Decades ago, when I was the sole income provider for a family of six, I took out a whole life policy.
Now we have two revenue streams and an empty nest. The cash payout ($12,000) would pay off our mortgage.
What factors should I consider in making this decision?
What sort of return is the policy currently paying? Can you do better elsewhere?
What are the tax implications if you surrender your policy and pay off your mortgage?
Do you have an ongoing need for life insurance? Once this policy is gone, it could well be more expensive for you to get cover in the future, and there are likely to be more stringent health checks required, as you are now older.
Thanks, I will have to do some research on these questions.
When doing the equation, how much is “Yeah, I have no mortgage” worth?
I can only speak for myself. Having paid off the mortgage was liberating to me. Without that monthly outlay (which was the largest expense) I focused on putting the extra disposable income into other investments. Also, there’s a good feeling from knowing that no matter what happens I’ll have a roof over my head. In other words, it’s not strictly an economic decision. There’s an intangible benefit from paying off your mortgage. However, in your case, if your mortgage is a measly $12K, can you not pay if off without the insurance cashout? Regardless, does an extra $12K in cash really change your financial situation? If not, and if it’s earning you a good return, it may be better to just not cash out.
I am giving consideration to the mind set that I should buy term life and not have a whole life policy.
I hear you about the good feeling factor. One CPA I worked with couldn’t understand why I wanted to pay bills before they were due. She would calculate the intertest for the week and consider that a loss. I looked at it as insurance for the mail being slow, or any other thing that would mean a late payment, and the problems that go with that.
If the whole life policy is old enough to have that big of a cashout value, look at the current premiums of that vs. a term life policy. It might be cheaper to keep the whole life policy.
A lot of term life insurance goes away when you hit a certain age, typically 70. Whole life does not.
Depending on your age, and your overall financial picture, will you have enough to help your wife out even if you no longer have insurance after age 70? If so, and term saves you enough in the short term, then that might be worth going for.
At your age (kids grown etc.), chances are your insurance needs aren’t nearly as high as they once were. So you might want to get a term policy for a lower face value - or you might even be able to modify the existing whole policy to have a lower face value (just guessing on that).
There’s something called “level term” life insurance where the premium is fixed for something like 5, 10, or 15 years. That might be a good choice for you, if you do decide to go for term life.
This should probably be obvious, but it’s worth pointing out just in case it was overlooked … Before you cash out the policy, make absolutely sure that you’re not already dead. This could make a tremendous difference in the policy’s value.
You’re welcome!
Just to clarify, if I am dead, do I give a cr@p about money?
Quite possibly. How did you die? Did your wife “hasten” that in any way ;)? That would affect whether you want her to have the insurance policy value, or just the cashout value (which she’d have to spend on burying you).
What kind of monthly payments are we talking here, for how long left, either way you probably are not paying much interest right now and the vast majority is hitting principal. If the value of your whole life policy is still climbing the money might be better left there. If you do pay off the mortgage, you might want to consider pumping the same amount into investments for a while to make sure you have plenty of reserves that the life insurance would have provided if something happened.
The #1 thing you should think about before cashing in your policy is, am I insurable if I should want to apply for another policy?
Yep - if you cash it in without having another policy already in place, only do so if you’re sure you can do without life insurance in the future.
The OP is, I gather, hitting an age where health problems start to crop up and become more numerous - so ability to get a new insurance policy that is affordable is a valid concern!! We’re in our early 50s, and for various reasons we’d both have a hard time getting insurance, so we’re being careful to hold onto what we have (and our couple of smaller whole life policies will stay put).