How to handle Life insurances

We have two policiies. My wife's policy is a fully funded whole life policy worth $200K; she contributes nothing to it and it will pay to the estate when she dies. If I show this as life insurance, do I show it as a cash value of $200k?

My life insurance is a bit different. My former employer fully funded a life insurance policy for me worth $700K upon my death. Should I put this in the "special" folder and show a future value and then the expected year of my death?

Comments

dan royer's picture

The first one is just cash value. Or I should say, if your understanding is that you could get the $200K at any point (more or less like cash) then enter it as cash value.

The second one, yours, is just term life. There is not a straightforward way to model existing life insurance. You can enter it as a policy but it will have no impact per the program's recommendations. You should compare the program's recommendation with the 700K existing policy.

I believe if you enter it at the year of your death, it will show up as a receipt at the beginning of the year though you'll die at the end of the year (per the program of course).

I have used it in contingent planning to model a specific year of death and create a special receipt for the survivor for that year. This would be the most accurate model. However, you have to pick a specific year to model dying in and see the impact since there's no way to tell contingency planning that this one-time payment is due only in the one year of death.

That sounds a bit confusing I'm afraid. Make sense?

Dan - Thanks for the feedback; I did just what you said at the end. I entered the $700K at an end of life date as a special receipt using the future $ value (which is how an insurance company would look at it anyway) That part works fine.

I have read the other things here about eliminating my wife's recommended additional insurance for the next five years while I still work and the solutions are just not right. Lowering our living standard would give a wrong recommended annual spend amount. There should be a way to just turn off this recommendation because adjusting in one area only causing a reaction somewhere else. I hope to hear about a better solution than what was proposed to others in the question previously submitted.

Thanks!

Steve

dan royer's picture

I suppose each situation is different. If ESPLanner says you don't need any life insurance now and going forward, then you just have a special receipt in the event of your death. The issue there putting that into Contingent Planning as a special receipt is that you must pick a year to die. That is OK to test a year of death, but it would have to be changed each time you want to model a different year of death.

If ESPlanner is recommending life insurance already, then I still think it makes most sense to either ignore it (if it's a small annual amount of cost for just a few years) or to just adjust the survivor's living standard down (see Estate folder) so that the insurance recommendation goes away.

Thanks again but I would disagree; It recommends a cost of $24K in the next five working years. It's also distracting to look at it and then ignore it especially if it's not the only work around. I would just like to add my voice to others that have suggested that future versions of the software have a slicker way to eliminate without a work around.

I do appreciate your thoughts and efforts

Steve

Just to be clear, the process below doesn't decrease your living standard as long as both spouses are alive.

What it does do, is eliminate the LI expense (raising your living standard per adult). However, in case either spouse dies, without the recommended LI, they would experience a reduction in living standard.

Try this to reduce your LI expense knowing that you have the LI per your post.

- It's simple to remove the life insurance (and premiums) from the results. Go to the "Estate" tab and reduce the "Desired percentage change in survivors' living standard". You can set different levels for each spouse. Experiment a few times and you can zero in on the exact percentage that leads to no life insurance in the reports. You may want to try reducing the living standard by 10%, 20%, 30%, etc. to narrow this down more quickly. Some people may experience a huge decline while others are minimal.

Best,
Brian

Brian

Thanks again; I was concerned that lowering the living std would have some other real impact.The instructions are not really clear. It took lowering the rate by 60% to eliminate any LI requirement. The overall impact on the smoothed spend over the next 30-40 years was $800/year but it feels better to get that to the correct level.

I also haven't gone in and reduced the % in the last 10 years from the averages over the next 30 or so.

Thanks

Steve

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