AboutWillard R. Brumbaugh, LUTCF, CSFP Expertise I can handle questions concerning life insurance, it`s tax implications, how to determine what is appropriate, and how it fits in one`s estate and retirement planning.
Experience For 2 1/2 years I was an expert on AskMe.com, where for most of that time I was ranked #1. I have been a moderator (instructor) for the Life Underwriters Training Council. I have been licensed since 1969.
Organizations I belong to: National Association of Insurance and Financial Advisors - California
and the Inland Empire Estate Planning Council.
I hold the professional designation of Life Underwriters Training Council Fellow.
Question I CURRENTLY HAVE A TERM LIFE INSURANCE POLICY WITH A MAJOR INSURANCE COMPANY. THE POLICY WAS ORIGINALLY TAKEN OUT ALMOST THIRTY YEARS AGO FOR THE AMOUNT OF OUR MORTGAGE SHOULD I DIE. WE NO LONGER HAVE A MORTGAGE. I HAVE GROUP LIFE INSURANCE WHERE I WORK. BOTH MY WIFE AND I WORK FULL-TIME. I AM 55 YRS. OLD, IN GENERAL GOOD HEALTH(I TAKE NO MEDICATIONS). THE POLICY IS FOR $42,000 WITH A CURRENT CASH VALUE OF $5000.THE PREMIUM (WHICH SEEMS TO CLIMB EVERY FEW YEARS DUE TO AGE) IS NOW $500 EVERY SIX MONTHS.WE ARE CERTAINLY NOT WEALTHY, BUT DO HAVE SAVINGS AND 401K INVESTMENTS. I AM OF THE OPINION THAT INSURANCE AND INVESTMENTS SHOULD BE SEPARATE ENTITIES. THE QUESTION IS: SHOULD WE CASH IN THE TERM POLICY? THANKS FOR YOUR HELP.
Answer Dear Gary,
Whether insurance and investments should be separate or not will no doubt be debated long after both of us are gone. However, there is generally a series of needs that continue to lend themselves to life insurance for as long as we live. For this reason some amount of permanent life insurance makes sense.
In your case, assuming that you are a healthy non-smoker, you are over-paying for the insurance you have. If you were roll the $5,000 of surrender value over to a permanent policy, at guaranteed rates that would never increase, you could have $42,000 of protection for $594.04 semi-annually.
The "cash surrender value" is incidental to the new policy, the same as home equity is incidental to your residence. However, at current interest and cost factors, the csv is projected at $39,461 at 20 years, and the death benefit is shown to be $58,742. The internal rate of return on this death benefit is a tax-free 5.6%.
Willard R. Brumbaugh, LUTCF
www.willardbrumbaugh.com
(888) 792-2379
