Help Me With Advice for My Dad

[AmyBoz]

Okay, here's the sitch:

My parents have about $40,000 in credit card and assorted other debt (not counting their mortgage, which I don't know how much that is). My Dad is looking to retire in December, and my Mom, (hopefully) by the end of this school year.

My Dad is a minister and as such, did not have 401k or anything of the sort. Just the ministers pension fund, which is ridiculous, and then when he went back to school and became a pastoral psychotherapist and practiced that for many years, he was out of the pension program. He did open an IRA years ago, but I'm really not sure how much that is.

My Mom is a teacher. She's been teaching for a gajillion years and is eligible for retirement. She's been getting her Social Security (She's 66) and her retirement should be okay to live on.

However, they have this debt looming. They can survive on what they'll get when they retire if it's a blank slate, but if they have that debt to pay off, they won't be able to do it.

So, my Dad announces at dinner last night that he has a plan. He wants to cash in his term life insurance policy for the $40,000 that it will be. Use that money to pay off the debt and then get a whole life policy that doesn't require a medical check. (At this stage, I should explain that my Dad has severe diabetes, terrible asthma, high blood pressure, high cholesterol, and is quite overweight...If I were a life insurance company, I wouldn't insure him if I gave him a physcial.)

I have to be honest, I don't know much about whole life insurance. I think Greebo had a thread about it a few weeks ago, but I didn't read it because, quite frankly, I wasn't interested. Surprise, surprise...I guess I have to read every single freaking post from now on, because you never know which ones will apply to you!!!

In general, I think what I'm looking for is just a general consensus, or non-consensus, as the case may be, about whether or not this is a solid or stupid plan. He's coming here for dinner tonight and I'd like to be able to give him some feedback. My gut says, "Great...pay off that debt," but then I think, "Mmmm...I'm not sure if I'm comfortable with him cashing in his life insurance." I think I need objective people to think about it for me.

[Greebo]

Okay, here's the sitch:

My parents have about $40,000 in credit card and assorted other debt .

Ouch

So, my Dad announces at dinner last night that he has a plan. He wants to cash in his term life insurance policy for the $40,000 that it will be. Use that money to pay off the debt and then get a whole life policy that doesn't require a medical check. (At this stage, I should explain that my Dad has severe diabetes, terrible asthma, high blood pressure, high cholesterol, and is quite overweight...If I were a life insurance company, I wouldn't insure him if I gave him a physcial.)

Well I think you have your terms backwards. Term policies have no value, whole life policies have value, and Dad is going to be hard pressed to find a policy to cover him. He'd better get one FIRST before he cashes in.

Have you factored in Social Security into their income projections? n/m i see you did.

I have to be honest, I don't know much about whole life insurance. I think Greebo had a thread about it a few weeks ago, but I didn't read it because, quite frankly, I wasn't interested. Surprise, surprise...I guess I have to read every single freaking post from now on, because you never know which ones will apply to you!!!

In general, I think what I'm looking for is just a general consensus, or non-consensus, as the case may be, about whether or not this is a solid or stupid plan. He's coming here for dinner tonight and I'd like to be able to give him some feedback. My gut says, "Great...pay off that debt," but then I think, "Mmmm...I'm not sure if I'm comfortable with him cashing in his life insurance." I think I need objective people to think about it for me.

He should not cash in that policy without having one to replace it. If he cashes in, and can't get insured, pays off the debt, and kicks it, where will that leave your mom? She'll be destitute, forced to sell the house, and live on a meager pittance from the Government and whatever pension the school system provides.

[Darlene]

When I think life insurance I think mostly of burial costs and paying off mortgage & bills helping the spouse left behind, especially if the person that dies is young and has a family where their support is the main support.
I don't know what to tell you but I'm sure someone here has some words of wisdom. :hug: Hope they can rein in that cc. debt, I know someone there likes their books & stuff.

[rachelj]

Just a question...

If they pay off the credit card debt and your mom is ok (with pension etc) why does he need life insurance?

At most funeral expenses run around $20K (give or take). If they can save at all then they could save up that amount - or downsize their home for a savings account.

just asking....

[rachelj]

sorry - double post

[Greebo]

Just a question...

If they pay off the credit card debt and your mom is ok (with pension etc) why does he need life insurance?

At most funeral expenses run around $20K (give or take). If they can save at all then they could save up that amount - or downsize their home for a savings account.

just asking....

I have my own doubts about how "ok" Mom will be to live on her SS & Pension. I don't see much saving going on in the future for these two, based on the track record..

I think there should be enough of a policy to at least pay off the house and cover taxes/insurance for the rest of Mom's life. Likewise, Mom should have a policy on her as well.

[C@rol]

Amy,
Sorry your parents are dealing with this. I speak only from my experience of being a licensed life insurance agent a while back so take my statements with a grain of salt and confirm what I post.

So, my Dad announces at dinner last night that he has a plan. He wants to cash in his term life insurance policy for the $40,000 that it will be. Use that money to pay off the debt and then get a whole life policy that doesn't require a medical check. (At this stage, I should explain that my Dad has severe diabetes, terrible asthma, high blood pressure, high cholesterol, and is quite overweight...If I were a life insurance company, I wouldn't insure him if I gave him a physcial.)

Greebo is correct, no cash benefits to term life insurance policies. Straight term life policies are insurance only and nothing else that's why they are so cheap. This policy may be named in a way that makes you think it's term insurance but it's whole life with the cash benefit.

You are oh so correct. Plead with him to hold on to the policy they have right now. He can try and get another policy but with the statements you have made above about his health that will be highly unlikely that he will be approved. All insurance policies have their small print stipulations. Again I agree with Greebo he should try and get the new policy before cashing out the one he has now.

JMO, but I think your parents should hold on to that policy and find another way to pay off the debt. Hate to say it but maybe work a little longer.

I hope it all works out.

[AmyBoz]

rachelj...yeah, my parents are not savers...I don't know what it is about them, but they cannot seem to understand the importance of saving.

[leezza]

Amy,

Is there a chance that your folks could sell their house and move to a less expensive place, (maybe a senior condo or something like that)? That way they could pay the debts and your Dad could keep his insurance. Or as Carol said work a little longer and pay off the debt.

JMHO,
leezza

[forHISglory]

When Hubby retired with his teacher's pension, we stopped all life insurance. It was the right move for us because:
1. We had no dependents anymore
2. We had savings in the bank and other investments
3. If Hubby dies before me, I still get the whole pension until I die.
4. The pension is enough to live on, not on a grand scale, but it is covering the costs.
5. We have no debt.

As I understand it, life insurance is to provide for the survivors and help with funeral costs. We felt that the survivors were already cared for, and that there was enough savings for the funeral costs.

Now consider your parents in light of the 5 items above.
1. Do they still have dependents?
2. Apparently they have no real savings.
3. How is the pension set up? Is it for a survivor also? (We had a choice of 5 different plans for the pension, and felt that the survivor one made most sense for us.)
4. Will her pension pay their costs? I have no idea of what NJ (if they are in NJ) pensions are like, but I would imagine they are higher than here in Missouri. If she has been teaching for a long time (30+ years), she should easily have a pension of $40,000-$50,000 before taxes.
5. They have substantial debt.

With this breakdown, it is clear to me that they need to analyze their situation a bit more. Bless you for caring so much!

[forHISglory]

Ooooooh...... I forgot another factor.... a BIG factor: Health!
(I probably forgot a lot more, but.......)

Anyway, here is #6:
6. Health. Hubby and I are in good health. We also have health insurance through the school's group plan. We have to pay 100% of the cost, but the cost is a little lower because we are part of the group, and can't be dropped from the group. The insurance is costly, taking 1/3 of our pension, but at least we have it. Hubby will never be eligible for social security and possibly not medicare, since he did not pay into the system (here teachers get the pension, but no SS). So it was important that we budget for that insurance.

Do your parents have access to insurance? Group insurance? Will it accept your dad despite all his health problems? Without insurance, they may run thru the pension or other money quickly each month. Will your parents be eligible for Medicare? Even then, they need supplemental insurance.

Also...... I mentioned in my previous post about the possible amount of your mom's pension. While that is a larger amount than most here in our state get, I must assume that the cost of living in NJ is higher than here. And I'm only making assumptions that New Jersey has higher costs than the midwest.

[ladykemma2]

and make absolutely sure that a teacher gets social security.

[SHOPGIRL]

Amy,

I'm assuming your mom has a pretty good pension if she's on the east coast. If she can live on her income alone, then a life insurance policy wouldn't be needed. You parents might want to look at prepaying their funeral expenses. They could save some money that way.

They also have to consider their mortgage. How long till it's paid off?

If I were them, I'd try to live this year as if I were retired. That would probably be about half their income. I'd take the other money and pay off as much debt as I could.

They're in a tough situation!

[forHISglory]

Amy,
Just wondering how your talk with your parents went last night. Wishing you and them the best!