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| Life insurance policy, keep it or surrender it? |
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| Gilgamesh |
 Posted: Thu Aug 03, 2006 4:12 pm Post subject: Life insurance policy, keep it or surrender it? |
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Investing Associate
Joined: 03 Aug 2006
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I need some opinions on this. A few years ago (I was still early teens and had an inheritance, my dad is not investor savvy so didn't know anything and we listened to a salesman and both of us bought policies). Over the years, its seemed more and more a bad deal, and when rates fell they dropped the floor from 4.5% to 2.5% intrest. I am taking a serious look at surrendering the policy and moving it to something else.
As it stands, the current rate is 4.5% on it, Accured intrest is about 50% of the originol principle. My tax bracket is 25% and I am late 20's, solidly employed with upward mobility, unmarried with no need for the life insurance attached to it. this policy is big enough that it makes up about 41% of my value. I already have a portion of investments in fixed income and in a tax defered retirement fund, in fact, taking this policy out of the equation, I am pretty comfortable with my allocation of investments as far as allocation goes. Thats probaly why I am not liking having so much tied up in the policy.
I relize that if i surrender the policy, I face capitol gains taxes. do I also face the 10% early withdrawl penalty since I am under 59 and 1/2 (or is that only for drawing out of it)? is it worth surrendering the account? I do have some previous years losses that can help offest the capitol gains, nor have I made many moves this year that will result in capitol gains besides dividends so this may be a good year to do it, plus in the future it will only get bigger and I face moving up a bracket making it tougher to surrender.
Thoughts? |
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| efflandt |
| Posted: Sat Aug 05, 2006 8:04 am Post subject: |
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Investing Manager
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Life insurance is really only necessary if you need it to support dependents upon your demise. However, if you develop a medical condition, it may be hard to get it later. So if you have or may have future dependents that are not covered by your saving/investments you may want to look at term insurance.
I surrendered one insurance policy for the down payment on my home and have enough retirement savings that I surrendered another whole life policy last year to pay off credit cards and contribute to my Roth IRA (insurance amount was small compared with retirement savings). They withheld 10% of the gain for taxes and I adjusted my W-4 to cover that and partial IRA to Roth IRA conversions. With some exceptions, you might need to file an estimated quarterly tax payment if you would owe more than $1000 at tax filing to avoid under withholding penalty.
I also had an IRA at that insurance company that I had made tax deductable contributions to (no insurance involved, but stable 4.5%) and did not realize it was an individual retirement "annuity". But I was able to do a trustee to trustee transfer of that to a self-directed IRA at Fidelety with no tax consequences at all (still tax deferred).
But it is very hard not to want to invest everything right away when you see the markets taking off and take a hit when they pull back. So it takes some dicipline to learn the markets and get into them gradually if you have no experience. It has been a roller coaster ride for me since I started July/Aug last year, but fortunately my 401(k) more than supports my learning efforts with IRA money. |
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| Gilgamesh |
| Posted: Sat Aug 05, 2006 9:41 am Post subject: |
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Investing Associate
Joined: 03 Aug 2006
Posts: 38
This Month: 0
Location: IL
3620.43 e$
Net worth: 11,004.63
Portfolio Value: 7,384.20
Monthly Return: -9.54%
Trades this month: 0
Churn Rate: 0.00%Items
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Interesting on the W-4 and the quartly reporting /underwithholding, both things I hadn't considered. I will have to check on that.
As far as insurance, I have two other accounts already with no family, so it becomes a calcualted risk on what will i need in the future. |
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