Do I Need to Transfer Ownership?

[Barney]

My father passed away 18 months ago. My mother recently received a renewal for life insurance policy listing me as the insured. She didn't know anything about it.

I called the insurance company and they confirmed the policy is in both my mother's and father's names listing me as the insured and both of them as the beneficiary.

It's a small policy ($50K) and I feel no need for it to be maintained. The insurance company emailed forms to transfer ownership of the policy to me and they are requesting my father's death certificate, etc.

Do I actually need to transfer ownership? Can we simply not pay the renewal and let the policy lapse?

I'm not incredibly knowledgeable about life insurance and I don't really understand the nuances of policy ownership.

Thanks.

 

[scagnt83]

It is likely that the policy will not Lapse if you miss just 1 years premium.

This seems like a Whole Life Policy. Which has a Cash Value, in addition to the Death Benefit.

This Cash Value will likely be used to pay any premiums that are skipped. So hypothetically, not paying the premium could mean this policy continues to be active for another 5-15 years.

This Cash Value (possibly called "Policy Value" on your statements) is accessible for the Owners of the policy to use. It could be cashed out and put in you or your mom's bank account. It could also be transferred tax-free to fund another life insurance policy. It could also be transferred tax-free to fund an annuity.

Doing nothing, means forfeiting whatever Cash Value is in the policy.

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Most likely, your mom can just "Surrender" the policy (requires filling out a form), meaning she Cancels it and wishes to receive the Cash Value. Then she will be mailed a check for whatever Cash Value is in the policy.

This is the easiest way to get the CV out and not have to Transfer Ownership.

However, depending on the insurer, you might want to consider keeping the policy. Could you tell us who it is with?

Some WL policies can grow well beyond the original Death Benefit. Also, some WL policies allow the Insured (you) to buy additional insurance with no health exam required, which is an extremely valuable feature to have in life for your family.

So make sure you know what you are cancelling before you cancel it.
Carrier?
How old is the policy?
Current Death Benefit?
Current Cash Value or Policy Value?
Riders attached to the policy?

If the DB is the same as the day it was bought and it has a tiny cash value, cash it out and go about your life. If the Cash Value is a decent portion of the Death Benefit, or if the Death Benefit has increased a good bit, it would be worth taking a second look at keeping.

 

[Life Hawk]

It's a small policy ($50K) and I feel no need for it to be maintained.

You might want to evaluate the cost to value ratio. If the cost to maintain the policy is very low, it may make tremendous amount of good reason to keep it. I would assume it was taken out many years ago? If so, your premium would be (whole life) fixed at a rate of a much younger age, you would not need additional underwriting for new coverage, and the policy would continue to build cash value.

Just some additional thoughts.

Doing nothing, means forfeiting whatever Cash Value is in the policy.

@scagnt83 is spot on. You don't want to do nothing, that could be a loose loose.

 

[scagnt83]

You might want to evaluate the cost to value ratio. If the cost to maintain the policy is very low, it may make tremendous amount of good reason to keep it. I would assume it was taken out many years ago?

Ditto. Old WL policies are usually valuable in many different ways.

I have a 68yo client with a $10k state farm WL his mom took out on him as a kid. It currently has over $60k in CV and earns around 5% per year. Pre TAMRA so no MEC rules. Only a $10k difference in DB/CV.

 

[Barney]

...However, depending on the insurer, you might want to consider keeping the policy. Could you tell us who it is with?...

Thanks for the compressive replies. Right now, I can't answer most of these questions. We only received a simple renewal statement. I haven't seen the actual policy documents.

The statement says "William Penn Life Insurance Company of New York a Legal and General America Company."

I'll see what additional information I can find out.

 

[Tahoe Ray]

Thanks for the compressive replies. Right now, I can't answer most of these questions. We only received a simple renewal statement. I haven't seen the actual policy documents.

The statement says "William Penn Life Insurance Company of New York a Legal and General America Company."

I'll see what additional information I can find out.

Depending on when this was purchased, it may be a GUL which is basically permanent term (as long as you keep paying for it).

William Penn had GUL for several years in NY before they nuked it. It used to be one of the best-priced products on the market. However, it would be unlikely to have much cash and would lapse on non-payment.

As scagnt83 pointed out, you need a lot more information to determine if you should keep it or let it go.

 

[Barney]

I was able to get some additional information. Apparently, my mother is listed as an alternate beneficiary, not a co-owner. Since she is still living, we will have to transfer ownership of the policy to her, since she is the executor of my father's estate.

I was told this is a "universal life policy" issued in 1986 and it does have cash value with an increasing death benefit option.

Despite being told they could only share limited information with me (since I am not the policy owner), I subsequently received an emailed document which shows that the death benefit has increased approximately $10.5K with an equivalent "surrender value."

We will do what's necessary to transfer ownership to my mother and go from there.

Thanks again.

 

[Life Hawk]

I was able to get some additional information. Apparently, my mother is listed as an alternate beneficiary, not a co-owner. Since she is still living, we will have to transfer ownership of the policy to her, since she is the executor of my father's estate.

I was told this is a "universal life policy" issued in 1986 and it does have cash value with an increasing death benefit option.

Despite being told they could only share limited information with me (since I am not the policy owner), I subsequently received an emailed document which shows that the death benefit has increased approximately $10.5K with an equivalent "surrender value."

We will do what's necessary to transfer ownership to my mother and go from there.

Thanks again.

If ownership transfers to you mother you might want to keep in mind (if she receives benefits from low income programs) that the additional funds may reflect as additional income or additional cash during an annual asset evaluation. To counter this effect, you can have your mother transfer the policy ownership to you. This will have the same resulting effect for you, so you might want to do your homework if you feel this might cause any additional issues.

These are important things to consider, as they can have positive as well as negative effects on the overall financial picture.

Just some additional food for thought.

 

[Barney]

If ownership transfers to you mother you might want to keep in mind (if she receives benefits from low income programs) that the additional funds may reflect as additional income or additional cash during an annual asset evaluation. To counter this effect, you can have your mother transfer the policy ownership to you. This will have the same resulting effect for you, so you might want to do your homework if you feel this might cause any additional issues.

These are important things to consider, as they can have positive as well as negative effects on the overall financial picture.

Just some additional food for thought.

I appreciate the food for thought. Thank you!

 

[WinoBlues]

I appreciate the food for thought. Thank you!

These guys have given you some good advice. I will add, as it is a UL I would request an As is Inforce illustration, and a copy of the last annual report. That will give you a better projection of the future of that policy.