Personal Finance

Keep or cancel whole life insurance?

  • Last Updated:
  • Oct 7th, 2019 2:20 pm
[OP]
Member
Apr 21, 2019
210 posts
143 upvotes

Keep or cancel whole life insurance?

My wife's mother started her with whole life insurance when she was a baby. She paid it for about 25 years then stopped paying for the last 3 years. Basic coverage is $32,000. Additional coverage purchased with dividends is $24,000 (has been declining last 3 years). Cash value is $7,000. There's a yearly "dividend" of approximately $100. The plan is with London Life.

Thoughts?
9 replies
[OP]
Member
Apr 21, 2019
210 posts
143 upvotes
starchoice wrote: Does she still need insurance?
She's clumsy but relatively healthy, so it's a wash. I'd lean towards no, though.
Deal Fanatic
Apr 5, 2016
5288 posts
3770 upvotes
Calgary/Vancouver
What can you really do with a $32k policy lol I don't even think you can get a burial space with that.
[OP]
Member
Apr 21, 2019
210 posts
143 upvotes
Forgot to mention the monthly premium is $24. I'm thinking of canceling it since she doesn't need life insurance, but not sure if/how much cash $$ she would get for canceling vs. keeping it until she dies.
Member
Dec 3, 2002
487 posts
27 upvotes
BC
Just be careful about the Cash Value portion.
My understanding is that if you exercise that option, it is considered personal income to CRA.
Deal Addict
User avatar
Oct 13, 2007
3652 posts
2312 upvotes
Edmonton
monsterdon wrote: She's clumsy but relatively healthy, so it's a wash. I'd lean towards no, though.
The basic premise is that if you don’t need the proceeds for what it was originally intended when purchased, you should get rid of it.

I think you provided your own answer.
Deal Addict
User avatar
May 11, 2014
4627 posts
5501 upvotes
Iqaluit, NU
I would think of it this way. Is $7000 in cash now more valuable than $32000, plus possibly more in death benefits? So part of this I would think about how old she is and base it on that.

The $7000 should be tax-free since her premium payments should be more than that based on the information provided. I believe cash value is only taxable if the cash value exceeds the premiums paid in, so I would ask London Life to check the tax implications of withdrawing.

If the monthly premium is $25, part of this is the monthly cost of insurance (to provide your MIL's basic coverage) and the small amount that goes into the cash value. Since you didn't say the cost of insurance, I am just going to use $25.

So the options are $7000 now, or $32000 in death benefits for 280 months assuming level cost of insurance and $25 is the monthly insurance cost (another thing to check the policy) ? If she probably will live past another 10 years, I would probably cash out, but if she is already quite elderly or health wise not well, I would probably keep the policy, unless that $7000 is more valuable now
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
[OP]
Member
Apr 21, 2019
210 posts
143 upvotes
xgbsSS wrote: I would think of it this way. Is $7000 in cash now more valuable than $32000, plus possibly more in death benefits? So part of this I would think about how old she is and base it on that.

The $7000 should be tax-free since her premium payments should be more than that based on the information provided. I believe cash value is only taxable if the cash value exceeds the premiums paid in, so I would ask London Life to check the tax implications of withdrawing.

If the monthly premium is $25, part of this is the monthly cost of insurance (to provide your MIL's basic coverage) and the small amount that goes into the cash value. Since you didn't say the cost of insurance, I am just going to use $25.

So the options are $7000 now, or $32000 in death benefits for 280 months assuming level cost of insurance and $25 is the monthly insurance cost (another thing to check the policy) ? If she probably will live past another 10 years, I would probably cash out, but if she is already quite elderly or health wise not well, I would probably keep the policy, unless that $7000 is more valuable now
I guess a lot of the decision hinges on whether the $24,000 is surrendered (only $7,000 cash if withdrawn now). If so, then $56,000 on death payout might be better than taking $7,000 now. We are waiting for the company to mail us details about the plan so we can better understand the options.

Wife is just under 30 so she probably won't be dying any time soon. Even if she does die, I am comfortable supporting our family without her.
Deal Addict
User avatar
May 11, 2014
4627 posts
5501 upvotes
Iqaluit, NU
monsterdon wrote: I guess a lot of the decision hinges on whether the $24,000 is surrendered (only $7,000 cash if withdrawn now). If so, then $56,000 on death payout might be better than taking $7,000 now. We are waiting for the company to mail us details about the plan so we can better understand the options.

Wife is just under 30 so she probably won't be dying any time soon. Even if she does die, I am comfortable supporting our family without her.
Ah sorry misread the question a bit. Thought the policy was on your MIL. If your wife is healthy and that young, probably not worth keeping it. If you have certain insurance needs right now such as a mortgage, loans, dependants(kids) etc., that insurance isn't probably going to give ample coverage unless your wife doesn't qualify for insurance today. Definitely get the details of the policy and your options first, but for insurance needs now, if you both qualify for a term for your needs such as kids or house which shouldnt be lifetime, this whole life term isn't super beneficial and likely cashing out will be better.

One option is to see if term riders are available for purchase on the permanent policy as well. This could be cheaper and allow for further permanent coverage conversion later. It could also mean less qualifications are required to purchase than starting a new application.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222

Top