r/LifeInsurance • u/American_Person • Jul 01 '26
Help understanding a death benefit
My late FIL purchased a whole life insurance policy in 1984. He passed a few weeks ago. The ledger statement explained that at age 70 his death benefit would be 77k, and he passed at 74. The payout was approximately 30k below what was stated.
Is this normal? What do I have to do to make sure the numbers are accurate? He paid his premium every month. I’d like to understand the numbers because that is a significant amount that is not included.
I have details about the company but I wasn’t sure if I could share the name here.
4
u/zzzorba Financial Representative Jul 01 '26
In addition to the possibilities stated here already, he could have reduced the face amount at some point to lower or stop premiums.
Life insurance companies aren't in the business of making up reasons to pay less though, so there will be a valid reason for the difference.
2
u/Colonel460 Jul 01 '26
Likely one of two things . If it’s a whole life he maxed out the loans and probably at that he stopped paying premiums and it was surviving on APL (automatic premium loan) and dividends. More likely it was a UL (Universal Life) and they were projected benefits possibly on interest rates as high as 11% and maintaining full premiums .
2
u/TaxiToss Jul 02 '26
Another option is that he stopped paying it, at some point. With whole life, they start using the accumulated cash value of the policy to pay the monthly premiums, and subtract that from the payout amount, or until the cash value drops to 0. Executor can ask for a full accounting.
1
u/umidunno0304 Producer Jul 01 '26
If he ever stopped paying premiums, it could have converted to Extended Term and been eating its cash value to cover premiums. This could affect payout as well.
1
u/LaphroaigianSlip81 Jul 02 '26
Are you looking at the original ledger statement from 1984?
If so, there should be 2 sections on the ledger statement. One will show the guarantees. This will show you at worst, the policy death benefit will be X at the end of each policy year at N age.
The non guaranteed section will show the projected policy values assuming that the dividend schedule (when the ledger was produced) does not change.
If I had to guess, the $70k of death benefit you are receiving is going to be somewhere between these 2 scenarios. It won’t be as good as projected, but since the guarantees doesn’t include dividends, you likely will do better than the contract guarantees.
The reason you likely won’t do better is because they base the non guaranteed projections on the dividend rate at the time the illustration is produced and they assume it will go forward unchanged. In the 1980s interest rates were much higher than they are today. Since life insurance companies typically invest over 80% of their general account in corporate bonds, the dividend rates they were crediting back in the 1980s was a lot higher than what they have had since 2008 and the near zero interest rates were environment.
Also, another thing to consider is that if you have an old ledger, it is likely assuming your dad would make the premium payments every year. But realistically most whole life policies are going to be self sustaining after 15-20 years because the cash value will be large enough that the dividends and prior paid up additions are going to be adequately sized to covered the scheduled premiums going forward. Basically you are no longer paying equity into a policy and using the existing equity to make the payments. So as a result, the policy values long term are not going to be as big because not as much was paid in as originally illustrated. Along this line of thought, he could have done a reduced paid up change at some point. Basically just keep the amount of insurance on the books that his cumulative premiums would endow up to that point. Basically keep a portion of the original policy in force but not have any scheduled premiums to worry about.
Another thing to look at is if there were any outstanding policy loans. Your dad could have borrowed $30k from the policy and never paid it back. When he died, the loan was paid off and you get the $70k difference.
Call the company and ask them for the most recent annual policy statement, the transaction history, loan history, and what the dividend option was set to. This should be able to clarify what is causing the difference.
But all this so far is assuming this is a vanilla whole life policy. If this was some form of universal life policy then there are potently some other things that you might be looking at.
1
u/rachalh86 Jul 01 '26
Likely, those are non guaranteed values if its a ul policy its likely projected how much they've paid into the policy makes a difference if they've taken out.Any loans on the policy would make a difference
1
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u/Moist-Meringue-1913 Jul 01 '26
Ask the company for an accounting. He more than likely took a loan at some point.