Insurance is shifting the risk to someone or something that is more likely to be able to handle the catastrophic event. People often insure their life through life insurance, their income through disability insurance, their business through business overhead insurance, etc.
I am not sure why, but it seems that I have a habit of reviewing my life insurance in the fall. I took a look at my life insurance policies last year around this time, and then way back in 2015 (also around this time of the year). I swear this is simply by coincidence, especially because this year’s inspiration came from a very personal and sad place.
A friend of mine was recently diagnosed with stage 4 pancreatic cancer. He has 3 children 7, 5 and 3. The 7 year old is in the same grade as my son which is how we got to know the family and the 3 year old has become good friends with my daughter. To say it is an awful situation would be an understatement. He is putting up the good fight, and I know he has done some survivorship planning as a responsible husband and father, but I am not privy to what amounts (nor should I be).
This terrible situation made me want to audit my life insurance, both regard to products and amounts. I’ll discuss in further detail below why I used a variety of products.
Life Insurance Polices on My Life
- Convertible Twenty Year Term – This policy has a current death of $850,000. Originally, this was a $1,000,000 policy before this year, however I recently converted $150,000 to a blended whole life insurance policy. The policy is with a mutual insurance company that has been around for a 150 or so years It is a bit more than the next policy, but my goal is to convert this little by little.
- Blended Whole Life Policy – My goal is to eventually convert the entire $1,000,000, so this year I started with $150,000 of the above policy. It is a 50-50 blend wherein there is a base $75,000 policy with $75,000 of term which is slowly being converted through dividends. Currently the policy has a death benefit of $150,052 and cash value of a whopping $12!
- Non-Convertible Twenty Year Term – $1,000,000. Cheapest I could find on the market knowing that it will eventually expire.
- Ten Pay Whole Life Policy – This policy was started way back in 2013; it is pretty amazing to think that in 4.5 years I’ll have this completely paid up. Currently, there is $45,392 of death benefit and $5,709 of cash value.
- Pure Whole Life Policy – Plain vanilla whole life policy with a current death benefit of $108,179 DB and cash value of $6,509.
Not counting any supplemental plans I may have from work I have $2,153,623 of death benefit. Last year I had $2,152,609 of death benefit so a lowly increase of $1,014. I currently have $12,230 of cash surrender value. Last year my cash totaled $9,560.
Life Insurance Policies on The Wife’s Life
- Convertible Twenty Year Term – Death Benefit of $500,000.
- Tiny Whole Life Policy – I bought this policy to help out a buddy who was new to the business. He gets credit for a new policy and I get another whole life in place. It currently has a death benefit of $25,646 DB and cash value of $90.
- Blended Whole Life Policy – Another blended whole life policy with a base of $100,000 and a term rider of $150,000. Eventually the term will drop off as dividends buy more paid up additions. It currently has a death benefit of $250,041 and cash value of $4,845.
- Pure Whole Life Policy – Currently the death benefit is $121,599 and cash value is $1,914.
The Wife currently is insured for $897,286 (last year she $871,957). Currently there is a cash surrender value in my wife’s name of $6,849 (last year we were at $4,429).
Life Insurance on My Children
I am a big proponent of life insurance on children’s lives for two reasons:
- If something were to happen to either of my kids, I am not going to work for a while. Do I have enough death benefit to retire? No of course not, but do I have enough to take off for a bit of time to find out what new normal looks like.
- Each policy has a rider on it that allows the child to increase the death benefit a number of times as they get older without underwriting. If either of them were to become uninsurable for any reason, I have guaranteed them a way to protect their future spouse and my future grandchildren without breaking the bank.
- The Son’s Whole Life Policy (payable to age 100) – Current death benefit of $136,474 with cash value of $2,543.
- The Daughter’s Whole Life Policy (payable to age 65) – Current death benefit of $136,716 with cash value of $80.
Protection doesn’t really matter (hopefully it never does), but cash may be used at a future time and there is currently $2,623 (last year’s total was $2,070).
Total Cash Surrender Value
Last year I wrote that,
I am shocked to learn that I have $16,089 of cash locked up in the policies. I knew that there were a few dollars, but I didn’t think it would be this much. Granted, the internal rates of returns on the policies are probably all still negative, however, this is money that I am positive would not have ended up on my balance sheet anywhere else.
Well, this year I was less shocked to learn that I have $21,702 because of last year’s exercise, but it starting to add up! That amount is not on my net worth statement at all, but I hope to have enough one day to help with retirement. When I complete this exercise in 2019 I have a stretch goal to have implemented a plan to speed up the conversion process on some of those whole life policies.