Universal Life Insurance Policy on my mother.

Question

My mom is 62. She has a $25,000 Universal Life Policy that she has had for about 10 years. She wants to cash it in. There is about $3,300 in cash value right now. The target premium is just under $400. I am contemplating taking over the ownership of the policy. I do not need the money, but I believe this would be a wise investment. I will pay her the cash value and take over the premiums. I am already the benificiary. Any financial gurus out there? Is this a good idea?

Answer 1

Depends on her health and depends on how long she lives.  It may be.  You'll want to check to see who the insurance company is and then whether the premium is guaranteed because you don't want to buy it and have the policy "blow up" and be worthless 15 years from now.

Other than it frankly being kinda morbid, it potentially could be a good idea.  Morbid in that it's an investment and not insurance for protection, but I'm not here to judge and I'm not saying I wouldn't do it.

http://www.InsurancePickle.com  

Answer 2

Universal life policies have a tendency to blow up after a certain time frame...especially in this kind of market where the balance keeps dropping.

In my opinion, get a term policy for the same face amount and take that cash value and use it to pay the premiums.  At a conservative 8 percent avg, it would last around 8 years before you would have to pick up the tab.  With the market on sale, it could conceivable last longer.

A 15 year Term product would cost about 50-$100 ($491 from my company - standard rates) more per year than what is being spent now, but a good term product wont blow up on you as bad as that policy could.  You should also look at when the policy is going to lapse.  It should be on the front page.  They designed it that way.

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All in all, consult a local analyst WITH YOUR MOTHER to find the best solution.

Answer 3

It's a crappy idea.  RUN THE NUMBERS.   Any cash value will be subtracted from the payout amount, at the time of her death, PLUS interest.  

Insurance - even universal life - is NOT a good investment vehicle.  

Just look at how much you'll be paying in each year, and how much cash value you'll be paying out to her each year, and subtract the interest and cash value from the face value, each year, and calculate the return your money will be paying you.

The longer she lives, the more negative return you have on your money.   It just doesn't make sense.