should we cancel our whole life insurance policy?
we bought a whole life policy for a couple of years ago b/c we liked the “safety” of not losing our money(the way u do w/ term)–anyway we have since learned that u don’t make any money this way and it’s better to take those premiums and put them in better returning investments. we already have a huge chunk of money in this whole life policy that will be down the toilet if we cancel. what should we do? can we convert it back to term?
Gail
July 27th, 2008 at 9:09 PM
Justin
No one here should be advising you, because you haven’t told what your INSURANCE goal is.
If you have no insurance goal, and the goal is purely investing, well, that’s like buying a pair of prada heels to hammer a nail in the wall - the completely wrong product for the goal.
So, define the GOAL. Be precise. THEN select the tool. If you have the wrong tool, don’t throw good money after bad. If you have the right tool, then you have to redefine your INVESTING goal.
There’s no absolute. Some people, Whole LIfe meets their goals. But MOST people, don’t have concrete, predefined goals in the first place.
July 29th, 2008 at 10:29 PM
Albert
The insurance that this policy represents cannot be purchased at that rate simply because you are older. Life insurance should not be purchased as an investment item but rather as protection for the family.Term insurance has premium that goes up with the age of the insured. While it is very cheap at a young age(because the risk is very small) when you arrive at your 50’s and sixty’s it is very, very expensive.
Whole life insurance premiums remain level, because you pay more than the risk calls for at the beginning and that excess premium is used to reduce the cost of pure insurance at a later age.
Some agents will say to buy term and invest the difference. It is a good theory and if you can discipline yourself to do that, you will be further ahead, but 98% of people don’t do it and end up with nothing.
Also, remember that your agent makes another commission if you buy another policy. My advice to you is to think long and hard before you do this.
August 1st, 2008 at 2:48 AM
Brent
They work out to about a 2% rate of return over 20 years and around a negative return in 10, so purchasing it as an investment makes no sense. Don’t just jump at the answers that say “yes do it” right away. You’ll have options like taking a paid up policy (which may not be viable considering you just bought it). You could also reduce the amount so you have some coverage that lasts forever as most people need some coverage even into retirement.
A return of premium term policy would give you a much better rate of return..more in the 5-7% range
August 4th, 2008 at 2:53 AM
Troy
Some of the advice here is good, some not so good. There are many different types of whole life policies and some have a rate of return in the 5-6% range. Have you looked at the market lately? Almost everyone investing “some where else” is losing money. At least you are not losing money. The returns are usually low the first few years of whole life insurance because of surrender charges, but the longer you keep it, the lower those charges are. Like the first answer, you must first answer why you bought the policy in the first place. Is it the right policy for what you are trying to accomplish, only you can answer that one.
August 6th, 2008 at 6:48 PM
Brett
It completely depends on why you bought the insurance in the first place. Whole life is for needs that don’t go away (IE: funeral costs, final taxes, etc). Term is for temporary needs (IE: paying out debt, making sure the kids are taken care of until they are old enough to take care of themselves etc.).
If you are considering cancelling this policy just to following the Buy Term and Invest the Rest strategy, DON’T DO IT! It is a seriously flawed theory and most of the books that have been written about it have flawed calculations in their numbers and compare old whole life policies to current term rates to make it seem better. For some it works out, but very few.
Insurance should not be bought as an investment alone. Insurance is good for providing for your family, protecting your estate and in some cases a tax shelter. The ‘investment’ part should be considered more of a bonus to buying whole life and not the entire reason, unless you are looking at tax sheltering if you’re a high networth individual.
You’re best bet is to contact a third party insurance broker and ask their opinion on whether to cancel it or go over your options if you can make it paid up with the cash value or something. Make sure the person offers both term and whole life insurance. If you go to the guy that sold it to you, he may just tell you to keep it so he keeps the commissions (depends on how he’s compensated and if he’s a good advisor or not). If he sold it to you strictly as an investment, get a new advisor, he’s likley nothing more than a U/L slinger selling U/L to everyone that walks through the door.
August 10th, 2008 at 12:19 AM
Terri
Seriously, this is something a seasoned insurance rep should be helping you with.
If this is whole life, it may have a cash value.
You may be able to convert it into reduced paid up insurance,. or perhaps use the cahs value to pay a “:single premium ” piad up policy.
Please-show the policy to an investment counselor.
August 11th, 2008 at 3:20 AM
Rosa
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August 12th, 2008 at 9:04 AM
Sam
I can not answer on your situation, but what I would do is a 1035 exchange on the money into a VA, keeps the tax savings benefits, and replace (not cancel) the policy with a lower cost term.
Again, that is what I would do. I would not do anything until either you, or a financial analyst, looks at your situation and helps you figure out what is best for you and your family.