life insurance policy changes--urgent

[kris123]

What is the name of your state? Ohio

I have a longterm illness and was divorced, after a 30-year marriage four years ago. My income is very low, and I need to apply for governemnt assistance to make ends meet. I have a small life insurance policy, which builds equity. I need to reduce the equity from its current $3600 to about $1500 (that's hundred, not thousand). I need to borrow the rest, and use it to pay other expenses before I can apply for assistance.

I wanted to leave the policy amount the same (23,000), keep up the premiums, and hope to repay the loan one day when I no longer need assistance (I can always hope). I am 54 and have had the policy about 14 years. I met with the agent today, he called the home office of the company, and I was told I cannot borrow this amount out, and keep the 23,000 death beneft, that $1500 is too little to support a $23,000 death benefit. The death benefit will be reduced to about $12,000-14,000.

I don't understand. I pointed out that when I took out the policy, it had no equity, and this death benefit. He said but I was younger so insurance costs more for me, now. I still don't get it. Isn't that equity MY equity, and can't I borrow it if I want to, and if I keep the premiums paid?

I must do this this week in order to meet an obligation. So quick advice is much appreciated. Thanks in advance.

 

[Betty]

When you take out a policy loan on the equity (cash value) built up, it reduces the face value of your policy. If you took out a loan & then passed away (before paying back the loan), the face amount of your policy would be reduced by the amt. of outstanding loan + interest. Your beneficiary would not get the full face value. If the loan was paid off at the time of your death, the full amount of your policy would be paid. You can borrow money, but you can't keep the full face amt. of your policy.
I'm not quite understanding the $12,000 to $14,000 quote - what type of policy is this - I know it is some type of permanent policy & not term since it has equity built up. Exactly what type of plan is it - it should be stated on the face (first) page of your policy.

 

[kris123]

Betty, Thank you so much for responding. Absolutely, I understand about the death benefit being reduced by the amount of loan and any interest, but this is something else, entirely.

I am extremely upset. The agent called today with the paperwork all set to go. The death benefit was going to be reduced from 23,000 to 10,400 due to me borrowing out 2100 (twenty-one hundred). At first he told me the premiums would remain the same--later said he was mistaken, they would be reduced. I feel I am being taken advantage of because I am in financial difficulty. This company is affiliated with my church and I've had a policy with them since I was born.

I let him know I am upset, and that I am asking questions to ascertain my rights.

Thanks again.

 

[kris123]

OOps. I forgot to answer your question. It is a whole life policy, and this is supposed to be a change to the SAME policy. I still do not understand why I cannot borrow my own equity. I did it previously, in years past, when I was married, on a different whole life policy, and this never affected the death benefit before.

 

[Betty]

A person can take the equity (cash value) in their policy & "buy" a policy for a reduced face amount & pay no more premiums. (reduced pd. up ins.) However, this is not what you want to do. Normally, (re what you want to do) you continue to pay the policy premium you have been paying for the full face amount + pay back the loan & at your death the total of $23,000 would be available for the beneficiary. Maybe there is something in the policy contract that I don't know. It seems as if your agt. understands what you want to do. (I think) Maybe you can call the ins. co. direct & discuss with them what you want to do & see what they say. (Since the agt. doesn't seem to be making things clear to you & possibly is misunderstanding what it is you want to do)

 

[kris123]

Betty,

Yes, good idea, I will call the office if this doesn't improve. Unfortunately, this is not a misunderstanding. I let the agent know, in our initial meeting, how disappointed I was that I could not borrow on the equity, and keep the death benefit (minus loan + interest), and that I didn't understand why. I told him how much I want to be able to leave my children SOMETHING, though it isn't much.

I expressed this even more emphatically, when he called. He understands because he said, "Believe me, I WANT you to have your death benefit." Young guy--very nice, same age as my kids. I do think it is the company doing this.

Here is another issue. The policy my parents took out on me when I was born--for $5,000--was borrowed against, during my marriage. It lapsed last year, and I had to pay taxes on it (though my income was only $7,000). In all my adult life, no agent ever told me this could happen, and I received no letters or calls warning about this impending event. Had anyone let me know, even a few months in advance, I could have cancelled the policy saved myself $500 in lost earned income credit and income taxes. During that year, my agent was changed, three times, and my phone calls went answered, for months at a time. When I did reach someone, no one mentioned this policy was about to lapse. When I complained about what happened, I was told that it is not the company's responsibility to keep me informed of such impending events.

I believe this all is related to this: My current policy has a premium waiver for disability. In 2005, I collected several thousand dollars, for years I was unemployed due to illness. I am currently working part-time, but this is an iffy prospect as I am still ill. I have been reassured that I will not lose my premium waiver with the upcoming change in policy, but honestly, it has to seem to me that the company is trying to get their money back on me, or not lose any more. These are such tiny amounts of money, to a large company, but I certainly sense I am being treated unfairly.

Thanks again, for your help.

 

[Betty]

Are you saying your policy currently is having premiums waived (at the time you want to take out a policy loan)? That could have something to do with the change in amt. They may continue to waive premiums but not for the full orig. face amt. As with all ins. policies terms & conditions of policies do vary so you will need to check the policy provisions in detail re WP, pol. loans, etc. As I indicated previously, call the ins. co. & see what they say.
Re the $5,000 pol. there are situations when tax has to be paid on a pol. that is surrendered or lapsed. I don't know how much was still owed on the loan when pol. lapsed & how much cash value was available & pd. out when it lapsed, but if there was a net gain for example, tax would have to be paid on it. For example if cash value (minus loan) is more than what was paid in prems., the difference (net gain) is taxable.

 

[kris123]

I got to the bottom of it. I called the office. There was absolutely no reason I could not do what I wanted to do. The office called the agent and told him so. He called me back and we have set up an appointment to do it.

Very strange. Anyway, thanks for your help.

 

[Betty]

I'm glad things got straightened out for you. Betty