My G.Mom has had a life insurance policy 4 yrs. why is it only worth $500.?

My grandma is 91 yrs. old She's been paying on this same policy long befor I was born , and I'm 55 yrs old. I need some answers.This all seems like a big "rip off".

Hi, your friendly insurance guy here again!

First, let's start by saying that taking absolute views of most things about insurance can be less than helpful. Example:

"X is a rip off" or "Never buy insurance to do anything but replace income" are absolute statements, very negative, and do absolutely nothing to help you answer your question or provide help specifically for your situation. the only absolute I'll suggest you really take to heart is MCBRATZ17's statement that life insurance is not an investment, it is a contract - because that's the literal truth.

I'm a bit more positive than most other folks here, so let's give you some useful information. :)

Here are several possibilities, a few of which have been stated already, but I'll include them to be thorough.

1. The policy has been around so long that it was designed at a time when costs were lower. If she has had it for more than 55 years, it may have been purchased as "Burial Insurance" (meaning it's just to cover the cost of a casket, cemetery plot, and associated burial services) at a time when all that cost a lot less than $1,000 in total. If that's the case, here's what she should do:

*find out the face value (meaning what it pays out when she dies).
*find out her premium (meaning how much she pays for the insurance).
If the premium is cost effective (for example, paying $5 a year for $1,000 of face value) she may as well keep the policy.

2. The insurance may be Universal Life insurance. In most cases, the cash value in universal life builds rapidly while the insured person is young. Then, as the person ages, it becomes more expensive each year to insure her. At some point it becomes more expensive to insure her than she is paying. (Example - maybe she is paying $20 per year, and at some point the cost to insure her became $21 per year). After that, the cash value is used by the insurance company to make up the difference. That means the insurance company is draining the cash value. Because it costs more and more, year after year, to insure her, the amount the insurance company would drain from the cash value will increase as time passes. She may simply be at a point where they have drained so much that only $500 is left.

In this case, what she should do is call the insurance company and ask for an "in-force illustration." This will show how the cash value is changing, and give current values for the death benefit. If it's projected to lapse soon becfause the insurance company is draining the cash value down to zero, she may want to surrender the policy and take the cash.

3. It may be a Whole Life policy with a small face value, like $500-$1000. In that case she's probably about where she should have expected to be. If that is the case, she may want to call the insurance company and ask about converting the policy to a fully paid up policy so she does not have to pay any longer.

Finally, you may want to find a reputable, local insurance agent to help you go over this. An independent one (meaning they don't work for any particular insurance company) would be your best bet because they're more likely to be objective.

I wish you the best of luck in sorting this out. Feel free to contact me through Yahoo! with any more specific questions you may have. I'll be happy to help in any way I can.

If you mean there's only $500 in the cash value, then it is very possible she haven't paid her premiums for a long time. So the insurance company use the cash value to pay for it. Not only is the cash value is very low, the face amount of the policy is probably low too. If your grandma dies tommorow, the face amount will be deducted by any missed premiums and any loans taken out of the cash value.

If you mean she only has $500 coverage, then your grandma has a historic life insurance. Meaning its very old when a gallon of milk only cost 30 cents or so. So $500 coverage may seem enough to cover funeral costs back then or seem to be alot of money.

It was common in the 50's and early 60's for people to take out a life insurance policy to cover funeral expenses which were less than $1000 back then. I have seen many $500 life insurance policies during my insurance career. Most were cashed out or lapsed or let run out because they were so small, but some older people would not let them go regardless of what anyone said. My dad had a $225 policy on me when I got married. We cashed it in but didn't get much for it. The premiums were like 20 cents.

Insurance except to replace an income for dependants is a rip off. If she would have put 1 dollar a month into an IRA she would have 30-40K by now.

well i currently work at st farm and we sell insurance and to me it seems that she has a death benifit policy that only lasts until she is 90 then after that the value of the policy decreases or she might have taken out the cash value and put it into like an annuity. she is probably just telling you that just because she doesnt really want anyone to know the full value of the life ammount. also if it is true about what you are saying then she definatley needs to talk to her insurance agent and get some things resolved. Good luck.

I am a Life Insurance Agent and it could depend on several things. One is the type of policy she purchased ans what the amount was she purchased, $500 70 or 80 years ago was probably alot and also with some policies the "Cash value" starts going down the older a person gets but the "Face Amount" should have stayed the same. You may want to call the company but you will have to have your G.Mom give them permission to talk with you. Because this policy may only be good until age 100 you may want to consider cashing it in and putting it somewhere safe or somewhere it can make a little money.

Most 90-year olds have $500 policies. That was plenty back when she bought it but she bought the type that did not increase in benefit through the years.

Our grandkids will be laughing at the $15,000 to $20,000 policies that many of us have nowdays. Everyone underestimates inflation.

It depends on the ammount she is insured for. She might be insured for like a few thousand dollars or so (maybe).

that is probably the "cash" value. Most insurance is a rip-off.

Call the company for clairifacation. Not strangers on the internet!!!

Well, because life insurance is NOT an investment, and NOT a savings plan!! It's a CONTRACT.

You don't mention what the face value is, but hey, if it's more than $500 (it probably is), it's more insurance than she can probably afford to buy right now at her age.

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