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letsroll
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honk2goose | Cashing in a my life insurance policy? |
I have an insurance policy that has been paid in full that was bought for me by my grandparents when I was a kid. I was wondering what the pros and cons of cashing it out to pay off all of my debt would be? Currently, I hold two other policies besides this one, which I am paying for through my employer: one is for $32,000 (general), the other is for $64,000 (accidental). So, I figure that even if I cash in the one that I now own ($10,000), I will still be covered if anything happens. I need some advice, please help. Not having any more debt would be amazing. (I pretty much live paycheck to paycheck, so saving up to pay everything off will take a LONG time.) |
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Doing the Right Thing
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My god, why you have so many life policies on yourself?
If there is cash value in your life policies, you should definetly cash them out. These cash value don't earn much interest anyway and if you wanted to use the cash value, but want to keep the life policy as well, you have to borrow it (monthly interest charges will apply when you borrow the cash value). If you were to die someday, your beneficiary will only get the death benefit and all the cash value will be kept by the insurance company.
I suggest canceling these cash value policies (surrender charges may apply) and put them in a bank account or invest it.
The life insurance with your employer is called group insurance. You should definetly get out of that plan because you will lose coverage if you quit or get fired. Plus its a waste of money. I rather use the money to pay for health insurance.
The accidental life insurance only pays out if you die of an accident. The chance of you dying "by accident" is very slim. I don't know what life insurance companies consider a "death by accident." I think getting hit by lightning and dying from it is consider an accident. As far as I know, these policies rarely pay out any benefit in the event of your death. You have to die by accident (whatever that means) in order for your beneficiary to receive the death benefit.
If I were you, I would cancel the accidental life insurance. Second, I would see if I can get a 30 year term life insurance of $150,000 coverage (or whatever amount you like). If I qualify for term insurance, then I would cancel the rest of my life policies. If you get cash value from it, I would put in a bank account and use the money to pay off my debt.
Now that most of my debt is paid off, I need to watch my spending closely so that I don't put myself back in debt again. I would create a budget worksheet that lists everything I pay and spend on each month. If you pay certain things annually (such as car insurance), I would divide this amount by 12.
I would strongly advise that you start your own Roth IRA account and put away at least $50 (at most $300) into it each month. The sooner you start saving, the better off you will be when you retire. |
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warren_zevon_1
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Why not borrow against the policy to pay off the debt, and then pay yourself back over at a reasonable rate over a reasonable period?
Unless you have a plan to keep yourself out of debt going forward, and the willpower to stick to the plan, individuals who liquidate assets to pay off debt typically find themselves back in debt fairly quickly. |
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mbrcatz
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Is the FACE value $10,000, or the CASH value?? YOu need to find out what the cash value is. ON a policy of the type you describe, it *might* be as much as $500, but you'll need to call and ask them.
Employer insurance terminates when you leave the company. That $10,000 policy sounds like it's intended to bury you- which it will. Unless you have $10,000 of cash value (highly unlikely - NO ONE insures a kid for $1,000,000, which would have to be the face value amount), it's not worth it to cash in that paid up policy. IF it's really paid up. |
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Barry T
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First you will need to determine if you have the right to cash it in. Most policies purchased on grandchildren are owned by the grandparents. Though you are the insured, if you are not the owner, you will need to get your grandparents permission to change ownership.
If you are the owner, you will need to contact the insurance company and request the forms to cash surrender your policy. However, keep in mind that you will not receive the $10,000 face amount of the policy. There is a schedule of cash values on one of the pages in the policy. It will give you an estimate of the current cash value of the policy. If you want the actual amount, you will need to call the company.
I do not recommend borrowing because you will be trading one debt for another. If you feel you don't need the insurance, it doesn't make sense to keep it. If you single, the insurance you have through work will be more than enough.
The best advice I can give is once you get out of debt, avoid the temptation to get into debt again.
Hope this helps |
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mom363546
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What would your grandparents say? |
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maite1247
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Cash in and try not to die |
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NATIVE NEW YORKER
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CASH IT IN |
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mkulda
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You really need to do two assessments in this scenario.
You have to first determine whether or not you really need insurance.
And, you have to figure out a way to get out of debt.
Let's start with the easy one....one of your work policies is a good policy...the other is junk...and both are only good as long as you work for the same company. If you get laid off or leave, you lose them.
The group life policy (32K) is fine and is probably cheap enough because it is a group policy. The Accidental Death Policy (64k) is worthless because there is almost no chance your family will collect on it. The risk of dying accidentally vs. naturally is extremely low...thus the higher policy value.
If you are confortable that you will not lose your job or leave it, then you're fine and you can examine what to do with the other policy.
MBRCATZ17 is absolutely right (as she almost always is :) ) in that your policy from your grandparents may have a FACE VALUE of $10,000 but that is not the same as the cash value. You'll need to check with the real cash value is.
The insurer is going to want you to cash it in for the cash value because they would rather pay you the cash value now than have to pay the full face value later on.
If the cash value is not very much, then you may want to keep it in place.....it's a free $10,000 for your heirs someday that can be used to help pay final expenses for you.
Now look at your debt.....one way to help curb what is happening to you on a monthly basis is to know exactly what you spend per month.
Starting tomorrow, log every penny.....and I mean EVERY penny you spend for the next 30 days.
At the end of the month....then categorize what it is you are spending....on rent, transportation, food, clothes, entertainment.
Take a good hard look at what is being spent and start to decide what you can do without.
Take half of what you aren't spending and use it to pay down one of your bills.....if you can get a credit card completely paid back then start on the next one....take the other half and put it in a hard to access account....like a savings account at an across the town credit union (with NO ATMs).
After six months or so, you should be on a better path and have a little bit of money saved up.
At the end of one year celebrate by taking part of your savings and buying yourself something nice.....it will be a nice and well earned reminder of how satisfying it is to buy something and not feel credit guilt over it. |
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insuranceguytx
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Floozy (sorry that was the screen name), gave good advice. I will add that your life insurance, both this personal policy and the ones through work, are PART of your overall financial picture.
First, the cash value is probably a lot less than $10,000. Call the insurance company and ask what the Cash Surrender Value is. It is likely about $1,000.
Second, start tracking ALL of your expenses and see where you can cut back. Eating out, hitting the vending machines are money sponges. Eliminate them. Consider cutting the cable until you can pay down your bills.
Make a list of your bills, what you owe and what interest rates you are paying. If you have 10 bills of different amounts, pick one to work at paying off. I'd pick a small one. Pay extra on that bill while making your payments on the other bills. When you pay that one off, CONGRATULATIONS! You are down to 9 bills. Pick the next one to pay off. Track your progress. You have a computer. Set up a spread sheet.
Consider some additional work part time to help with the bills. Sell some unwanted stuff on eBay.
When you are back on your feet financially, go meet with a financial professional to establish goals and a plan to achieve those goals by certain dates.
Good Luck
email me if you want more suggestions. |
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Up your Maslow
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The insurance company would LOVE you to cash it in early. |
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burning brightly
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Go for the $10000 pay off the debts the grandparents proberly took it out on the basis of whole of life so use it before you meet that point, have fun with the new weekly cash cheers. |
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BWBLANN
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tough call, debt free is nice though |
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Laz
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You have gotten some good advice from some of the answers before me.
Liquidating debt before having a good soldi plan to stay out of debt in the future is not a good idea. You may have very good intentions initially, but without a written spending plan that you have followed for several months it will not work.
My suggestion is to first establish a monthly spending plan that you can follow for at least 3 months or more. Once you find that you can do that, then think about liquidating current debts.
You question has to do with liquidating a currenty fully paid-up policy in order to pay current debts. The question is whether you want to keep this poliyc at all. I believe we should not leave family members saddled with our debts, but that is my thought. You must come to your own conclusion.
The policies you have at work are group policies and they will not stay with you for the long term. If you do decide to take them with you upon retirement, you will pay a lot of money for the privilege to do so.
As has pointed out several times before, the cash value is probably not 10k.....it is probably something in the area of 4 to 6k. I say that because if your grandparents bought it and paid for it little by little and it is now paid off, it is probably a pretty old policy and the cash values have probably grown through the years.
The ex-NY life agent that gave such a disturbing picture of insurance agents is telling me exactly why he is no longer with the company. Only the truly committed agents that believe in the products and the well-being of their customers will stick it out when the going gets tough.
In conclusion.....if you can live on a budget for 3 months or more and not go further into debt then I would say decide if you want to keep the policy long term for the death benefits. If you decide that you can do without the death benefit, then by all means cash it in. Be sure to pick another small death benefits whole life policy up in your future....when you can afford to protect those you leave behind.
Thands for the question.....good questions. Many factors to consider. There is no right answer for everyone....we all have our own "right" answers. |
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Ivar
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Insurance policies with cash value are so called whole life policies, which are extremely bad deals for the policy holders. The insurance companies charges you a ridicules amount of commission and gives a return far below the underlying government securities. And getting rid of them is a good idea. Chances are your paying many times more interest on your debt than what you are receiving on your whole life insurance policy and that your personal finances would benefit from surrendering it and pay off your debt.
If you have access to an attorney or CPA that you can trust, ask him/her to help you make sure that the insurance company gives you the full cash value with no surrender charge.
PS: I was with NY Life long enough to find out that those guys are crooks (six months). Feel free to email me if you have any follow up questions. |
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floozy_niki
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Let me analyse this for you. You have a policy that had been paid for in full and it is only valued at $10k? That's not a lot of money.
You have 2 policies with your company but if you quit then you would left with 0 policy.
Having debt means you need to pay interest which will land you in further debt since you mentioned about your financial difficulties.
The best solution is for you to pay off the debt first. Try saving more and spending less.
Using a insurance policy to pay off debt is one of the worse financial decisions you can make. It's absolutely last resort. Think about it. If you cash it in, you would still have to buy it back at a later stage(and at a higher price) but you wouldn't know what happens in the future, will you? You might become uninsurable.
That's my advice for you. |
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