CASH VALUE
I do not like being continually deadly serious; I prefer some levitation (its a joke). I previously mentioned the following important information in another context. Here I will expand on it.
I think it is a great idea to have a life insurance policy. Yet some insurance products come with avoidable risks.
Certain Federal and State assistance programs require the person who receives them to report all financial resources they possess. This is where having a “cash value” attached to certain insurance products can cost you a bundle.
Whole Life and Universal Life Insurance policies are two of the biggest offenders.
Think: Why do people buy a life insurance policies? Primarily to leave a heap of tax-free cash behind to protect their loved ones, right?. However, if they purchase the WRONG type of life insurance product it can hurt both their ability to acquire government resources and/or fail to leave insurance resources for their loved ones.
If you think of life insurance as having one purpose you probably won’t go wrong. However, if the insurance salesman is touting OTHER benefits, like “and it builds a cash value,” or “its an investment” then you might want to walk away.
There are better ways to invest and you aren’t likely planning to use the cash value anyway. Only a tiny fraction of whole life policy owners do without government urging to “spend down” their assets.
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So the government program you need for assistance may force you to “break” your whole or universal life insurance policy. A couple examples follow:
SSI:
The Federal Supplemental Security Income program requires you to spend down any insurance cash value before they will assist you. You have to be very poor. You will lose your whole life insurance.
MEDICAID:
Most (maybe all) State Medicaid programs require you spend down the cash value before they will assist you. This will leave you very poor. You will have to cash out your whole life policy.
There are other government assistance programs which do the same.
You may have gotten the policy to make sure your family can afford your funeral. Don’t do it this way. For some strange twist of government program rules you can prepay your funeral and that’s NOT an asset, but if you have a whole life policy so your family can pay for your funeral that is an asset.
In other words, you paid your premiums for nothing! Your family will not have the resources you want them to have when you are gone.
Worse, if you fail to report the “cash value” you have committed a felony. You can face fines, jail time, and loss of the government assistance.
Advice: Stay away from any insurance product which has “extras.”
WHAT TO DO INSTEAD:
1. Buy a TERM life insurance policy. Those policies usually have far smaller premiums than Universal Life or Whole Life products. (I am not now, nor have I ever been an insurance salesman or stockholder. So, this advice is not biased.) The extra money you didn’t spend could be used as below…
2. With the premium savings buy high-end gold jewelry from estate sales or pawn shops for your spouse. Store in a safe place. Figure you might be able to sell for half of the purchase price later. That sounds bad, doesn’t it? But you were going to waste ALL of that money on your Whole Life premiums anyway. Generally, wearable jewelry is not considered an “asset.” Wouldn’t your spouse enjoy having a few stunning pieces to wear?
3. OR, you could start with a FEW carefully selected fine art items, rare rifles, even antique spittoons. Your “hobby” doesn’t count as an asset unless it is a “business” in which you bought AND sold things. One word of caution here … DON’T BUY JUNK. A second word, make sure your collection is secured. Don’t foolishly brag or show it off. Also make sure it is kept in an area without high humidity or other issues, (like in your wood shop or garage).
My point: Your reportable assets all count when signing up for certain government assistance programs. You should NOT have to risk losing your life insurance because you bought the wrong product. If you want start a small hobby of collecting real art for your wall, or gold jewelry for your spouse. This gets you TWO positive results: 1) Your family is protected. 2) You get to enjoy a hobby. This is a legal way to set aside a little for the future. The government permits you to own antique HO scale trains, depression era glass, baseball cards, or other collectibles. (Coins of any type and/or Bars of gold, silver, platinum, etc ARE considered assets, by the way. There also may be limits on how many pounds of gold jewelry you can own before you need to report it as an asset.)
Whether you invest in a hobby is your choice. You just don’t want to leave your family with nothing when you leave this world. Protect them the right way. Oops! Not much opportunity here for hovering above the soil.
[PLEASE NOTE that Don is always open to discussing the thoughts and opinions he shares here and welcomes comments as shared in the comment section. He doesn’t use other social media platforms and won’t see whatever you’d like to share with him if you post it elsewhere.
ALSO, Don is always open to offer his thoughts on various topics. If you have a specific request, you can let him know in a comment; he reads – and replies to – them all. ~ Sherry]
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