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Question: Given 4, should my cousin continue with Permanent Life Insurance, change to Term Life, or cease and desist from any insurance?

Details: 1. Living in Canada, my healthy cousin is 26 years old. She is still a student whose tuition is paid by her parents, earns no income, and has no dependents.

2. Under the advice of their insurance agent, In Sep 1999, her parents purchased for her Whole Life Participating Life Insurance and chose to use the Dividends to increase Coverage, for 20 years, with $100,000 as the benefit amount, and a monthly premium of $50.

3. As of March 2016, her parents have paid $50 x (12 months x 17 years + 6 months) = 9900. They do not know how to adjust for interest and inflation.

4. Reason for the purchase: My cousin knows that if she dies, then $100,000 can help my uncle and aunt after their retirement. My cousin’s parents themselves have Permanent Life Insurance.

  1. On 29-Mar-2016, her insurance agent confirmed the Cash Surrender Value as $1578.92, if my cousin chooses to stop the policy now.
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    Seems like a bad investment, she only has around a 1 in 25 chance of dying by age 46, meanwhile she'd have paid $12K in premiums (worth much more than that if she'd invested the money) over 20 years. So she's paying $12K for a 1 in 25 chance of "winning" $100,000 for her aunt and uncle. She'd be better off just giving them the money directly. I can see the value of life insurance if, say, a husband wants to be sure his wife can afford the house or raise children if he dies, but not as a way to provide "extra" money to someone. – Johnny Mar 25 '16 at 0:46
  • @Johnny Thanks for the advice. What should she do now though? – Pamela Lee Mar 25 '16 at 0:50
  • If they bought whole life insurance the policy remains after the 20 years of premium payments. If this were term insurance (it would have cost significantly less) it wouldn't exist anymore after the 20 year period. While it's not likely she'll die by age 46, it is pretty likely that at some point in her life she'll want life insurance and now she'll have this policy for her entire life. Notwithstanding the inevitable argument about the value of whole life against investing the money, I'd be pretty excited if my parents did this for me. – quid Mar 25 '16 at 2:36
  • @quid Does your comment (which seems to approve of the policy) above differ from Johnny's? – Pamela Lee Mar 29 '16 at 21:26
  • I don't approve or not approve of it. Her parents bought her something, I think everyone needs to take a breath and understand what's actually in place before simply badmouthing the product choice and suggesting you just let it lapse. As an example, Johnny doesn't understand that the premiums are only paid for 3 more years but the coverage remains in place for your cousin's entire life; or that your cousin isn't the one paying the premiums anyway. – quid Mar 29 '16 at 21:36
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If you do not have obligations that can't be met if you die -- financial dependants, generally -- you do not need life insurance. Period.

  • Thanks, but because her parents have already purchased the insurance and paid so much, what should my cousin do now though? – Pamela Lee Mar 25 '16 at 0:51
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    Let it lapse. Do not pay for something you do not need. There are better things to do with the money. – keshlam Mar 25 '16 at 0:52
  • @JacquelynLi, you should call the insurance carrier and ask what the cash value is. This policy was bought in 1999, 17 years of premium have been paid on a 20 pay whole life policy, you should understand more about the policy before letting it lapse. If the dividends were used to increase the coverage amount, after 17 years it's likely the coverage amount is more than the original $100k. – quid Mar 25 '16 at 2:43
  • @quid Thanks. My cousin replied to me today: please see bullet 10 in my edited post – Pamela Lee Mar 29 '16 at 21:27
  • I see no edit here. If you mean the other question, I responded there. – keshlam Mar 29 '16 at 21:28
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Whole life is materially different than term life. Term life the coverage expires after the term, whole life remains in place even after the premium period.

There are a variety of whole life insurance products, some you pay premium for a specified number of years, some you pay to age 65, some you pay even longer. Without starting an argument as to the value of a whole life policy (which is basically irrelevant here as your cousin isn't paying for it anyway), you need to find out more about the policy. There are a couple of important points, the cash value and the face value (generally known as the coverage amount). You should call the insurance agent or the carrier to understand the policy's cash value and coverage amount.

Do not simply let this lapse without understanding the cash value. Whole life policies will generally eat up the cash value to pay the premium through the payment period until that's been depleted before the policy finally lapses. By your math there's about $1,500 left in premium (that your cousin is not paying), your cousin should understand what happens if she or her parents stop paying it.

  • My cousin replied to me today: please see bullet 5 in my edited post overhead. Does it change anything, namely your last paragraph? – Pamela Lee Mar 30 '16 at 15:08
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A number of the answers here seem to address a question that wasn't asked. There is no opportunity here to go back and un-cook the egg. The product was purchased and is (basically) paid for. Letting it lapse is throwing good money after bad. Pay out the remaining payments and keep the policy document in a safe place. One day you will look back and realize you have long since forgotten what the policy cost but you still have the policy, for life.

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    Are you familiar with the phrase "throwing good money after bad"? Sometimes the thing to do is accept the loss rather than spending more. – keshlam Apr 11 '16 at 4:19

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