Posted: 7/24/2007 9:04:53 AM EDT
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I live in Colorado and have been paying into a life insurance plan for about 17 years. It is a plan that if it is not paid out by the time I retire(66 1/2yrs) I can borrow my money back with interest. So it is sort of a retirement plan. I started paying into it after a divorce and thought that I would remarry and have kids. That does not look like that will happen anytime soon. I just turned 48 this month. Would it be a good idea to cash it out and use the money for something else(CD) or is there a better plan to pay into that I could transfer it to? I am not a financial wizard so keep it as simple as possible. 
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The "cash value" is a "living benefit" meaning you only get it if you cash it out. If you die, the beneficiary will get the death benefit, and the insurance company will keep the cash value. MOST policies work this way. If you cash it out, you will have to pay taxes on anything over the original amount you put in. (Cost Basis) You can do a 1035 exchange and avoid all taxes on the money. You would be transfering your life insurance Cash Value to a annuity which would allow it to continue to grow tax defer'd. If you do not have anybody depending on your income cash it out and put the money in a CD, Retirement Account, Mutual Funds, etc etc etc..... |
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"If you cash it out, you will have to pay taxes on anything over the original amount you put in. (Cost Basis)" Given the typical pitiful return on these policies this is not likely a large amount. Cash it out and invest it in something with a better chance of paying off. |
define "cash it out". OP should know the difference between surrendering the policy and "borrowing" against the cash value. |
I think "cash out" pretty much says what it means. How could anybody confuse a loan with "cashing out?" |
you can get cash out of your cash value life insurance by borrowing the cash value w/out the intent of ever paying it back. the death benefit would just be less the amount borrowed. did you know that? |
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Finally got back to this. I have been updating the job resume since the auto repair shop I work at looks like it is going out of business. The parts suppliers and Credit Card companies are calling for money and locking the online parts ordering site. Some of the other parts suppliers are asking for a check when parts are delivered. Owner/Operator is in a foul mood every minute of the day. I haven't had any decent work for a couple of weeks. Business has been very sluggish for 6 months. When I said cash out, I ment(sp?) that I want to stop paying in and get the cash value of the policy. It does say I can borrow money from the policy with interest. The policy is with Massachusetts Mutual Life Insurance Company. It is a Whole Life Policy With Premiums Payable to Age 65. What the policy states is that I have a Right to Surrender for the Cash Surrender Value with certain additions and deductions. I realize you always have to pay some sort of "fee" for moving money around. I have been paying on it out of my checking account so the taxes have been paid on the money I put in. I think I will Surrender it and put it into a CD. With my job situation and the fact that I am sick of working on cars for a living(20+years) it may be a good time to do something else. I have very little debt at the moment. Thanks all for your good advice. |
Woops, James you caught me, yes "surrender" is the right word. The only way to receive the cash value (except for a few select type of policies) is if you cancel your policy which surrenders the cash value. It's a living benefit. But is always sold as if you are saving for retirement. 
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Of course I knew that...was just commenting that the term "cash out" seemed to me to be self-explanitory, not implying a loan. The loan value is not the same as the cash surrender value. Did you know that? 
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you answered your own question. it's not self explanatory as you just explained it. this is how somebody can get confused about getting cash out from their policy. you are the one assuming surrender only as getting cash out. |
No, I'm implying that, to anybody with "walking about" sense, "cash out," in the context it was used, clearly didn't mean to just take cash out of the policy, but to surrender the policy. The OP later stated that he did intend to surrender the policy. If you own a stock and decide to "cash out," you sell the stock. |