The other day, my father texted me, my cousin, my niece, and my aunt. He said he can no longer afford his $315 monthly life insurance policy and asked if we could split the cost or if someone could take it on fully. We are the four beneficiaries of his $450,000 policy. He’s 59 years old and has type 1 diabetes.
My aunt immediately said she didn’t want to pay, and my cousin said he couldn’t afford it. My niece considered splitting the payment with me but only if my father adjusts the payout more in our favor.
I’m thinking about taking on the full payment. My dad would hate to see the policy canceled since he’s been paying it since he was 23. He said if I take it over, he’d give me a bigger share of the payout.
Right now, the payout is split as $125k for me, $125k for my cousin, $125k for my niece, and $75k for my aunt. It would be emotionally tough for him to reduce what my cousin and niece get because their mom helped him a lot when she was alive, so he feels like he owes her kids.
I’m trying to decide if I should keep this policy going. I feel like I should get a larger share if I’m paying for it, but I’m not sure how much. I could split it with my niece, but I’m in a better financial position than she is. If she backs out later, things could get messy with dividing the payout.
I’m looking for advice on what to consider in this situation and how much of the payout I should ask for if I take on the full responsibility. It’s a tough conversation with my dad since he feels like he owes everyone, and changing the payout to something like $300k for me and $50k for the others would be hard for him to agree to.
Assuming he was diabetic when he applied then that’s a low premium. It’s about right if the initial death benefit was $350k and the dividends were used to purchase PUAs though.
He got the insurance at 22, before he was diagnosed with diabetes at 24. It’s a universal policy with no cash value left. He used up the cash value during a year when he was close to filing for bankruptcy so it wouldn’t be taken from the life insurance.
If it’s a Universal Life policy with no cash value left, the policy might be close to collapsing. You need an in-force illustration to see how long it’s guaranteed to last. Also, get another illustration showing how much you’d need to pay to keep it going until the age you want. From what you’ve said, it could end up costing $1,000 a month.
This is a business decision. After the new premium payers take ownership, they should adjust the death benefit to match their future premium payments. Any cash value left could provide small payouts to the previous beneficiaries.
This raises a good point. OP, if you take over the payments, you should ask for ownership too. Without that, your dad could change the beneficiaries as he wants. You might not think he’d do that, but if his decision-making declines or other family members influence him, you could be left out without knowing.
Taking ownership would also remove the policy’s cash value from your dad’s assets, which might help him. You should check if any “transfer for value” rules apply to you when taking ownership.
To reassure your dad, you can make the beneficiaries “irrevocable.” This means no one can be changed or removed without their permission.
or uou can see if he can take a paid up option