When I retired, there is no more salary income, yet I still have to ensure that I have cash to pay premiums on my several whole life insurance policies. I ask myself what I can do with these policies to reduce my premium payments every year.
Whole Life insurance offers life-long protection. It pays a lump sum (termed as sum assured) on death or total and permanent disability of insured. Some whole life insurance has a rider (on paying additional premium) to cover living assurance in the event of insured being inflicted with major illness, such as stroke, heart attack, etc.
I reviewed all my policies recently. I have one policy with a living assurance rider, which is still in force, attached to the whole-life policy. I will continue to service this policy because of its living assurance rider. In case of a major illness which becomes more likely as one gets older, my family will not be burdened financially because of benefit payout from insurance company.
After ruling out any action on that one insurance policy, I then turned to the other policies. My decision was based on fact that I am retired, my current financial commitments such as providing for my spouse and my child, and my level of financial assets. Having considered that my child is of working age and my spouse is financially independent, should I continue to pay premiums on my whole life policies?
This was when I looked at a clause in the insurance policy which allows policyholder to convert the policy into a Paid-up Assurance on a reduced sum assured free of payment of future premiums. Because I have been paying premiums all these years (some as long as 32 years ago), the new sum assured was bumped up because of bonuses earned all these years. Take a case of one policy, the new sum assured is currently at $93,000 when the initial sum assured was $50,000. With the conversion to Paid-up Assurance, the new sum assured is now frozen and will be paid out in the event of death. (The total and permanent disability benefit is discontinued.) I do not need to pay premium anymore on this insurance.
I can also take another route instead of conversion to Paid-up Assurance. I can choose to surrender the policy and receive $41,000 today. This amount works out to a compounded return of about 3.3% per year on premium paid all these years. Not great return in that it barely covers yearly inflation rates.
There are two other options: taking a loan on policy (automatic premium loan) and extended term assurance.
In my case, I have decided to convert my policies into Paid-up Assurance policies with new sum assured as my inheritance to my family.
A note of caution is in order. Each one of you has different circumstances and what I am doing may not apply to you. You may want to seek advice from your insurance agent.
Copyright © 2013, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.