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  • converted whole live

    I have always been of the belief to buy term insurance and invest the rest. however I've since run into my own issues. I have had a 20 year level term policy that last fall the term ended, but its a convertible policy into whole life. (not sure it matters but its through Thrivent financial and I'm Lutheran) First, I really didnt know it was convertible so that was news to me, second, it is now a whole life policy costing $1829/month for $1m policy. here is my problem (besides the fact that its whole life!) . I have too many health issues (nothing serious like I'm going to die soon or anything like that, but enough to make me more than likely uninsurable) and I have money still owed on a couple of commercial properties. my children are almost grown. college costs are/will be covered. The only reason I've kept the policy in force is in case I die, it would pay a lot of the remaining loan balance on my commercial properties so my kids wouldn't have to liquidate retirement accounts or other accounts or sell quickly. I'm looking for advice on if I'm doing the right thing or am I crazy and have "sunken cost fallacy"?

  • #2
    You’ve had this term policy for 20 years; how close are you to financial independence?

    If you pass away, your family should get the stepped up basis for assets they inherit. If you didn’t have any life insurance at all, would you sign up for $1M in insurance benefit at a cost of nearly $22,000 per year?

    How profitable are these commercial properties? Can they cover their debt service, taxes, and other expenses? Why would you pay nearly $22K per year to not quite pay these off vs. letting the properties continue to be profitable holdings for your family?

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    • #3
      Life insurance is for when people actually need that money to support their survival. That doesn't sound like that's the case here.

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      • #4
        Originally posted by Hank View Post
        You’ve had this term policy for 20 years; how close are you to financial independence? started a little late so I've got a bit to go

        If you pass away, your family should get the stepped up basis for assets they inherit. If you didn’t have any life insurance at all, would you sign up for $1M in insurance benefit at a cost of nearly $22,000 per year? No I would not buy a whole life policy, but I'm pretty sure I'm not insurable. I'd like the properties to be paid off upon my demise and preserve my estate for my children

        How profitable are these commercial properties? very Can they cover their debt service, taxes, and other expenses? NNN leases so yes. as long as the tenants stay and based on their business, its not easy or cheap for them to up and move easily/quickly (but I dont want to get cocky and think they will never leave) and historically are very very stable businesses
        Why would you pay nearly $22K per year to not quite pay these off vs. letting the properties continue to be profitable holdings for your family?
        I dont want to pay 22k/year but in the big picture, $22k/year isnt a lot based on the value of the properties and the returns I'm getting plus I was considering the insurance as estate preservation should I die. I'm wondering if there is another way to get term life insurance, like a business policy that one would get on their partner rather than a personal policy so it would be easier to obtain.

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        • #5
          You can get a business partner to be the insured or owner of a policy but that will not reduce the underwriter review of you being the potential insured. At the end of the day an insurer will make a decision based on ‘is this a good risk for them, or you’.
          Scott Nelson-Archer, CLU, ChFC
          303-953-0263 Direct / [email protected]

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          • #6
            Have you thought about getting a financial plan in place so you can see the big picture? It sounds like you’re focusing on this one area to the exclusion (perhaps) of others. A plan can give you the context that may be lacking here. Here is a list of WCI recommended advisors. Note that the Top 10 list is simply in order of how much each advisor has agreed to pay to be put on the list. There is no other rhyme or reason to the ranking. All of the advisors are personally approved by WCI.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              “I'm looking for advice on if I'm doing the right thing or am I crazy and have "sunken cost fallacy"?

              1. You are not crazy, you are confused.
              2. Yes. Sunken cost fallacy. You are guaranteeing an estate, not your needs. Consider if the debt was not attached to the asset, but to the estate only. They would still have to pay the debt. Just numbers on estate inventory. You have an affinity for this property over cash. You are rationalizing “need” due to your affinity to the particular asset.

              As you say, it sounds like you are really proud of it (justifiably or not). But it’s not paid for and counts the same as cash in the inventory.
              Yes, at some point it will be sold for cash. As a matter of fact, your heirs may sell it and keep the life insurance proceeds.

              That voice on your shoulder is speaking. Listen to it. WLI is not a good investment for estate building. Put the $22k against the debt or keep the cash. You don’t want to insure the estate value. It is what it is, an emotional decision.

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