Insurance question - WAGs welcome

in conversation yesterday, a 91 yr old man mentioned that he had a paid up life insurance policy, that had a cash value of $100k. Instead of paying an annual premium of $3k, he intended to cash it in and distribute the $100k to the 3 beneficiaries.

I know very little about insurance, but doesn’t this sound like whole (as opposed to term) life insurance which would have a significantly higher death payout than the $100k cash out value?

I was just wondering. At first, I interpreted the thought of distributing the $100k to be a generous act. But later, I wondered if the desire to save $3k/yr for a limited number of years to be economically unwise.

Not that it matters, but any of the old guy or the beneficiaries could easily afford the $3k/yr, and all of the beneficiaries are financially comfortable.

I am not an insurance person, but by age 91 it is possible that a whole life policy is worth more than face value if cashed in. It does grow without bound as far as I know. It depends on when the policy was taken out. If he dies I am sure the cash value of the policy would be paid out if it is larger than the face value. So cashing out now does 2 things: stops him paying into the policy and gives the money to the beneficiaries early.
Not a bad strategy.

If it is a paid up policy why does he still pay a premium?



Like I said, I am VERY ignorant as to life insurance. I likely misheard what the guy said (and he has a well-earned history of being dishonest, so there’s no guarantee that whatever he said was accurate! ;))

Please feel free to read the OP omitting the words “paid up.” In my ignorance, I had thought you had to have paid some minimum amount into a policy before it had any cash out value. I have no idea how long he has had this policy, or whether it is “paid up.”

And I also ignorantly assumed that any present cash out value was generally quite lower than the ultimate death benefit at some point in the future.

I know next to nothing about how life insurance works. But is it possible he did this so he could give the money to who he wants and give them each the amount that he wants to give them as opposed to the actual beneficiaries or according to a will he’s since changed his mind about.

I don’t know if you can do that (legally), but if you can, maybe that was the reason.

Or, and probably most likely, he wanted to give them the money while he was still around to see them get it.

Even in a “paid up” whole life policy there are still premiums. In whole life terms, “paid up” really just means that the cash value equals the face value of the policy. If the premiums are not paid, then the policy lapses and the insured can be left with nothing. Once a whole life policy has reached a significant cash value, one potentially has 2 options to keep it in force:

  1. Continue to pay the premium
  2. Convert the policy to allow the premiums to be deducted from the cash value. this lowers the cash value and death benefit amount.

Note: not all whole life policies allow conversion to cash value premium payment.

It sounds like this gentleman has converted the policy to “paid up”, is having the annual premium deducted from his cash value and has decided that the better value would be in cashing out the policy. It may be or it may not be, there is no way for us to tell without knowing his whole financial picture. Cashing out and disbursing to others early will have tax implications, he should consult an expert to determine exactly what those would be.

Like I said, this guy (my FIL) is a pathological liar and a financial schemer, so I doubt any chance of getting a straight answer as to the facts or his motivations.

He fathered 5 children (that we know of) with 2 women - my wife and her 2 sisters, and another 2 with his current wife. He maintained both families simultaneously. His current wife was/is his bookkeeper and knew about my MIL. Not sure how much or whether my deceased MIL knew.

With his current wife, he took various steps to transfer to his “other” family. But, like I said, we’re doing fine, and haven’t taken action - even when we likely had possible legal claims. And the MIL took NO steps to protect her kids’ interests during the divorce.

It is confusing and frustrating when he says things like property/expectations that are my wife’s and her sisters’, when we’ve seen the deeds transferring it to the other family. We aren’t counting on ANYTHING from him, and instead, just try to maintain somewhat pleasant relations with him so long as he lives.

But when he mentions something like this insurance, our learned response is to question, “What’s REALLY going on.” Maybe he realizes he has screwed over his 1st family, and this insurance is some small way to move some assets to them, without his current wife’s knowledge. Or maybe he is so cheap that he will save himself $3k/yr for a few years, rather than have my wife and her sibs enjoy a higher death benefit. I really don’t know.

When he dies (if he ever does!) it will be nice to not have to go thru these mental gymnastics all the time.

You’re not going to get any useful information if this is the source of hard data in your question. At this point we’d need to see the actual policy: application, contract language, proposed charts, and current status/values.