A friend of the family for over 50 years text me seeking advice on a $70,000 UL policy that she purchased in 1998. It appears as though the policy was never properly funded, which is often the case. Recently, she received a letter informing her that if she continues paying the $64.58 monthly, which is the average premium paid over the past 2 years, the policy is projected to lapse in the year 2030, assuming an interest rate of 4%. At that time, she will be 74 years of age (currently 65).
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The notice suggests that if she increases her payment to $224,assuming an interest rate of 4%, the policy is projected to last 12 additional years, terminating in 2042. This is the route she is considering and asks for my thoughts. Although this additional premium will increase her cash value initially, the policy is still projected to lapse at age 86. This Friday, I am meeting with her to determine what her need was for $70,000 back in 1998, and her need today. However, here is where I am in my current analysis:
As of the 02/2020 statement, the CV was $8,373. Premium payments for the year were $775. Her COI was $1,019, and admin. and policy fee was $60. Interest credited was $329. As of the most recent statement, dated 2/2021, the ending CV was $8,397. The net effect, a gain of only $23. As time goes on, the COI will eat up all the CV, regardless of whether or not she increases the premium. It's only a matter of when.
Since she has $8,373 of CV, effectively she is buying $61,627 of term coverage for 9-21 years, depending on whether or not she increases her payment to $2,688 annually, or $56,448 over for the next 21 years.
Her 2 children are adult men, with their own families and doing well financially. Several years ago, a huge promotion afforded her the purchase of a bigger house, along with a mortgage. I'm almost positive that leaving an insurance policy for her adult children to keep the house or pay taxes on qualified assets is no longer important, if that was its intended purpose. They are all an extension of my family, so I know them well enough that maintaining her lifestyle upon retiring is the #1 priority, whenever that is.
1. My guess is that she no longer needs $70,000 for the same reasons now, as she did 23 years ago. Unless her net worth has improved significantly, all she should need is adequate coverage for burial.
2. If she goes the route she's considering, it's the same as flushing $65,000 (CV + Prem.) down the toilet, provided she survives the term. I don't see myself supporting that decision.
3. For the same amount she's willing to increase her UL premiums for temporary protection, she can reduce her need down to $30,000 of WL. Reinvest the CV of $8,373 to potentially produce $67,783 in the same 21 years. If death comes knocking afterwards, she passes on approx. $100,000.
4. There may exists the possibility of reducing her UL down to a guaranteed no-lapse level adequate for funeral or burial purposes.
Have I overlooked any opportunities that would make this existing policy work efficiently for her?
.
The notice suggests that if she increases her payment to $224,assuming an interest rate of 4%, the policy is projected to last 12 additional years, terminating in 2042. This is the route she is considering and asks for my thoughts. Although this additional premium will increase her cash value initially, the policy is still projected to lapse at age 86. This Friday, I am meeting with her to determine what her need was for $70,000 back in 1998, and her need today. However, here is where I am in my current analysis:
As of the 02/2020 statement, the CV was $8,373. Premium payments for the year were $775. Her COI was $1,019, and admin. and policy fee was $60. Interest credited was $329. As of the most recent statement, dated 2/2021, the ending CV was $8,397. The net effect, a gain of only $23. As time goes on, the COI will eat up all the CV, regardless of whether or not she increases the premium. It's only a matter of when.
Since she has $8,373 of CV, effectively she is buying $61,627 of term coverage for 9-21 years, depending on whether or not she increases her payment to $2,688 annually, or $56,448 over for the next 21 years.
Her 2 children are adult men, with their own families and doing well financially. Several years ago, a huge promotion afforded her the purchase of a bigger house, along with a mortgage. I'm almost positive that leaving an insurance policy for her adult children to keep the house or pay taxes on qualified assets is no longer important, if that was its intended purpose. They are all an extension of my family, so I know them well enough that maintaining her lifestyle upon retiring is the #1 priority, whenever that is.
1. My guess is that she no longer needs $70,000 for the same reasons now, as she did 23 years ago. Unless her net worth has improved significantly, all she should need is adequate coverage for burial.
2. If she goes the route she's considering, it's the same as flushing $65,000 (CV + Prem.) down the toilet, provided she survives the term. I don't see myself supporting that decision.
3. For the same amount she's willing to increase her UL premiums for temporary protection, she can reduce her need down to $30,000 of WL. Reinvest the CV of $8,373 to potentially produce $67,783 in the same 21 years. If death comes knocking afterwards, she passes on approx. $100,000.
4. There may exists the possibility of reducing her UL down to a guaranteed no-lapse level adequate for funeral or burial purposes.
Have I overlooked any opportunities that would make this existing policy work efficiently for her?
