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I'd really appreciate anyones opinions and advice... I'm fairly ignorant on life insurance....

When I was born (1979), my parents purchased a "modified-premium" whole-life insurance policy on me (why? I'm not sure, but mostly as a savings plan, I guess) and paying the premiums since. My mother just turned the policy over to me and gave me permission to do with it what I like, as far as investing goes.

Here are the details of the policy as of now: (Prudential)
Age of policy: ~28years
Yearly premium: ~100.00
Cash Value: ~$3,700.00
Death Benefit: ~$16,700.00
Dividend option: paid-up addition (I don't know what this means...)
Last dividend credited (2006): ~$76.00
Cash value of paid up additional insurance: ~2000.00 (I don't know what this means either..)


I am currently single and without children, but expect to be both married and with children in the next 5 years. Obviously, this is not enough of a policy to be sufficient for coverage once I have dependents. I also understand that Term, not whole life, is usually the best option for general life insurance. And I plan to get a sufficient Term policy when the family-time comes, etc.

My question is what is the best thing for me to do with this policy from a financial gain/investment standpoint. From what I read, etc. it sounds like I would be better off cashing out the plan and investing the money in something else (ie 401K, IRA). However, most things I read are seem to be talking about people with younger policies. Since this policy is already 28 years old and the premiums are so low, is it better to just keep it as? Is is possible to convert/add to this policy to make it a term policy when the time is right?

Thanks for any advice. It is much appreciated.

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Your death pay out is $16k, your cash out value is $5k. Why would you cash this out? I wouldn't convert this if I were you IMHO.

jswede4722 said: Your death pay out is $16k, your cash out value is $5k. Why would you cash this out? I wouldn't convert this if I were you IMHO.

Huh, did I miss where the OP says she's planning on dying soon?? She should cash out immediately and if she needs life insurance, at her young age she can get, say, $100k in coverage for less than $10/month if she is healthy. Why hang on to $16k in coverage when $100k of coverage can be had for roughly the same premium??

Cash it out, put the proceeds into a 529 to pay college costs for your future first born.

cash out immediately unless you have serious health problems.

When you need insurance get term. You can get at least 100k/coverage for $100/year if you are healthy

cash out and stick the 2k into HSBC savings account

jswede4722 said: Your death pay out is $16k, your cash out value is $5k. Why would you cash this out? I wouldn't convert this if I were you IMHO.You are missing a very basic economic concept here. The promise of $1 in a future year is not equivalent to $1 now. You have to discount the future cashflow.

Just adjusting for inflation, assuming a payout in 50 years of the death benefit, it is equal to : $16,000/(1.03^50) = $3,650 in current dollars. Take out the cost of the premiums for the next 50 years and it is worth even less.

OP, take the money and put it to better use. And note that the cash you get in excess of the premiums paid is going to be taxable income in the year that the policy is redeemed. The insurance company should provide you with a statement with the information that you need at the beginning of next year.

I spent a couple of months wondering the same thing, but my situation is a little different than yours. I'm 51, my policy is 24 years old, and I have a $40,000 death benefit with a $20,000 cash value.

I finally decided to cash it in, deposit it in one of the high interest money market accounts, and try to live off of it for the next few months while I put every dollar I can into my 401K.

Cashing out a policy via a surrender is not always the best answer. Some of these old policies perform very well.


Before you surrender the policy, call the company and ask for an illustration. Look at the illustration to determine the growth of the cash value in the policy over time and see what type of return you are getting on the annual premium. Then ask for an illustration showing what would happen if, instead of using dividends to purchase additional insurance, you used those dividends to pay the premium.


If neither of the above is attractive, be sure to ask about the tax consequences of surrendering the policy. If the premiums have always been $100/year, then chances are you will have some gain to pay taxes on when you surrender the policy. If you are going to put the money in a ROTH IRA then maybe it makes sense to do this. Another option might be to 1035 exchange the policy to an annuity not necessarily with the same company(thereby continuing to defer the gains in the policy).

One last option might be a policy loan and use the proceeds of the loan to invest in a Roth IRA. Ask for an illustration on taking out the maximum via a policy loan and applying the dividends to the premium payments/loan interest. Some of these policies continue to pay dividends on the full amount of the cash value of the policy even if there is a loan. By taking the loan, however, you won't be taxed on any of the gain (unless the policy lapses in the future in which you will then have to pay taxes on the gain at the time of the lapse).

Please post what you decide to do.

berlinsmommy said: jswede4722 said: Your death pay out is $16k, your cash out value is $5k. Why would you cash this out? I wouldn't convert this if I were you IMHO.

Huh, did I miss where the OP says she's planning on dying soon?? She should cash out immediately and if she needs life insurance, at her young age she can get, say, $100k in coverage for less than $10/month if she is healthy. Why hang on to $16k in coverage when $100k of coverage can be had for roughly the same premium??


I have the same policy with the same company. The dividends continue to accrue with no payment from op. I get one of those each year like clock work.

The other side of the coin is if she becomes really ill and her term is 20 years, they won't touch her with a ten foot poll or charge prems way beyond what she can afford when the policy expires. Then what? People here have to see that there is more to the math. Life is not logical and no equation can account for that.

My wife found herself in precisely the same situation - whole life plan, purchased by father on birth, at the time given to her (she was 30 I think, when her dad 'found' it) it was worth about $2K with a death benefit of about $5K, I think. Note the part about how her dad had invested a few hundred dollars THIRTY YEARS AGO, and when we got the plan it was worth about $2K. What a great return, huh?

She cashed it out and invested the money.

Our logic was this:

1. Crappy return on investment, then and now. As an investment, it's worthless.
2. If she dies, $5K is nothing. It won't even get her into the ground. As insurance, it's worthless and the $2K cash value is much better spent on term insurance.

Interestingly, the only argument in favor of keeping it was that "Daddy bought it for me because he loved me". I'll leave that one alone.

Whole Life insurance is one of the biggest scams on the planet, full stop. Insurance in general is a blood-sucking scam, but whole life is the worst. IMHO, of course!

Thanks everybody for all the advice. I will definitely contact Prudential and get an illustration on the policies performances, etc. But I'm about 99% sure that I will end up cashing out and investing. Even with the tax hit, it sounds like I will come out far ahead in just a few years.


Again, thanks so much for the advice. Much appreciated.

Do yourself a favor and consult with someone who is actually licensed to advise you on insurance. If cashing out the whole life policy and buying term is the right thing to do, he/she will be happy to sell you a policy. If keeping the policy you have now makes more sense, he/she will tell you that as well.

Prudential used to offer OPAI (option to purchase additional insurance) this is probably in your policy. If you are undertall, or have any health issues, it can be irreplaceable in that you can purchase more life insurance at various times (attained age, marriage, child's birth or adoption) without any medical questions or exam. I recommend you read the policy carefully before you cash it in, and one other thing, you would want to invest the money as a "1035 exchange" to establis a cost basis for your incestment and defer any taxes on the policy.

ThirdJoker said: Do yourself a favor and consult with someone who is actually licensed to advise you on insurance. If cashing out the whole life policy and buying term is the right thing to do, he/she will be happy to sell you a policy. If keeping the policy you have now makes more sense, he/she will tell you that as well.I'll bite, how do you go about finding someone that's "qualified"?

you should submit your policy with its in-force illustrations to

the Consumer Federation of America

which will, for $75, tell you the rate of return of your policy and give you a detailed sense of whether it is worth keeping or not.

$100 per year is cheap but your death benefit is booty.

lostdude said: ThirdJoker said: Do yourself a favor and consult with someone who is actually licensed to advise you on insurance. If cashing out the whole life policy and buying term is the right thing to do, he/she will be happy to sell you a policy. If keeping the policy you have now makes more sense, he/she will tell you that as well.I'll bite, how do you go about finding someone that's "qualified"?

Prudential will come out to a policy holders home and discuss it with them. I do not if this was exception for us or the norm.

Before you cash the policy out understand that policy was issued before regulations changed the law and taxation of the policies. One of the very little known abilities of these policies is that they cannot be considered a MEC and do not have to go by the cvat test for insurance. What that means is that you can essentially create tax free income, true tax free income not what is typically pitched these days, through a loan arbitrage depending on what the loan rate and credit/dividend rate is in your policy. You need to find a professional who really knows what they are doing, are independent, are clu certified and maybe even a fee only insurance planner (which are hard to find) if you can't find an agent you trust.

Your policy should actually be paid up by what you are saying so the idea of 16,7000 being your payout years down the road is absurd. You need to know what your current dividend option is because everything you have listed tells me you could pay 0 and still have a policy that will grow progressively larger over time. While well intentioned most of the advice given in this thread is wrong, well intentioned, but wrong and based off of partial knowledge of the field.

FightinGirl said: ........ My mother just turned the policy over to me and gave me permission to do with it what I like, as far as investing goes. ....


--- cash it out and buy her a gift worth $3700 --- she won't be around forever

defcondfw said: ...While well intentioned most of the advice given in this thread is wrong, well intentioned, but wrong and based off of partial knowledge of the field.

The gist of the advice here was to cash out a policy that is worthless both as insurance and as an investment vehicle in equal measure, and to use the money for something useful. I'm presuming it's the first part you think is wrong. Keeping in mind how small the death benefit and cash values are, if you have some expertise that would convince the rest of us, we'd like to hear it.



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