25 Jun 2020
I bought a whole life policy about 20 years ago that requires premiums to be paid till age 85. Should I switch to a term or limited pay whole life policy to reduce financial burden in old age?
The surrender value is nett positive after factoring in the total premiums paid. I am aged 42 and a homemaker. I'm considering if I should surrender my existing policy to switch to either 1) term policy with critical illness rider or 2) limited pay whole life policy with critical illness rider.
If your policy requires payment till age 85, you will need to figure out if there is a way for you to sustain the premiums till that age. I'm guessing that this policy has critical illness coverage, in which case it is a good idea to keep the policy, as the liquidity provided by the payout in the event of critical illness will come in useful no matter when it occurs. Furthermore, premiums should be quite low, so it is very likely that retirement income stream planning can help ensure that you will be able to afford the premiums in old age. Although you are a homemaker, but if you have savings from previous jobs, or are receiving an allowance from your spouse, it is possible to create an income stream for yourself (but that's another topic entirely)
As your policy has been in force for 20 years, it has accumulated a fair bit of cash value. Since this cash value compounds, we need to weigh these numbers against the numbers of a new limited pay whole life policy. If surrendering the old policy and taking a new one puts you at a disadvantage numbers wise, then it will be hard to justify. This really depends on the figures for your individual policy.
Additionally, another aspect which needs to be considered is your insurability. If you are in good health, then there is no issue, but if you have any existing conditions now, you might get exclusions if you decide to switch, and it would be better to stick with the old policy.
Without having any numbers to reference, it is a little hard to say if it will be better to switch or keep your existing policy. You might want to speak to an independent financial advisor to evaluate your options first.
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I also own whole life (WL) policies with premium terms to 85. U have to understand how your policy work. My WL now provides me with 4-5% compounded returns (longer than yours) and I still continue to pay premiums with the good returns, tho I dun need the insurance coverage anymore. I have the following choices:
Convert it to paid up, ie stop paying premiums but still enjoy same insurance coverage.
Convert it into an annuity plan, ie stop paying premiums but get regular payouts from it.
Surrender and cashout, ie terminate.
I do not want to do any of the above cos the returns will be lower.
So I suggest u talk to your insurer/agent what options are available for your policy. It is not worth to convert or switch to term insurance (your premiums down the drain if nothing happens).
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Is the primary purpose for your whole life plan for death or critical illness coverage?
For death: ...
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