Maybe the sources you’re looking at are using the term “worth” in two different ways.Thanks for the the quick responses and info Stinky and Rex66!
Stinky, I'm now wondering if maybe I might have misinterpreted the true meaning of what some of these other websites were trying to say b/c the hypothetical example you provided (i.e. $100k original policy and $25k reduced paid up coverage based on $10k cash value) is exactly how I expected the reduced paid-up option to work. That is to say, the new, reduced death benefit is significantly less than it's original value, but is still significantly more than the current cash value of the policy.
The part that confuses me is that, using your example scenario, many websites seem to imply that instead of the new reduced paid-up policy/death benefit being worth $25k as you suggested, it would only be worth an amount roughly equal to the cash value, or $10k in your hypothetical scenario. That doesn't make sense to me because what would be the point of an insurance policy where the death benefit is only equal to the amount that someone paid in to the policy themselves? At that point you're essentially just asking the insurance company to hold on to your own money for you until you die. For reference of what I'm talking bout, here's an example I pulled from a Forbes article on reduced paid-up insurance --https://www.forbes.com/advisor/life-ins ... insurance/
"...So, for example, if you’ve built up $50,000 in cash value on a $500,000 policy, your new death benefit amount would be about $50,000. The policy would then remain in place for the remainder of your life, with no further premium payments due."
Please don't take me the wrong way- I think what you suggested makes way more sense...it's just that I have found several different websites that provide examples very similar to the one Forbes proposed. I'm certain I'm just misinterpreting their true meaning, I just need help figuring out what I'm overlooking.
Reverting to my example, the cash value is “worth” $10k. But the policy death benefit, available only to your heirs after your death, is “worth” $25k.
That being said, I think that the Forbes article is flat wrong. By definition, a $50k cash value will generate much more death benefit when it is converted to paid up insurance. Often in the range of 2X to 3X the cash value.
Statistics: Posted by Stinky — Mon Sep 09, 2024 10:05 pm — Replies 4 — Views 318