I’ve always enjoyed reading threads like this both to ask questions and to learn from other people’s experiences.
I’ve got a question to start us off here. I got engaged in December, and we’re now into the wedding planning stage and figuring out the financial moves we’ll be making with joint finances. My father told me he’s got a whole life insurance policy on me with him as the beneficiary, and he’s going to transfer it to me so that I can make my fiancée the beneficiary and take over the payments.
The current payments are $33.50 a month, it’s a $100K policy, and the cashout value is somewhere around $11.2K. Does anyone know the tax implications of transferring this policy? I’m curious if this is something where stepped up basis applies and we’re better off leaving it in my Dad’s name even if I’m giving him the money for the payments. I’m also not sure for tax purposes if the transfer is based on the person paying the premiums or the listed beneficiary.
The plan is to keep making the payments. I don’t have the full information and asking my Dad questions has not gotten me much helpful info. I asked about how the cash value grows and what it’s based on and how much it’ll grow each year and all he could tell me after calling the insurance company is that he made $402 in premium payments in the last year and it went up over $700 in value so thus the returns beat the stock market and I should keep paying it.
Current plan is to ask my new accountant and ask the insurance company when they call me about transferring it, and also seek advice here.
Sorry I don’t have anything to offer on the insurance. Always have heard whole life insurance “is something to sell not to buy”, but have no idea how that changes if an existing policy that already has been paid into is in question.
I have a similar situation with an old whole life insurance that was passed on to me, and I think I’m just going to surrender/cashout so I can stop thinking about it and lump the cash in with my existing investments. Feel like I’m gaining some life +EV by just having one less policy/account to worry about, especially given that it’s pretty opaque and I don’t understand how it works.
Thanks! Right now I’m quite confused about it as it seems like if it’s going up in value more than the payments while still offering the protection of the policy, that’s great for me, but then how are they making their money? Surely not just eeking out the margin between what they’re returning on investing the money versus what the interest increases on it are?
And if it was a bad financial move to buy it in the first place, well, that’d be right up my father’s alley.
Yeah right now worrying about making the best decision is a bit annoying, but I’m a big believer in just nailing the highest EV option on every one of these decisions in life and reaping the long-term rewards.
Whole life is truly awful. I would register and post at bogleheads there are some extremely smart and experienced people there. In come cases you can roll it into an annuity tax free.
I posted about it on Bogleheads, waiting for a moderator to approve it. I just realized my Dad whizzed one over my head real quick and I didn’t even catch it, but after thinking about it his analysis that paying $402 a year in premiums and growing $750ish in value is an AMAZING return on investment is the wrong way to look at it. It’s not a return on the $402 a year in premiums, it’s a return on the ~$10.5K in cash value that the insurance company gets to hold and invest AND the $402 in premiums last year.
His financial history is just a series of (well intentioned) God awful decisions (with a goal towards being risk-averse that usually doesn’t end up actually being good/conservative financially), so I’ve got to be extremely careful with anything he says about financial matters. Sometimes when I’m tired I don’t scrutinize enough.
One thing also to consider is if health status has changed for worse since he got that policy if he still needs life insurance (maybe he doesnt) it might be impossible to qualify for a new policy somewhere?
Guess one thing to sort out is if thinking of having kids and how much life insurance you think you actually would need and what you can qualify for from term life standpoint
What they’re probably doing is paying the insurance premium out of the investment returns, which are lol terrible and have massive fees. When the insurance premium (which they determine, lol) is more than the return, they pay out of principal / cash value. This product is a complete scam which is why the salesperson gets like 2 years of premiums as a commission.
It’s stuff like that that makes normal people think the game is completely rigged. Your dad was truly trying to do something responsible here and got taken advantage of. That premium into an index fund would be…a lot more money.
Young and healthy enough you should be able to get a lot more term insurance for that price. No cash value but how long at $400/yr did it take to get $11k value.
My understanding is that whole life is more of an estate planning tool for old people and all the stuff aimed at young people is pretty much scammy.
He bought it in 1993, but I’m not sure exactly which month. He’s paid more in premiums than it’s worth, he’s probably paid just under $12K in premiums. The same amount on the same schedule put into the S&P would have yielded $49K.
Meanwhile I went into a bank today to open a joint checking account, and whoa boy the shit they tried to sell me on. Credit cards, “high interest” savings accounts with about half the interest rate of the best ones available, financial advice, you name it. The guy was no sooner finished congratulating us on being smart and not carrying credit card debt than he was onto offering us a 0% intro APR credit card as a wise financial decision. He was trying to get me to empty out brokerage accounts into a savings account with them, the whole nine yards. He was trying to convince me to deposit $25K with them at 2.25% so that I could save a few bucks a year on a safe deposit box.
All while interspersing it with really friendly conversation, making it awkward for me to blow him off and leading to a lot of me being like, “Oh wow, thanks, that sounds interesting, I’ll have to take a look at that myself in the future, this isn’t the time for it.”
As you said the whole fucking thing is so rigged to make sure normal people don’t accumulate wealth.
I’m basically being forced to learn about whole life insurance policies now and the more I learn the more convinced I am that they were born out of some asshole at some insurance company trying to come up with the perfect way to legally swindle money from the middle class. Holy fucking shit!
If your dad has paid in more than it’s worth, then you should be able to just cash it out without tax implications. At that point you’d just be recovering your investment, and there wouldn’t be any accrued interest.
As others have said, you can probably just pick up some term insurance, with a higher death benefit, and invest the difference.
We legalize and codify grift in this country. Let the buyer beware really means is we’re going to bleed you dry, suckers. And then we’re going to use that money to be politicians so we can do it more efficiently AND not pay taxes on it to boot.
So apparently life insurance is fucking impossible for me to easily get. This is getting really fucking annoying. Multiple messages back and forth, multiple attempts with companies. Sticking point seems to be my history of myocarditis when I was 18 when I was in heart failure for a little bit, but I’m fully recovered from that.
