Whole life ins...?

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My husbands family all have Whole Life Insurance. There was a policy on my husband, paid for by his parents. No biggie. BUT they cancled the policy, now that we're adults and have our own TERM insurance.

There are checks that they get with my husbands name on them. They have him sign it and they cash them. What I am wondering is are we supposed to pay taxes on the money withdrawn on the policy?

They policy was taken out when my husband was a baby so does he have and liability to this policy? There was a mix up and they sent his sisters money to us.

Sorry, I'm a little dumb in this department. All I know is how bad a whole life insurance policy is, and I never looked into it further, 'cause I never wanted to have one.

Thanks, any insite would help.




  1. Actually todays whole life policy is a better investment than the term insurance. The checks that they are getting is probably the interest or dividend on the policy. The idea of whole life is that it build a cash value that can pay dividends. These can be used to pay premiums, take low rate loans, or provide income later. with term all you get is insurance for that period. If your health starts to fail you may lose coverage.

    If the checks are interest, your husband may be responsible for the income taxes at regular rates. Ask a tax specialist.

    As far as liability he does have an interest as of age 21 and may have some responsibilities there. Check with a life insurance agent, I think you may be confused on whole vs. term. Most policies today are written to be either whole or universal life because they can help with future finacial needs. The only way to profit from a term policy is to die!

  2. Since the checks have his name on them, they are his money.  His is responsible for all gains on the taxes.

    And the first answer is incorrect, more TERM is sold today than any cash value policy since all cash value policies use term for the insurance portion.

    You are not dumb, you are asking questions to things you don't know.  Being dumb is never asking.

  3. If the checks are coming in his name, then all the possible tax liability is HIS.

  4. I haven't read the right answer to what your asking yet. Ok, In the whole life policy it built up cash value. I'm guessing that it was a policy from a mutual firm. SO that means first you need to figure out who exactly owns the policy, because it seems weird that they own it and it's coming in his name. No matter, the money that is being drawn out is NON TAXABLE INCOME  UNTIL YOU START GETTING INTO THE DIVIDENDS. Ex. If they paid 10000 into the policy and through dividends and such the cash value or surrender was 15000 then only 5000 of it is taxable because the rest of the 15000 was paid with pre taxed premium. So that means you have a little time to figure out whats up and find out exactly who owns the policy.

  5. I don't quite understand why there are multiple checks being sent. I cancelled my wife's 26 year old whole life policy last year and we got a check for the full surrender value. If you husband's family truly CANCELLED the policy, you should get ONE check. And...part of the check is taxable as earned income since part of it is for earned interest. You should check with the life insurance company to see if the policy is still in force and why. Since the policy is in your husband's name(I'm assuming), HE should be one who makes the decision on what happends to the policy....regardless of who  paid in the premiums. I would also check with a CPA to see if there are any tax adjutments that should be made in case of an audit in the future. Better safe than sorry. I think your in-laws have overstepped their bounds!!

  6. When you cancel a whole life insurance policy, the policy owner may or may not get any money, which is dependent on how long the policy owner had the policy and surrender charges applied.

    In this case, since your husband gets cash value back, this is generally not taxable because the total amount of premiums he paid is higher than the value of the cash value. Here are some examples that can make the cash value taxable:

    1) The total premiums paid is less than the value of the cash value. This generally doesn't apply to most people.

    2) There was a loan balance due on the cash value at the time of the surrender. The policy owner will be liable for taxes on the loan amount since the loan has now turned into an asset.

    Great job on finding out how bad whole life insurance is. You should consider investing into mutual funds for retirement.

  7. It sounds like you have been listening a little too much to Suzie orman. Whole life is by no means bad. It builds cash value that you can draw from tax free. You lock in on a rate at your attained age which is guaranteed never to increase as long as you Keep the policy. And you have the insurance for the rest of your life. It's more expensive up front because everything ( except the dividend) is guaranteed. In the long run, term insurance ends up being more expensive because you have to keep buying more when the term runs out. Now the rate changes because you're older and may have new health issues. And when it's all said and done, unless you die during the term you have nothing to show for it other than canceled checks to the insurance company. Do you know why term is so cheap? Because insurance companies only pay claims on 1-2% of the policies, they know chances are slim that you will die during that time period.

    In addition to the guarantees in whole life, they pay a dividend (again which is not guaranteed) which if you think about it makes the premium lower. If your premium is $3000 a year and the company pays you a dividend of $500, how much did you pay? you really only paid $2500 for coverage that was worth $3000 in premium.

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