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QUESTION: I have a paid up $1000.00 Life Insurance policy taken out in 1962 and the death benefit value is over $2640 now. The cash value is around $1960.00. It also says Endowment at 85. What does that mean? Can I cash this in now? I am not looking to do that, but was curious.  Apparently this will keep growing?

ANSWER: Dear Carol,

This is an old-style Participating Whole Life policy. Only, at the time it was acquired age 85 was considered whole life. This means that if you live to the point at which you are age 85, the insurance company wil be obligated to write you a check for the fully Face Amount, including the Paid-Up Additional insurance, purchased by the annual dividends.

You could cash it out. But if you did, you would have to report the amount received in excess of the premiums you paid as taxable ordinary income. Alternatively, if you kept it till you passed away, the entire benefit would go to your heirs income-tax-free.

Finally, along as the policy continues to develop dividends, and you choose to keep them in the policy, the Death Benefit will continue to grow. As long as you don't need the money, you might as well keep th policy in force. However, you are awfully close to the threshhold at which your eligibility for Long Term Care would be compromised by the surrender value of the policy.

This problem could be resolved by by making the beneficiary of the policy the owner. However, if that were to be done within three years of the need for MedicAid assistance, the change of ownership would be reversed.

---------- FOLLOW-UP ----------

QUESTION: You said,"However, you are awfully close to the threshhold at which your eligibility for Long Term Care would be compromised by the surrender value of the policy.

This problem could be resolved by by making the beneficiary of the policy the owner. However, if that were to be done within three years of the need for MedicAid assistance, the change of ownership would be reversed."
I don't understand what you mean here. Can you break this statement down?
I do have a Long Term Care policy in force. I am 71. I barely remember taking that $1000 policy out, but I recall something about it being free to me. I didn't pay anything for it in premiums and thought it was a win win at the time. It is a Met Life Policy. Being a widow, I will leave it and let it grow as my two children are listed as the beneficiary. What a nice surprise for them. Thanks for your input.
Carol

Answer
Hi Carol,

You are a gracious lady, to think, "What a nice surprise for them."

By the way, I will be 72 in July. Next month my wife and I will celebrate our fourth anniversary. She was widowed seven years ago this coming April. At the time, she thought she would never be married again. We both feel blessed for having recognized that we are meant for each other.

Since you have a Long Term Care policy, I don't see a need for you to change the ownership of the life insurance policy, unless you see the possibility that the LTC policy may be inadequate.

If you have any questions about other life insurance policies or any of your retirement programs, feel free to contact me.

Willard R. Brumbaugh, LUTCF
willardbrumbaugh@yahoo.com
(888) 792-2379  

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Willard 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.

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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.

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