No. of Recommendations: 2
NT8, you asked:

<< Background:
My husband had a whole life policy before we were married. Since I'm the one in charge of finances and investing, this is part of my inherited components to work with. My dad always told me to stay away from a whole life products, but I don't remember his rationale.

So I look to the boards for Pro/Cons of this type of investment vehicle. In addition, my general gut is that most of our money is being spent towards fees - but I'm having a tough time understanding the terms/conditions information with the policy.

Hopefully, you have a good experienced agent/broker you can turn to as this would be you're best source to acquire a good understanding of your policy. It's much easier to deal with these complicated issues when working one on one so you can ask and get direct feed back on the specifics. If you don't have such an agent, then it's going to be a little tough as about the best one can do is talk in generalities since the specifics of the contract itself needs to be known. Having said that, there is one book I feel you'd find most helpful titled The New Life Insurance Investment Advisor by Ben Baldwin (no, <grin>I don't get any kick backs for recommending it, it's just a very good book for a consumer like you).

<< 1) Pros/Cons? >>

Well . . . the pros and cons simply DEPENDS on just exactly what type of policy you have and on your particular set of issues having to do with your personal goals and objectives as well as your finances and financial status. Outside of this, stating any pros and cons has little meaning.

<< 2) What is the surrender charge? I'm assuming this means some sort of cancellation fee. When I cancel do I get money back or is it really just a sunk loss? >>

A policy, like yours, typically has a Surrender Period of 10 to 15 years. If the policy is surrendered within that period, the insurance company keeps a percentage of the cash value in the policy. The percentage decreases as you approach the end of the Surrender Period and afterwards, there is NO Surrender Charge. The purpose of the Surrender Period is to give the insurance company time to recoup their costs associated with marketing and issuing a policy. So, if one doesn't keep the policy in force, there is the Surrender Charge that is to guarantee the insurance company will get what they want to croup the costs. If one keeps the policy as one originally planned, the Surrender Charge really has NO effect on an existing policy. It's only when the policy is surrender that there is an issue.

<< 3) Am I able to stop making payments for awhile? Once again this is where the T&C of the document are a little foggy for me. >>

Typically, yes . . . one can stop paying on any permanent type of policy including a Whole Life contract (assuming it's been in force for a little while). But again, just how and what happens depends on the specific type of policy you're actually talking about. It not clear to me just exactly what type you're talking about as consumers tend to use the term “whole life” in a generic way. If it is a Whole Life contract and you stop paying on it, there's what's called a Non-Forfeiture provisions that will kick in and just which one of those does depends on what was selected beforehand. Typically the provision used is an automatic loan provision to pay the premium. You should be able to find this easily in the policy under Non-Forfeiture Provisions.

<< 4) How does having a loan against the policy impact any of this? >>

Just exactly how it might impact the policy also DEPENDS on the specifics of the policy and the type of policy. With a Whole Life policy, policy loans and accrued interest would reduce the amount paid out to the beneficiary, but it wouldn't cause the policy to lapse as long as premiums are being paid. With other types of permanent policies, there is a possibility of lapsing if the loans and accrued interest become too large.

The book I recommended does a good job of making these kinds of things understandable to the consumer without using a lot of industry jargon.

<< My apologies - but I'm just tying to really understand what we have. My husband is very reluctant to get rid of this policy, so before I can make a cohesive argument about what we should do - I look to the board in help in understanding the product. >>

I feel you're doing the right thing in trying to better understand what your husbands policy actually is and what it does and can do . . . and what it doesn't and can't do. Again, I'm confident this book will be of great help to you along these lines.

Sorry I'm not of more help. I know it's hard to ask the right questions when you don't quite know how. If after you've gone through this book (or maybe one like it that you find), and some things are still a little foggy, feel free to ask.
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