whole life policy surrender value question

HI there, I am trying to help my friend in trying to determine whether it's better to pay off his debt, which he is increasing every month by living beyond his means, or whether to cash in this whole life policy which he has been contributing to since mid teens and pay off a chunk of his debt. He has a good pension when he retires in ten years but is worried that it isn't enough and needs this whole life policy.

I am trying to determine how much he'll get if he contributes another 10 years. What will the approx monthly pay out be? The language used in the email he received from the insurance company below is all gobblycook to me.

Anyone can help us explain what the value will be when he takes it out now vs wait till he retires? And yes he has a couple of K loan against this policy (3k or so). So what does it mean that the taxable gain is 23K? Does that mean he gets 23K and needs to pay taxes on all of that? Any info on this will be very useful. Thanks.

Email from insurance company:

"As per your request, the surrender value of this policy as of today is $31,237.19. The taxable gain is approximately $23,893.08.

At maturity the value will be the coverage amount plus dividends minus any loans & loan interest. We are not able to provide an exact amount at this point but here are some numbers that may give you a rough idea about how much cash you can get at maturity. The coverage amount at maturity will be $11,073. The dividends amount as of today is $26,295.57 which will continue growing yearly. The current loan and loan interest balances as of today are $3,393.18 and $272.44."

Originally Posted by upupnorth

"As per your request, the surrender value of this policy as of today is $31,237.19. The taxable gain is approximately $23,893.08.

He will receive a cheque for $31,237.19 and a T5 for $23,893.08.

If he is looking at minimizing the tax consider a partial surrender in 2009 and then the balance in 2010.

You really should see how the policy is growing. What is his declared dividends on his last statement? With these older policies, the dividend growth is pretty good when you consider what his annual premiums are.

With the amount of CSV that you mentioned it seems as though it has been in place for quite some time. Remember that you will never get that back if he cancels it. If he doesn't have a need for burial, final expenses, debt elimination...etc when he passes then he might want to consider getting rid of the policy. Find out what the % rate is, I am thinking it may be 8%/annually.

What is the monthly premium on this policy?

$15 monthly. Paying into it for something like 40 yrs...... my friend still hasn't decided whether to keep it or not. He has a lot of debt so getting rid of this would be one way to cover some of the debt.

John in Vancouver says that my friend will receive a cheque for $31,237.19 and a T5 for 23,893.08 if he cashes it in. So does that mean the money he put in is free of tax (approx 7K) and the rest (23k) is subject to T5. Is the tax rate determined by one's income or are these eligible for capital gains taxes?

Originally Posted by CUVShopper

What is the monthly premium on this policy?

Originally Posted by upupnorth

$15 monthly. Paying into it for something like 40 yrs...... my friend still hasn't decided whether to keep it or not. He has a lot of debt so getting rid of this would be one way to cover some of the debt.

John in Vancouver says that my friend will receive a cheque for $31,237.19 and a T5 for 23,893.08 if he cashes it in. So does that mean the money he put in is free of tax (approx 7K) and the rest (23k) is subject to T5. Is the tax rate determined by one's income or are these eligible for capital gains taxes?

What is the current death benefit? A collateral loan might be a better option here. Many financial institutions will lend up to 90% of CSV if the policy is used for collateral on the loan. Your friend should be able to get more information from his insurer about collateral loans. By using this strategy, he wouldn't have to worry about any tax implications. Based on the information you have provided, it wouldn't make sense to me to simply cash it in.