Please note I am not an insurance expert and I haven't look at whole life schedule in a while.
The last time I looked at this situation for my parents, I thought it was better to keep the cash value in the policy instead of taking it out to deposit in a high yield savings account (2-3% APY). I haven't consider the option to use it to pay down mortgage, but if your mortgage interest rate is in the low range -- i.e., 5-6% -- I think it's better to keep the cash value where it is. If it's earning 5%, it's as good as it gets and it will serve as your emergency fund.
For my parents, we decided to use some of the cash value to make the policies pays their own monthly premiums. This freed up over $300 in cash per month for my parents.
Remember that whatever you withdraw from the cash value will lower your death benefit, so think about that before you withdraw.
Answered by
Pinyo
at
Jul 23, 2009 03:10 PM
It's really hard to answer life insurance questions like this with the information available. Even with complete information, most people carry their own biases in the answer. In order to get the most unbiased and informed opinion, I might recommend talking with a fee-only financial planner. (I am not a financial planner and this is just general advice.)
If you are going to pursue this decision on your own, the first thing to figure out is what impact pulling the money out would really have on your life insurance policy and what net interest rate you are actually earning. If the statement says it earns 5% interest, that is usually a gross figure, which(if it's gross instead of net) would not include the cost of mortality and so on. What is the "interest rate" based on and how likely is it to continue at that amount? You might also want to consider that most life insurance cash value grow tax-deferred. -So calculate your real return and figure out how volatile it might be in the future.
The other part about your life insurance plan that I don't quite get from your question is how the 10 year term might protect your wife's retirement because she would be 64 at that time. Perhaps you mean that you only need to protect her ability to retire until she makes that election.
Once you get ahold of this, it's about trade-offs. But trade-offs between two complex financial vehicles - I'm sorry that means there is no easy answer. If you find yourself stuck, consider a fee-only financial planner. Most financial planners charge less than the cost of making the wrong choice to help you out. If you go that route, look for one who doesn't make their money based on whether you follow their advice.
Answered by
Clarifinancial
at
Aug 3, 2009 12:34 PM
I have worked in the insurance business for several years. Before you do anything, you should consider your wife's health, the number of years she will continue to work, and any other obligations you might have for your family before you get rid of whole life insurance. You could also convert the whole life policy to term insurance and have coverage for the rest of her life.
I would highly recommend that you seek the advise of a trusted life insurance professional before you cancel any policy.
Do you have children or grandchildren with special needs?
In addition, I would talk with my investment counselor before making any large financial decisions. What does your wife say? Her investment thoughts might be entirely different from yours. How would you want her to decide if you go first?
Answered by
henryhenry22
at
Aug 7, 2009 11:34 AM
This is per the Allstate site:
Your cash value grows based on a guaranteed rate. As long as you've paid your premiums, you can borrow against the cash value like you're taking out a loan. Then, you can pay it back at the current policy loan interest rate.
Hope this helps!
Kevin, Allstate Insurance Advocate
Answered by
kevin33
at
Feb 23, 2010 03:31 PM
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