UL Policy Question

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Topic Author
beerloin
Posts: 15
Joined: Thu Jun 16, 2016 9:57 am

UL Policy Question

Post by beerloin »

Hi BH,
I have a question about the UL policy I took out 11+ years ago.

Monthly Payment $70.00
Insured Amount- $100,000
Total Account Value $8004.00
Surrender Value $7,869.60
Surrender Charge $134.00
2020 Expense Charges: $138.00
2020 Cost of insurance: $110.68

If no further payments made- guaranteed rates (4%) keep covered until age 61, and 65 based on current rates
Continued payments- guaranteed rates covered until age 90, 121 based on current rates.

Additional Insurance-
$220K through company insurance plan, costs $2.80/Month

I was thinking that I should stop making payments on the UL policy and let the account draw down the value to keep the coverage until ~61yo.
It could then free up $70/m and I would get term life insurance.
A quick quote from term4sale showed $1.5m coverage 30/yr for ~$110.00/month PreferredPlus or ~$130 Preferred, if I qualify.

Question:
1) Is it as easy as stopping the automatic draft from my checking account?
2) Is it worth getting more coverage now or for a longer/shorter time period?
Thanks in advance for your input.


If needed, here is some additional info:

Emergency funds: 3 months

Debt:
House Mortgage $340K 2.79%
Condo Mortgage $126K 4.4% (looking to sell in May 2020)
Car loan $15K 2.79%

Tax Filing Status: Married Filing Jointly
State of Residence: AZ

Age: 37 M, 38 F, Kids: 4 & 2

Assets:
Condo- approx. $150K in equity
House- approx. $90K equity

Current retirement assets Total = $512K

Taxable $44K
100% VTI

His 401k $378K
Company match? First 3.6%
All index funds:
Large U.S. Equity 30%
Small U.S. Equity 26%
International Equity 15%
Emerging Markets 16%
Company Stock 13% ($0 additional contributions)

Her IRA $48K
BND 12%
VXUS 18%
VTI 70%

His Pension
Cash Formula- $50K (no additional contributions, other than interest)

HSA (not included above)
$28K
BruDude
Posts: 3573
Joined: Thu Dec 30, 2010 12:28 am
Location: Las Vegas

Re: UL Policy Question

Post by BruDude »

If you're in good health you'd be better off cashing out the policy to buy the term insurance you want. You have 24 years left if you pay nothing further. A 25-year term policy for $100k would be ~$170 per year, or a 25-year policy for $250k would be ~$240 per year. You could get more coverage for less money and that's not even factoring in any potential gains on what you've cashed out. Get the new policy place in force before you do anything.
Rex66
Posts: 376
Joined: Tue Aug 04, 2020 5:13 pm

Re: UL Policy Question

Post by Rex66 »

Just another example of how the cost of insurance within ULs is not competitive.

Reason to keep the policy would be your health decreased since purchase.
Topic Author
beerloin
Posts: 15
Joined: Thu Jun 16, 2016 9:57 am

Re: UL Policy Question

Post by beerloin »

I would say that I am generally in the same health- except 11 years older and maybe not as active as I was in my 20's?
My weight is the same and I drink a lot less alcohol, so I'm sure that has to count for something!
SS Rambo
Posts: 208
Joined: Wed Jan 29, 2020 10:55 am

Re: UL Policy Question

Post by SS Rambo »

I agree the policy looks like a drag on your total financial picture. But get the term in force before you cancel because you don't know what the underwriter will decide until it's final. And no, you can't just cancel it on your end, I would call the insurer, not the agent because they'll drag their feet.

Also, not what you asked, but total insurance seems low. It seems that replacing this policy with a much larger term amount would help cover the debts, lost income and some dependent care costs. Plenty of threads out there regarding the rational of: debt + 10 years of income + mortgage + education costs (DIME) if you want to peruse them.
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Stinky
Posts: 6941
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Location: Sweet Home Alabama

Re: UL Policy Question

Post by Stinky »

I’d consider upping the size of the new term policy that you’re considering.

When that is approved and in force, cancel the UL policy.

The cost of insurance charges on a UL policy will just eat you alive. It will be much cheaper to buy a new policy, presuming that you’re insurable at a good risk class.
It's a GREAT day to be alive! - Travis Tritt
Jack FFR1846
Posts: 13283
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: UL Policy Question

Post by Jack FFR1846 »

The cost of insurance in a UL policy INCREASES every year. Yes, they reset the cost as if you're Joe off the street. I cashed in mine shortly after finding that from my $390 a year or so payment, the monthly insurance cost was $69. Wait, what? Yes. So the design of a UL policy is that you merrily go on your way paying the set premium and the policy eats its cash value until it hits zero. Then you're done. No death benefit, no cash value. I cashed mine in. You should do that now. My policy was 27 years old when I cashed it in.
Bogle: Smart Beta is stupid
123
Posts: 6958
Joined: Fri Oct 12, 2012 3:55 pm

Re: UL Policy Question

Post by 123 »

Jack FFR1846 wrote: Tue Jan 19, 2021 12:27 pm The cost of insurance in a UL policy INCREASES every year. Yes, they reset the cost as if you're Joe off the street...
+1 Oh my, yes indeed it does. The insurance component of a universal life policy increases every year because it is based on annual renewable term insurance. You don't get the benefit of a fixed rate premium that you get with a (possibly underwritten) term policy for 20 or 30 years. Those increasing premiums will silently burn through the cash value faster than you can imagine.
The closest helping hand is at the end of your own arm.
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