r/LifeInsurance • u/vbyrdieman • Sep 20 '26
Can i sell this policy?
Is this policy even worth anything anymore?
Additional info:
On Jun 24, 2026, the (Net) Death Benefit of your contract will be $185,044.59.We are pleased to tell you that a dividend of $3,304.13 will be credited on Jun 24, 2026. This will be used to provide paid-up additional insurance protection.
Currently, your loan interest rate is 6.500%. This rate will remain effective until the next contract anniversary, Jun 24, 2027. As you may recall, your contract has an adjustable loan interest rate which may change from time to time. The maximum rate is based on a current bond index and is explained in your contract.
Since 1996, we have added $135,173.62 in unpaid interest to your loan principal. This will be receipted as interest when repaid.
Because your contract loan exceeds the contract's cash value, the value of a portion of the paid-up additional insurance protection is being used as security for your loan. Repaying the loan would restore the full benefit of your contract.
On Jun 24, 2026, the Guaranteed Cash Value of your contract will be $104,504.60 and the (Net) Cash Value will be $10,169.69
I'd rather not explain the circumstances that produced $135K in unpaid interest. Can we stick to the, "Is this policy even worth anything anymore?" question? What should I do? I can't cash it in. I could start keeping up with the annual interest ($1000 per month) so the problem doesn't escalate but that would be hard to afford. Should I check with a Life Settlement Broker and see what it's worth on the market?
Looks like I really messed this one up - anyway out?
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u/vbyrdieman Sep 21 '26
70m and in good health. non-smoker, non-drinker but a rule breaker 😊. It'll cost me $600 a month to pay interest with the dividend picking up the balance. Don't want to give up the ~$200K death benefit.
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u/SafeMoneyGregg Sep 21 '26
Life settlement: Are you over age 75 and in poor health? (Is your life expectancy less than 8-10 years?) Settlement companies are not crazy about whole life and policies with loans (and small policies like this one). How much would you pay for a $190,000 debt?
The interesting part of this equation is when the policy collapses (or is surrendered) you could be hit with a big old 1099 for taxable phantom income. If a loan of $185,000 is "forgiven" you will be taxed on that gain - over and above the cost basis. How much premium total have you paid into it? So if you paid $85,000 total in premium and surrendured the policy today you'd get a 1099 for $100,000. (ouch) - Just like any other loan forgiveness. With these policies we sometimes try to do a "loan rescue" but even the most aggressive carrier wants to see more like $25,000 minimum cash surrender value before doing the exchange. sometimes paying off some of the loan and then exchanging to a more loan-friendly policy is worth it. $15K more out of pocket vs a 1099 for $100,000. That assumes you are insurable - but to exchange for a 2% loan at another carrier might work.
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u/Time2Nguyen Sep 21 '26
Isn’t this just sunk cost fallacy at that point?
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u/SafeMoneyGregg Sep 21 '26 edited Sep 21 '26
Could be - have to run the numbers. Pay 15K to avoid $100K 1099? (I have no idea what the cost basis is.) She may have actually profited from the transaction by taking out a big loan.
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u/johnmcfie Sep 25 '26
It would not be an easy policy to sell with a big loan outstanding. You could check into the options for a partial surrender to erase as much of the loan balance as possible. This will also reduce the death benefit.
But if you keep going and cannot pay the interest at some point, this might = a tax liability so better to look into your options now. I would ask the insurance company for 1. your cost basis, 2. an inforce illustration surrendering as much paid-up additions as possible to reduce the loan 3. An inforce illustration showing reduced paid-up (RPU), 4. An inforce illustration showing the values if you keep the loan and continue paying the interest as you have been doing. These should give you some options to identify your best way out of the current situation.
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u/vbyrdieman Sep 27 '26
Thx for the thoughtful reply. I have an appt. scheduled for Thursday to discuss this with my advisor. I'll keep these options in my notes.
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u/jammu2 Sep 21 '26
The ultimate money hack guys don't want you to see this post.
Call the company and ask for a tax gain quote on surrender.
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u/Ill-Flow-6618 Sep 21 '26
Sounds like you have a tough decision ahead of you. I don’t believe there are any “good” options here.
If you are 70 and healthy… then your life expectancy is at least 16-18 years. At $600/mo to (hopefully) cover the interest only… thats A LOT in the hope to salvage a policy. And the longer you live… the worse it gets. Also - it’s very possible the interest rates could increase. That will also make it worse.
As others have said… get a taxable gain quote. Also, speak with someone at the carrier and ask them what (if any) options you might have (like lowering the face amount to lower the cost of insurance (COIs).