Be careful when taking loans against a life insurance policy to pay the premium.
I had a 350,000 whole life insurance policy thru MONY for 34 years. After the first 10 years, I started paying the premium (~$5,500 annual) out of dividend, and when the dividend was not enough to pay the premium, I started taking automatic loans against the policy to pay the balance. This reduced the cash value each year, but the death benefit remained unchanged. It seemed great until the loan plus accrued interest became too great to to cover the premium. I was then hit with a ~$12,000 bill to cover loan interest and premium for that year and expected increasing amounts each year thereafter. It was not worth keeping. I cancelled the policy and got hit with a 1099-R with taxable income of ~$100,000
What I learned, too late, was that if you cancel a whole life insurance policy, any loan balance upon cancellation date greater than what you pay in toward the premium from inception is taxable as ordinary income. I had paid into the policy ~$110,000, taken loans of ~$210,000 to pay annual premiums, which left a taxable liability of ~$100,000. It makes sense. You cannot get something for nothing.
What I regret is not having cancelled the policy 10 years ago, since I really did not need it.
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if you think whole-life policies are a ripoff, be glad you didn't have a vairable annuity whole life policy. there you use your premiums to make invesmrents in securities the insurance company offers. if the value of those invstmnts go dowwn, you can pay a fortune in premiums and loose it all because the cash value is exhausted.
Also the agent probably got a nice ommission out of the policy which ends up reducing the value of the premiums you paid.
To me the only half legit (excessive agent commission) life insurance policy is whole life, no variable annuity paid up at age 65. you pay more in premuims but if you pay every year at age 65 your in the clear, and probably have a policy worth much more than fce value.
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