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jarhead

I Think We've Been Taken For A Ride By Axa

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Guest Sierra

Jar:

 

The Life Insurance:

 

This one is more complicated and a topic you should study. A very easy to follow resource is "The New Life Insurance Investment Advisor" by Ben Baldwin available through the usual places.

 

I noticed that you purchased the life policies before any discussion of the pension payout your spouse would be eligible to receive. So I'll assume that they were to be used to provide cash in the event of a premature death. They were likely SOLD with the additional idea of taking tax free withdrawals during retirement. So with those assumptions in place please understand that I'm not giving you specific advice, just some food for thought.

 

You could likely obtain a 30 year level term contract in NY for about $100 a quarter that would pay the same $100,000 death benefit. The balance of the savings could be directed into a Roth for (potential) tax free withdrawals. So in your case the savings of $2000 a year or more goes to a Roth. LEVEL term means that if the annual premium in year one is say $500, then the premium in year 30 is $500. It's level.

 

For your spouse a 30 year level term contract in NY ($300,000 DB) would also run about $500 a year, for a savings of $2000 or more. That puts both contracts in force (as long as you pay the premiums) well into a normal retirement scenario of age 65-70. You can run instant quotes at lifeinsure.com anonymously, WITHOUT an agent contacting you.

 

The surrender charge versus the cash value? The principle is the same as the annuity. AXA paid a commission to the agent for selling those contracts. That money is gone. They must recover that up front payment through ongoing policy expenses or if you cancel too early, a surrender charge.

 

On a personal note: My wife, who passed from cancer at age 42, was uninsurable beyond her group coverage due to Rheumatoid Arthritis. But a long term (30 year) level term contract would have been very helpful financially. Most (many) of these term contracts have a conversion rider that allows you to switch to a Universal Life contract during the term (say 30 years) WITHOUT any further medical underwriting. I would not buy a term contract without this feature, because you never know about future health issues.

 

Recap:

 

For a pure death benefit consider the 30 year term. You save a combined $4000 (+/-) a year in premiums which you could use to fund Roth(s) (assuming you are eligible). This is a serious financial decision that you should weigh carefully. There would be no harm in taking the next year to learn more about this issue before making any changes.

 

Finally:

 

There is an insurance concept (often called Pension Max or Pension Flex) where spouse A takes the full pension payment (with no benefit to spouse B at death). The risk of an "early" death is mitigated through the purchase of life contract. The death benefit would provide enough capital to continue the same monthly "pension" for spouse B. The idea is that the cost of the life contract is less than the difference between the full and reduced spousal benefit. In THEORY it makes sense. But when you run the actual numbers it's much more difficult to produce a meaningful improvement. Anyone with a pension, who works with an insurance agent, will likely be pitched this scenario. Listen with both ears and with healthy skepticism when you do.

 

Best regards,

 

Jim

 

 

Jim,

 

Per usual you are ON TARGET with every one of your assertions. Permit me to add something to the pension max plan. A survivorship option via the retirement system is paid with pre-tax dollars while the premium for the life insurance benefit is paid for with after-tax dollars. Additionally, who will be guiding the widow/widower when the time comes (at age 60-90+????) for this person to generate needed retirement income from the cash proceeds of the policy or should this person annuitize the proceeds?

 

We don't have a time table for extinguishing the sharks and we all know about the variable annuities that are sold to the elderly---my advice is to guarantee security, while you are alive, and select an income option for the spouse from the retirement system.

 

Peace and hope,

Joel

 

 

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Jim,

Thank you very much for your two very informative posts. I read and reread them a few times.

 

 

 

...my advice is to guarantee security, while you are alive, and select an income option for the spouse from the retirement system.
Joel,

I value your advise and we will look into it when time comes for my wife to retire. What's interesting is looking at the chart, most retirees select the max option (67.3%) followed by Pop-Up option (19.65%). I wonder what %-age of the max retirement pay they give and how it's calculated.

 

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Guest Skeptical

Jim,

 

Per usual you are ON TARGET with every one of your assertions. Permit me to add something to the pension max plan. A survivorship option via the retirement system is paid with pre-tax dollars while the premium for the life insurance benefit is paid for with after-tax dollars. Additionally, who will be guiding the widow/widower when the time comes (at age 60-90+????) for this person to generate needed retirement income from the cash proceeds of the policy or should this person annuitize the proceeds?

 

We don't have a time table for extinguishing the sharks and we all know about the variable annuities that are sold to the elderly---my advice is to guarantee security, while you are alive, and select an income option for the spouse from the retirement system.

 

Peace and hope,

Joel

 

 

Joel,

 

You make an excellent observation regarding the tax treatment. The premiums would indeed be paid with after tax dollars, increasing the real cost. Also, to Jarhead: If you decide to replace the contracts with something else ALWAYS make sure you have the new insurance IN FORCE before cancelling the old contracts. Might be an obvious thing to do but it needed saying.

 

Cheers,

 

Jim

 

 

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Jarhead: If you decide to replace the contracts with something else ALWAYS make sure you have the new insurance IN FORCE before cancelling the old contracts. Might be an obvious thing to do but it needed saying.

Jim,

Yes, I am aware, but thanks for a reminder.

 

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