If you own more than one cash value life insurance policy, how do you reflect that in the model?
Douglas,
You have to try to combine them into one aggregate policy for the model.
Stuart
In general, I'd solve the problem by selling them/cashing out and if you still need life insurance, get a good, simple, inexpensive term policy. In every case where I've analyzed these for clients, they were a pretty bad deal and grossly favored the insurance companies over the client. The contractual language is complex and usually horrendous.
People think that if they have a cash-value (whole, universal, variable, indexed, etc) life insurance policy with say a $500,000 death benefit, and their cash value grows to say $300,000, their beneficiary will get $800,000 if they die. Not so, again in the cases I've seen. The beneficiary will get $500,000, and $300,000 of that consists of the cash value. So, you're accumulating cash to more and more let the insurance company off the hook when it comes to paying up.
Sure, some let you "invest" (variable, indexed, etc) but your return is capped at a participant rate. So if the bundle of money you handed to the life insurance company does well (markets returned 30+% the last few years!) you get capped at your 8% or whatever return, and they get most of the profit made from your money.
They're also full of fees and contractual cutouts that favor the insurance company. Fees come out of your pot, as well as premium increases as you get older. They are NOT insured, so if the insurance company goes belly-up, you're stuck, and even if your state has a bailout fund, good luck with that, getting in line with many others for that limited pot of money.
They say "buy term and invest the rest" for a reason. I've had my clients cash these out, pay down debt, and put the money to work for *them* with no middleman in a good, simple, understandable, solid investing plan that meets their goals.
Amen.
Thanks for the feedback. I have two small whole life policies that cost me $11 or less a month and were paid off at 50. I'm now 67. The death benefit is less than $70K in total, enough to pay funeral expenses and some estate taxes. Not worth cashing out.
