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Chapter 1: What should I consider before cashing in a whole life policy?
Live from the headquarters of Ramsey Solutions, broadcasting from the pods of Moving and Storage Studios, it's the Ramsey Show, where debt is dumb, cash is king, and the paid-off home mortgage has taken the place of BMW as the status symbol of choice. We help people build wealth, do work they love, and create amazing relationships.
Rachel Cruz, Ramsey Personality, number one bestselling author, is my co-host today. Open phones at 888-825-5225. Sue is in Chicago. Hi, Sue. How are you?
I'm doing great. Thank you for taking my call. Sure. What's up? Um, my husband is 62 and I'm 58. We've been married 38 years. Um, we have no debt and our net worth is a little over a million. Um, 200,000 of that is in real estate, 800,000 in stocks and bonds.
Chapter 2: How can I change my financial situation effectively?
In 1997, um, we were raising four little boys and my husband, um, went through leukemia and a bone marrow transplant. And so the only life insurance we could get was a whole life. And it was a $600,000 policy. Um, Dave and Rachel, we put in, um, since 1997, uh, $10,000 a year into this policy.
Now what fast forward, um, 15 years ago, my husband had a heart attack and five bypasses longevity in his family. The men, um, just historically do not live long lives. So here. is our caveat right now. All the boys are through college married. We have 10 grandchildren and this life insurance policy, the cash value is now around $240,000.
I am just, my husband and I are trying to make this decision. He is still working. He has an income of about 80,000 a year. He hopes to retire at about 65. My income a year after COVID, I'm a Christian motivational speaker, so my income dropped from about $50,000 a year to now $20,000.
Chapter 3: What are the advantages of getting rid of student loans?
We are trying to make the decision of whether we cash in this whole life policy and put into our stocks and bonds portfolio, given the fact of his life expectancy to be quite high.
What's the face value?
$240,000.
No, that's the cash value.
What's the death benefit? Yes, $666,000 right now.
Okay. Okay. So basically, if he dies, or when he dies, we all die. Yes, I understand. When he dies, if the policy is in place, you will receive $666,000. Yes, sir. Okay, that means they're going to keep $240,000. So you really have a $400,000 insurance policy. Correct.
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Chapter 4: How do life insurance policies impact financial planning?
That's really what you have, okay? And so the swing is... Do you need the extra $400,000 to live? And the answer is no. You don't. So if you cash it out and put $250,000 in there, or if you keep it, either one, you're going to be okay either way, financially speaking, mathematically speaking. Agreed? Agreed. Okay.
So this really comes down to a bet that you're making, not based on the past, but for $400,000... I'm going to bet that I'm going to put in less than $400,000 before he dies. Right. Mathematically it's, it's, it's very cold hearted, but it's a math thing.
Okay.
And so it's, um, you know, uh, um,
Chapter 5: What factors influence the decision to keep or cash out a life insurance policy?
and what's the like can she save another 400 still at no i'm saying she's paying for a four hundred thousand dollar life insurance policy in essence they are paying okay and um if he dies before you put 400 into it if you put 300 into it you gained by a hundred right and that's that's the math good but and is it currently and it will be forever ten thousand dollars
Yes, and that's been our first. Since we got it, we fund that first, and then our employee matching, and then our Roths.
That's been our... Well, that would not be my order of priority, but if we're just making bets at $10,000 into $400,000, that's 40 years, is it not?
Yes, it is.
So if you're just placing bets on the math, you're going to keep it. Okay. It's a crappy product. I probably would have dropped it 15 years ago or 10 years ago and saved that money and quit then. And I hate it. I think it's a horrible product.
But at this stage, what it's come down to is if you're going to get 666 upon his death, which is a weird number, by the way, but if you're going to get that upon his death, and they're going to keep 240 of yours, that's 426 difference, then he's got to live 42 years before you don't come out ahead. If I'm doing my math right, am I doing something wrong? 400 divided by 10 is 40, isn't it? Yes.
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Chapter 6: How can I maximize my investment in stocks and bonds?
Yeah.
Yes. And so 420 divided by 10 is 42 years. He's 62, so he's got to make it to 104. Probably not happening. I mean, I'm probably not making it to 104, and I've got longevity in my family, so, you know. Right.
Right.
And she comes out better ahead doing that versus cashing it all out, taking that $250,000 and putting it in an investment.
Yeah, I mean, that's a very simplistic way of doing it, okay? If we want to get one more level of sophistication, we could say the present value of that money. Right. In other words, were you to invest $10,000 a year at an 11% rate of return in your stocks and bonds with the market as return, how long before you'd get to $400,000?
I don't have that off the top of my head, but it's probably still 20 years.
Right.
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Chapter 7: Why is emotional intensity important in financial decisions?
So if I'm tracking with you right, because this has been a dilemma for me, you know, we're pretty financially savvy. We did Larry Burkett before we heard of Dave Ramsey and have done the envelopes before they were cool. And I think about if I pull out or we pull out the cash benefit of two hundred and forty thousand dollars approximately each.
and I invest that, plus I'm adding, I'm freed up $10,000 a year to also invest.
You're right. Your equation is more complete than mine. You're right.
You're exactly right. It kind of swings this pendulum the other way.
Well, if you do that, you've got to get to 666, but you'd get there in seven years, six years.
Exactly.
You know what? You got me. You got me. You didn't need me.
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Chapter 8: What practical steps can I take to eliminate debt quickly?
I needed you.
Yeah, you're exactly right. You're exactly right.
I left a variable out of that. Oh, well, that was dumb. Okay, you got it.
You're exactly right. No, you're exactly right.
So what I would do is sit down with your investment advisor and run the calculation if you invest at your current rates of return on your investments, $250,000 plus $10,000, and how quick do you get to $666,000? That's the equation. Okay. And if it's at 11%, I think you're there in about five or six years is what I think it's going to come out. I'm doing that in my head, but I'm not far off.
So, yeah, I am going to cash it out. Good. I feel better because I hate those dead gum things.
I know.
I was having trouble keeping it.
So you can take his job.
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