Mixas99,wesboag wrote: ↑Feb 27th, 2017 5:04 pmHello mixas99,
This isn't the first time I have seen these policies sold to unsuspecting individuals by insurance reps either uneducated/inexperienced and/or just out looking to make a quick buck. Joint first to die certainly has its merits in certain cases, but not on a yearly renewable basis (cost) and never with an expected annual return of 10% on the investment portion (this is after fund MER's). As you have illustrated, YRT costs become unaffordable to most as you get older. Reason of course is your statistical likelihood of dying gets that much greater. The problem is, these agents either unknowingly or ignorantly illustrate unearthly rates of return to suggest the policy will "maintain" itself after x amount of years or curb the increasing cost. This is rarely if ever possible.
If you are going to buy a joint first to die (or even a last to die), in my opinion it should be only be as "level" cost of insurance. Don't kid yourself, you will pay for this feature, but at least it’s guaranteed. This way you do not have to worry about sustaining a required rate of return. You are paying for the pure cost of insurance.
To answer your questions:
1) Yes you will pay until the first person passes. Could be tomorrow, could be age 100, you don't know this. Further, once a policy owner reaches age 105, the policy is considered contractually paid up and no further payments are required. The likelihood of this occurring is VERY rare, even more so on a JFTD.
2) The policy will not lapse at 100, unless the first of you die at that point or you cancel the policy. If any remaining cash value is in there (next to impossible), it is yours - taxable of course.
3) Increase in cost looks within range. Clearly it’s going to become unaffordable.
If you still need insurance coverage you should have insurance. If you still have your mortgage and the surviving spouse would be left in a precarious financial position, you need insurance. Your particular circumstances will dictate what you need in terms of coverage (if any) and for how long. I recommend you go through a needs assessment with a qualified insurance advisor - not someone simply looking to sell you the flavor of the month. The needs assessment will look at incomes, debts, other financial needs, etc in helping you determine what your risk is - and how to protect against such.
As unbiased as I am, I would recommend you look into new coverage (either term) or permanent (level) if you have estate planning needs as well or a desire to continue coverage past say age 75-80. If all you want to cover for is your mortgage debt, purchase a term 10, 15 or 20 depending on mortgage amortization (decreasing this amount every 5 years or so as the mortgage is paid down). If you are around age 47 (based on your purchase date and age of current policy) - a term 10 for each of you (for $400k) shouldn't cost more than $85/month, a term 15 - $145/month or term 20 for $155/month. If you reduce the coverage amount every 5 years or so even cheaper.
In any event never cancel your current policy until you have other coverage in force. You don’t know how your insurability may have changed over the past 9 years.
I agree with wesboag. 10% performance is pretty unrealistic granted even most funds barely break an annual 8% mark on a 10 year performance scale. Unless Manulife gives additional bonuses when you hit a certain %, it's going to be very hard to hit 10% year after year. In terms of your policy, aside from surrendering your policy you can consider the following:
1) Ask Manulife if they can convert it to a Level pay policy. Obviously your premiums will shoot up right away but at least you know what you'll have to pay going forward making it easier to budget your monthly / annual finances. Not all insurance policies allow that, but if Manulife allows that, it might be an option for you.
2) Review your funds and perhaps make some tweaks. 3% annual seems like you've invested in conservative funds. I don't know your risk tolerance so maybe indeed the funds you chose fit your risk analysis at the time.
3) UL policies have a max range above the Cost of Insurance which goes directly into the "investment" portion of the policy. Perhaps you would like to put more per month to the policy so it goes into the investment portion. Obviously this still depends on your fund performances so whatever you decide to put in "additionally" still grows at the 3% (or whatever performance your funds will grow at). By putting more into the policy will allow the cash value to increase at a quicker pace hopefully outpacing the increase in premiums.
I'm usually hesitant in telling my clients in surrendering policies unless it's absolutely the last resort. Insurance policies get more expensive as you grow older. So whatever you're currently paying, and the coverage you get at the moment will more than likely be cheaper than if you were to get a quote a few years later. Aside from that, Insurance policies in general do get rate adjustments here and there (e.g. two policies with the exact same criteria - same age, underwriting etc. from early 2016 and now would show the policy in 2016 being cheaper). So while surrendering your policy and getting a term insurance might make sense from a cost of premium point of view, but don't forget if you ever choose to get life insurance again in the future it's hard to foresee what your medical history would be like and your age might cause you to pay the same amount but with much less face amount.
I suggest you to revisit your portfolio with your advisor (or go to a new one) and make some changes. Ultimately, it boils down to what you're looking to do with the life insurance policy. Is it just to cover the balance of the mortgage in case anything happens or are you looking for more e.g. estate / retirement planning? Depending on your needs (Needs Analysis), your advisor can then make changes to your portfolio as needed.