Publication: Investor's Notebook
MAKING GOOD USE OF A LIFE POLICY | |
Subscribe FREE to Investor's Notebook by clicking here.
Investor's Insight - September 18, 2006
"A Digest of Investment Opinion From the
World's Leading Financial Advisers"
************************************************************
MAKING GOOD USE OF AN EXPENSIVE UNIVERSAL LIFE POLICY
by Scott Burns
Q: We bought a universal life policy about 18 years ago
in the amount of $155,000. Now the policy is being eaten
up by charges as I get older. The cash value is now
about the same as when we began, about $39,000. The cash
value will be wiped out in about six years unless in-
terest rates rise from the 4 percent the policy is now
paying.
My impression is that the company will not raise the
rate during this year and will be slow to increase it.
I bought the policy to provide a sum that would offset,
for my wife, the loss of my pension at my death.
We are toying with the idea of salvaging the cash value
now. It might not be an adequate amount for the intended
purpose, but it might be better than losing everything.
I am 78, and my wife is 71. Our $40,000 income is from
two pensions, investments and Social Security.
My Social Security, which she would receive if I die
first, is $16,074. Our net worth is about $388,000,
excluding the cash value in the policy, and about
$90,000 in home equity. How would you solve our
quandary? -- C.S., Houston
------------------------------------------------------------
Parents, Grandparents, Students & Children LOVE THIS...
Store Price: $9.99
DEAL PRICE: $4.99 or less
This complete, 68-piece art set promotes creativity, expression
and of course fun! Both children and adults will love this
all-encompassing art kit that includes:
- 12 Crayons - 12 Colored Pencils - 12 Colored Markers
- 12 Oil Pastels - 1 Liquid Glue - 12 Watercolor Paints
- 1 Paint Brush - 1 Pencil Eraser - 1 Pencil Sharpener
- 1 Paint Pallet - 1 Drawing Pencil - 1 Transparent Ruler
- And a Handsome and Functional Storage Case with Carry Handle
Get this complete set for just $4.99... have a gift to get?
Pick-up two sets for just $7.98. Check it out, by visiting:
Complete 68-Piece Creativity Art Set
------------------------------------------------------------
A: At age 78, life insurance costs get pretty hefty.
According to www.insure.com, a healthy 78-year-old
male could expect to pay over $400 a month for 10-
year term and $1,000 a month for a lifetime term
policy. So it will take a lot more than raising the
interest rate from 4 percent to prevent your policy
from exhausting its cash value pretty rapidly.
One option you should consider is converting the
existing policy to a paid-up life policy. The death
benefit will be substantially lower than $155,000,
but your wife will still have some life insurance
death benefit to offset the loss of your pension
income.
Before doing that, however, you should figure out
how much life insurance, if any, you really need.
Follow me on the math. If you and your wife currently
live on $40,000 and $16,000 of it comes from your
Social Security, the income you need to generate from
your investments or insurance proceeds is $24,000.
Add the cash value of the life policy to your
$388,000 nest egg and you have $427,000. That means
you'll need a reliable 5.6 percent annual return
from your nest egg to replace your current pension
and savings income.
Is that easy to do?
No.
------------------------------------------------------------
What's your opinion on Golf?
It seems like you either love it or just don't understand
the attraction. This hilarious DVD explores a golfers
infatuation with driving, chipping, putting and all things
golf related.
You won't believe the ridiculous ways golfers obsess over
the sport. Of the 60 million golfers worldwide, only a handful
are really good, which begs the question: "Why do the rest of
us even bother?"
This makes a wonderful gift for any golf nut. Even if you don't
love the game, this is one funny DVD. And at the reduced price
of just $12.99 (a savings of $7.00), you've got to get it.
VISIT:
Golf the Ridiculous Obsession DVD
------------------------------------------------------------
But if your wife converts $200,000 of your nest egg
to a life annuity upon your death, she will have an
annuity income of at least $16,800 for life from the
annuity. She will need to get only $7,200 of income
from the remaining $227,000, a cash return of only
3.2 percent. Since the amount of life annuity income
she can get from $200,000 will rise each year, the
project will become easier, not harder, as you both
continue to age. (The life annuity figures, by the
way, come from www.immediateannuities.com.)
Your wife also has two other safety factors. First,
her cost of living as a widow won't be as high as
your cost of living as a couple. To be sure, the
costs won't be cut in half, but there will be a re-
duction. Second, with $90,000 of home equity, she
may want to move to a continuing care community,
eliminating the chores of homeownership.
It's just possible that your 18-year-old life policy
has outlived your need for it.
Q: My husband and I are both 58. Most of our money is in
our 401(k) accounts. I have read your columns about I
Savings Bonds and think they are very attractive for a
long-term investment. We were thinking of putting money
in I Bonds every year, starting at age 59 1/2, for 10
years and starting to withdraw money starting at age 70
to 80. However, we also think about transferring the
money to a 401(k) or Roth IRA. Is there any limit to the
transfer? -- H.L., San Jose, Calif.
A: There is an annual purchasing limit on I Savings Bonds
of $30,000 per person. But it doesn't make sense to put I
Savings Bonds in qualified accounts because the interest
they earn is already tax-deferred. So buy some amount of
bonds each year and forget about the qualified accounts.
You can discuss this issue or any other topic in the new
Investor's Insight forum. Check it out here...
Investor's Insight Forum
(Investor's Insight reflects the opinions of experts. It does
not recommend any specific investments, and no endorsement is
implied or should be inferred. For more information, contact
the individual firms cited).
COPYRIGHT 2006 UNIVERSAL PRESS SYNDICATE
-----------------------------------------------------------
GopherCentral's Question of the Week
Do you think Osama Bin Laden is dead?
Please take a moment to share your opinion, visit:
Question of the Week
************************************************************
Want some Fun and Amusements sent to your email F-R-E-E?
Visit:
More Fun & Newsletters
____________________________________________________________
END OF INVESTOR'S INSIGHT
Copyright 2006 by NextEra Media. All rights reserved.
Go ahead and forward this, in its entirety, to others.
 E-Mail this issue
Subscribe FREE to Investor's Notebook by clicking here.
|