View Full Version : Questions About Life Insurance
grammadidi
Feb 4, 2013, 10:10 PM
My husband has had a life insurance policy he took out in 1969. He turned 65 in April 2012. The face value of the policy is $5000. It has an accidental life feature for what we assume is an additional $5000. The cash surrender value of the policy is about $8900.00 now and he continues to pay small monthly premiums (less than $8.00 per month). I have pretty much ascertained it would be counter-productive to take out a loan on the excess amount and that's really not what we want to do anyhow. I do have a few questions though.
1. If he died would the insurance payout be $5000 or would it be the equivalent of the cash surrender value?
2. I know we would have to pay taxes on the difference between the $5000 and the cash surrender value, but would it make sense to cash in the policy at this stage in the game?
My husband is American and I am Canadian. We live in Canada. I don't qualify to receive any Social Security or Canada Pension Survivor's Benefits if he dies before me. We are wondering if we should cash in the policy, pay the taxes, roll it into some kind of Retirement Savings Plan or other tax-deferred or high interest investment in my name as I have minimal taxable income and I am still (slightly) less than 60 years old.
Any learned thoughts and advice from people who actually know about Life Insurance from a professional standpoint?
Thanks so much,
Didi
ScottGem
Feb 5, 2013, 04:22 AM
I would talk to the agent that sold the policy (or an agent of the insurance carrier).
joypulv
Feb 5, 2013, 05:04 AM
I don't know Canadian taxes nor am I am expert on insurance, but I would cash it in. Even at $7 month (why isn't he paying once a year?) that sounds high, considering that life insurance rates keep dropping. Where to put the money is the big question, because there is nothing safe that will be high yield, and you shouldn't pick anything risky. I would put it in the bank, myself. You are going to probably need it.
(I like to 'invest' in my house and grounds with an eye to resale value while interest rates are low.)
Fr_Chuck
Feb 5, 2013, 08:15 AM
There are dozens of types of policies and dozens of variations of each type.
The actual policy should on page 2 or 3, have a charge that will cash value, and also death benefit,
But the death value will go up as the cash values go up. On most policies that gain cash value.
grammadidi
Feb 5, 2013, 10:52 AM
I would talk to the agent that sold the policy (or an agent of the insurance carrier).
I definitely will do that, but I was hoping for some unbiased input first. I'm sure the insurance people's prime interest is in making them money, not me. As such, I am pretty confident they would encourage me to take out a loan on the difference between cash value and accrued value. The trouble with that is that you are taxed on it when you cash it in, you pay interest on it until it's repaid and I expect you pay tax on it again when you receive your final payout.
My thoughts are to leave it there, but it just might be worth our while to take it out and get the cash up here in Canada at some point. The dollar is pretty much at par right now, so we thought now might be a good time.
Thanks for your input.
grammadidi
Feb 5, 2013, 11:25 AM
I don't know Canadian taxes nor am I am expert on insurance, but I would cash it in. Even at $7 month (why isn't he paying once a year?) that sounds high, considering that life insurance rates keep dropping. Where to put the money is the big question, because there is nothing safe that will be high yield, and you shouldn't pick anything risky. I would put it in the bank, myself. You are going to probably need it.
(I like to 'invest' in my house and grounds with an eye to resale value while interest rates are low.)
The policy is a very old policy and for some reason they won't let us pay annually. I'm not really about where to put the money. If I can roll it into a spousal Canadian retirement account then we wouldn't have to pay taxes on it up here until we withdrew it. I also have the option of putting it into a high interest account that the interest is non-taxable as it allows you $5,000 a year deposits which is accumulative (i.e. if you don't put the maximum amount in one year you can add it to another year). If we can't put it into a non-taxable account of some kind then I would definitely use it vamping up the house as we are tossing the idea around of selling.
The payments are $7.52 a month so he has only put $90.24 a year into the policy since 1969 - 44 years in February. That's only $3,970.56 - far less than the $5000 policy or the near $8900 cash surrender value. So, I'm thinking that even at terrible interest rates it would be better making interest in my name as I have the lowest income for tax purposes and I'm younger. Here in Canada, husbands can take out Spousal RSP's, get a tax break on the money put into it (have it deducted from your taxable income) and the money isn't taxed inside the Retirement Savings Plan until it is withdrawn. Without speaking to a financial advisor I am personally leaning this way. It's not going to be heavily taxed anyhow, because it's not a huge amount of money.
Anyhow, thank you for your thoughts. It's good to hear other people's personal opinions but I do hope to hear from someone who is or has been in the insurance field though.
Didi
grammadidi
Feb 5, 2013, 11:34 AM
There are dozens of types of policies and dozens of variations of each type.
The actual policy should on page 2 or 3, have a charge that will cash value, and also death benefit,
Yeah, that's part of the problem. My husband doesn't have a copy of his policy... perhaps lost during the first marriage and his younger years; or his four moves since then.
But the death value will go up as the cash values go up. on most policies that gain cash value.
Well, at least if that's a fact then we won't lose the extra $3900 if something happens to him while we are making a decision! ;) We just learned a few months after his 65th birthday that another insurance policy (his ex had lots of policies on him... hmmmmmmm... ) stopped at age 65. If we had of known that we would have cashed it in long ago. The death benefit was $80,000 on that one, and now it is gone. I just don't get that. In that case in 2007 the insurance company suggested we don't cash it in, and just leave it there. Now we understand why. Sigh...
Thanks, Chuck. I appreciate your input.
Didi