I have discussed why I like whole life insurance policies in the past, and why I have bought policies on myself, my son, my daughter and The Wife. I am well aware this isn’t a particularly popular position to take on interwebs as buy term and invest the difference is the common mantra. However, with a national average of 5% odds say that those that are claiming that is their plan aren’t following through. Nonetheless, this past week I converted a tiny piece of The Wife’s policy which led to some interesting items I thought I would share.
Why Did I Convert a tiny portion of The Wife’s Life Insurance?
The reason I finally purchased the policy was two-fold. The first was a realization and the second was favor space. Prior to a few months ago, I didn’t really have a concept of how much cash I had stored within my life insurance policies. Needless to say when I realized and shared my cash value accumulation I was pretty excited shocked to learn how much cash I actually had saved within the policies on my life. Without even trying or noticing, I have over $15,000 of accessible cash! So, I knew by year’s end I wanted to to convert some of my term.
As I was looking into my options, a buddy of mine got into the business representing one of the great mutual life companies that I used for a term policy on The Wife. So I made the decision to convert a tiny piece of The Wife’s policy first.
I have used the adjective tiny a few times, and that is because it is! I went for the bare minimum that would help out my buddy. So I took my wife’s $500,000 term policy and converted $25,000 of death benefit; leaving me with $475,000 of term.
When Converting a Life Insurance Policy Be Wary of Banding or Breakpoints
Most agents don’t bring it up but there are breakpoints or banding when it comes to life insurance. So the cost per $1,000 of death benefit may actually go down after hitting certain milestone amounts. For most companies those break points or bands are found at the $100,000, $250,000, $500,000 and $1,000,000 amounts.
That means if you buy $499,000 worth of insurance your price actually may be higher than $501,000, and if it isn’t higher, it would at least be proportionality lower priced. So when I reduced The Wife’s term from $500,000 to $475,000 the price actually went up for less coverage. In end we ended up just buying a new $25,000 policy.
The larger conversion will occur when I convert some more of my policy early next year.
Have you ever converted any life insurance policies?
In my early twenties when I was slowly getting into whole life I loaded up on convertible term.
For no other reason than to lock in my health. I knew I was going to continue saving in multiple whole life policies, but the premiums would continue to get more expensive as I aged.
When I started to convert it all in my 30s, I was paying what I was in my 20s.
Great move Evan.
I will continue to convert small tiny pieces but I am at a tenth of where you are at. I am looking forward to the day that I decide the leverage the CSV! Ever get into the whole life fight with someone? I ask because you don’t seem to be in the industry?