A different ball game confronts retired people with life insurance

Singles and couples usually arrive at retirement with a mixed bag of life insurance. Question -- what to do with it? More and more persons with cash value locked into their insurance are opting out. The primary reason for having insurance ----retirement, insurance may be needed to provide quick cash to pay estate taxes, final expenses, and outstanding debts. In today's inflationary environment, retirees need more income, and one source could be insurance cash values.Following are several available options:

* One couple, writing to "Moneywise," with loans against their cash-value policies, are well below the estate value where federal taxes would be payable. They could cash out their policy and pay off the loans and accrued interest. The remaining lump sum cash, most of which would be nontaxable as a return of paid-in capital, could be stashed in a money market mutual fund where it would earn more income than the increase in cash value if the policy continued.

* A person or couple with considerable cash value insurance should look at potential estate tax liabilities. A single with a net worth of around $200,000 could expect to be close. A couple with a net worth in the range of $400,000 or more should set up a plan for estate tax payments. For higher estate valuations , insurance remains the one best way to assure ready cash for settlement expenses and for paying federal and possibly state estate taxes.

If you own more than one policy, determine if more than one is necessary. Generally, I recommend not keeping insurance policies into retirement unless cash is needed for estate settlement. To avoid continuing premiums, convert a policy into paid-up insurance. The face value of the policy may be more than the paid-up value, but you avoid future payments and conserve cash for spending.

* If you take a lump sum for the cash value and accumulated dividends, if any , the policy is canceled. Generally, the cash will yield more income than if it remains in the policy. Consider the additional premiums being paid as a cost for insurance between the policy's cash surrender value and its face value. Often this difference is small after 20, 30 or more years, and the yearly premium amounts to expensive coverage. You should plan to invest the lump sum cash in something better than an insured savings account. Money market mutual funds are a good choice now. You assume more risk if you invest the lump sum in stocks, but the potential payoff will likely be better long term. Diversifying into a variety of investments, including a small collection of gold and silver coins, could reduce your risks from various directions.

* Converting the cash surrender value into an annuity is one possibility that should probably be avoided unless you opt for a Swiss annuity.Inflation has clobbered the idea of a fixed income for life, as each year the fixed number of dollars buys fewer goods and services. If you wish to start spending accumulated capital, as you do with an annuity, consider your own program.Mentioned previously in "Moneywise" are capital withdrawal charts that help you to plan how much cash you can draw from invested capital over a variable number of years according to the average yield from your investments. These three pages are available for 50 cents plus a self-addressed, stamped envelope from Moneywise, Box 752, Mercer Island, Wash. 98040.

* A cash withdrawal plan is similar to a self-directed program of spending capital, but the cash value remains with the insurance company. Instead of leaving the cash where it earns a paltry rate, you'll be better off to withdraw the cash as a lump sum and put it into several no-load mutual funds with a similar regular payment monthly. Funds keyed to income rather than growth would be the key.

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