesn't matter who the beneficiary is,it's the person who owns the policy,making the payments{your parents}.A beneficiary comes into play upon death of the insured.
The $1000.00 whole life policy is worth that amount in death;usually there is a cash value if you end your policy,but not the value of the benefit itself.USUALLY it is very low.

 

[Lady V]

you won't get $1000 for it. The above poster is correct-that is only in the actual case of death. So not worth cashing it in.

 

[clarabelle]

Thanks!
This is helpful

 

[cvjw]

We just mailed off the paperwork to cash a policy in. It is in my DH's name and I am the beneficiary. He had to fill out the request form, and I had to sign it as beneficiary. FYI, what we are getting back is less than half of what we put in - hope you have a better outcome.

 

[msmayor]

You'll almost NEVER get in cash value what you paid in to date. That's because with a whole life policy, a majority of the premiums in the initial years is paying the agent commission.

Since you were only a baby when the policy was purchased, my guess is that for a number of years the premium was 'self-paid' by the dividends. Part of the premiums paid in the early years goes into an investment fund that gives off dividends. Usually, at some point far in the future, the dividends given off are enough to cover the premium payments, and the policy is considered "paid up". As long as the dividends being received cover the premium, there is no lapse in coverage.

Since the face value of the policy is only $1,000, in the grand scheme of things its not really going to make much of a difference in financial planning. I'd cash it in, take the cash value and invest it someplace else.

 

[PatsMom]

For a policy issued on a child, usually the parent is the owner and beneficiary and the child is the insured. Your parents may have changed the owner to you when you turned 18 or at some other point when they took care of the paperwork. With a tiny policy like those, the gift tax implications were probably non-existent.

Depending on the type policy and the dividend option chosen, the policy could have a fair amount of cash value. Probably not $1,000 but enough to make it worth cashing in. Assuming you have taken care of your life insurance needs through term insurance and have no need of the coverage, you have to look at a whole like policy like an investment.

What is the guaranteed interest rate? I've seen old policies that guarantee 4 to 6% interest rates. Those may be worth adding as much premium to as the insurance laws will allow. Then the cash value will grow at the stated interest rate. Growth of the policy in the past and in the future could vary widely depending on options chosen at issue. If the dividends were purchasing paid up additions, the death value could be well over $1,000 - so couldn't the cash value.

One option is to request an in force ledger from the insurance company (the individual agent can take care of this too if he or she is still around). This will tell you cash value, death benefit, projected performance on guaranteed and assumed interest rates, etc. If premiums have been paid to date, you can ask to see a premium vanish and see if the policy will still grow.

 

[badiggio]

Insurance companies thrive on whole life policies.They guilt you into believeingthat along with the insurance,you have a nest egg as well;that's NOT true.It's either the benefit upon death or cashing out,and the premiums are ridiculous.People are FAR better ahead to buy term and invest the difference separately .This way that investment will always be theirs and will be quite substantially more.Also in most cases with whole life,if you pay premiums for a couple of years and decide to cancel,there's NOTHING in the cash value.

 

[clarabelle]

My Parents purchased this when I was a child in 1972.
There is a certificate that says it is "paid up" -but I am not sure what that means.
I have never bought whole life -we have term -and I don't really understand it

 

[PatsMom]

My Parents purchased this when I was a child in 1972.
There is a certificate that says it is "paid up" -but I am not sure what that means.
I have never bought whole life -we have term -and I don't really understand it

Paid up means that the policy will stay in force even if you do not pay premiums. Either the dividends are paying the premiums or the cash value is sufficient to cover the premiums. I would highly suggest that you request an in force ledger and review it with a licensed insurance agent to understand how your policy works. Not all whole life is evil. And if the policy is paid up and still building cash value, then it should be analyzed as an investment. If the cash value is reducing as the premiums are withdrawn from the cash value, and the death benefit is not needed, then you most likely should surrender the policy and add the cash value to a different investment.

 

[clarabelle]

Thanks!