Universal Life Insurance - what to do with it?

[BeamerBikes]

So I bought a Universal Life policy back 20+ years ago when I was working for an insurance company.  It has a guaranteed rate of return somewhere around 3.8%.  On death, it will pay out the face value only and there’s an overloan protection rider.  

I bought it initially for peace of mind that should I pass, my mom/sister wouldn’t have to rush to liquidate my house. Then it turned into “should I pass before my mom” the house we shared jointly could be owned free and clear until her passing.  
 

Now almost a decade after my mom’s passing, I’ve let the value pay for the premiums.  I figure it’s time for me to figure out if this should be part of my retirement plan to borrow from it in the future.  
 

Anyone else get sold one of these Universal Life policies and have a strategy for how to use it while you’re still alive?  Likewise, I’ll take any reading recommendations to evaluate options for myself.  
 

I’m doing well for myself - maxing out 401k, little debt. I’d want to retire early 55-60, and could use some living money before retirement funds are available penalty free. I’m thinking I could restart some contributions and use it as additional liquid funds in the future.  
 

My estate potentially losing out on policy cash value versus the death benefit face value, isn’t really that much of a concern as I would already be gone. Though, I’d rather stick it to the insurance company and drain any cash value if I had the option. 

[BeamerBikes]

I should admit - I bought the policy without having a long term plan for it. In retrospect, I probably could have had term life for cheaper, but this policy served its purpose for peace of mind.  Now I’m just trying to be smarter about how I can use it to maximum advantage. 

[+ FrankR]

17 minutes ago, BeamerBikes said:

I should admit - I bought the policy without having a long term plan for it. In retrospect, I probably could have had term life for cheaper, but this policy served its purpose for peace of mind.  Now I’m just trying to be smarter about how I can use it to maximum advantage. 

I only have and recommend term life insurance to my friends, but…they are all poor! Lol. 
 

Be careful of mainstream advice on life insurance from gurus like Dave Ramsey and Suze Orman - they do not understand the tax code or how these policies can be used effectively. Take a look here:

https://youtu.be/t3eHZT9Erxo

There is a place for permanent life insurance as a tax shelter if you are maxing out retirement options already and need to take it to the next level to keep Uncle Sam from picking your pocket.

Edited December 10, 2024 by FrankR

[BeamerBikes]

14 minutes ago, FrankR said:

I only have and recommend term life insurance to my friends, but…they are all poor! Lol. 

For me, I usually to keep things relatively simple. Term would have likely been cheaper/flexible/less work to gain advantage.  I was young enough and didn’t want to deal with re-upping every few years.  

Agreed on the gurus - Suze Orman for example would never allow someone to buy a boat or a plane.  While I wholeheartedly agree a boat or plane is a horrible purchase for most folks, if you want it and clearly can afford to throw money at a hole in the water, live your life! Just be honest with yourself.  

Edited December 10, 2024 by BeamerBikes
Clarity

[+ BenjaminNicholas]

On 12/9/2024 at 10:39 PM, FrankR said:

Be careful of mainstream advice on life insurance from gurus like Dave Ramsey

Dave Ramsey is mostly bullshit.  His history with timeshare-removal scams is highly questionable.

He's a cult of personality...   And one I don't follow.

 

[GTMike]

On 12/9/2024 at 8:19 PM, BeamerBikes said:

So I bought a Universal Life policy back 20+ years ago when I was working for an insurance company.  It has a guaranteed rate of return somewhere around 3.8%.  On death, it will pay out the face value only and there’s an overloan protection rider.  

I bought it initially for peace of mind that should I pass, my mom/sister wouldn’t have to rush to liquidate my house. Then it turned into “should I pass before my mom” the house we shared jointly could be owned free and clear until her passing.  
 

Now almost a decade after my mom’s passing, I’ve let the value pay for the premiums.  I figure it’s time for me to figure out if this should be part of my retirement plan to borrow from it in the future.  
 

Anyone else get sold one of these Universal Life policies and have a strategy for how to use it while you’re still alive?  Likewise, I’ll take any reading recommendations to evaluate options for myself.  
 

I’m doing well for myself - maxing out 401k, little debt. I’d want to retire early 55-60, and could use some living money before retirement funds are available penalty free. I’m thinking I could restart some contributions and use it as additional liquid funds in the future.  
 

My estate potentially losing out on policy cash value versus the death benefit face value, isn’t really that much of a concern as I would already be gone. Though, I’d rather stick it to the insurance company and drain any cash value if I had the option. 

I'm not an expert but potentally have an idea for ya. You sould know that the Cash Surrender Value of your policy can be used as financial leverage into another Insurance product.

Given what you've described you potentially could take that amount and convert it to another type of Life Insurance Product that has a Death benefit, (which you may not care about if no dependents), but also have flexibilty to alternatively use it if towards Long Term Care. It's a Life Insurance Policy with a specific "Long Term Care" Rider.

If later in life you feel secure that you won't need to fund those type of expenses, you can borrow a significant portion of the money from the policy. If done properly virtually tax free (and then never pay yourself back) using those proceeds however you like.

Upon passing the unpaid portion of the loan is covered by the balance of the death benefit.

[BeamerBikes]

Update - I might be looking at making a larger life insurance payment this year for the cash value add. The base fix rate is attractive enough for a “safe” investment. Depends how the bonus looks this year from my company.  

Viewing the policy as potential tax free withdrawal vehicle should I retire early.  It won’t be much to be the sole option.  However it might come in handy if I need to keep my taxable income low in a year for Roth conversions? 
 

I enjoy having options.