Backstory - years ago, I lost touch with my mother, whom had run into financial troubles and committed fraud in my name (I'll spare you the details). But the point is that we don't speak and haven't for about 20 years and I run my free credit report every year like clockwork because of this fiasco.
Five years ago, I took out a term life policy for myself. It was underwritten by AIG. I pay an annual premium, and today I logged in online to pay the premium and noticed 2 policies on my account - my term life, but also a whole life policy.
I spoke to a friend knowledgeable in insurance, and he explained some of the terms and how it worked. But basically, my mother took out a loan against the policy. I can see the rate was 7.4% on this loan. Premiums haven't been paid in quite a while, and there is interest added to the loan every year. I have a total policy value (equaling a surrender value listed elsewhere) greater than zero, as well as another part of the account that has some accumulated dividends.
Questions:
- How do the dividends work on a whole life? I'm familiar with stock dividends, but do these work the same way. Like if I (Can I even?) pull out the dividends, do I pay capital gains rate for my income bracket?
1a) SHOULD I pull the dividends and just reinvest on my own? I would treat this (relatively minor) windfall as savings I hadn't planned for.
2) Should I do anything about the loan itself? I mean, the loan is about 4 times greater than the surrender value, would there even be a point to paying it back first? Like, would I get "more" dividends if I'm square on the loan?
3) Should I just cash it all in and be done with it and be thankful for the free money.
3a) The surrender value would be taxed like normal income?
With the tax law changes, my household taxable income is actually right on the edge of the capital gains 0% line. I believe the extra income would push us over into a higher capital gains rate, so this matters in the sense that if I cash this in and the dividends are treated like normal capital gains, then I will pay 15% rate on the dividends instead of 0. So I guess I'm also wondering if I can take the dividends, but not touch the surrender value until next year.
I don't even know how I got to own this, but I think from what I understand is it somehow was taken out against my life when I was a minor (maybe for funeral costs?) and whole life was a thing in the 1980s. Then at some point, it reverted to me as the owner?
I haven't contacted the insurance company yet as I wanted to have a better understanding of this situation first. I don't think AIG was even the original insurer, but just picked it up along the way. I have some documents I can see online, but they're mostly just correspondence basically saying you didn't pay your premium. What, if any, additional information should I request from the insurance company before making a final decision?
Thanks in advance!
Submitted August 22, 2018 at 10:04PM by d12dude https://ift.tt/2MwvQWs
