The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: CommonCents on September 24, 2014, 03:24:24 PM
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Please confirm that I should cancel my whole life policy. Called to cancel, got the hard sell, so I want to make sure I'm not missing anything.
35 yo
Married (he's 39)
No kids now, but planning on them
Policy put into place when I was super young (~17?) largely so I'd be eligible for a scholarship which I got.
Value $2400, surrender value $1600
Premiums $14/month
I think the payout is about $30k, which I can easily self-insure for
2 guarantee increase options I can exercise over the next 5 years if I wanted (for $50k)
He mentioned it's a 4% interest rate, not sure I understand that (perhaps that they pay 4% on the $1600 each year, to increase the $1600?), which rate is rare in today's market
I don't specifically need the $1600. I would just invest it.
I'm fairly healthy - right now I wouldn't imagine flunking a test for insurance, but things happen of course
I figured no insurance until kids...then term life just while raising, as necessary to help husband pay off mortgage or such
Should I keep it just because I got it when I was so young so my rates may be super low as a result? I called once about 5 years ago to cancel and got talked into keeping then, but that's their job.
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At 8% return, the $1600 plus $14 a month would be worth $30k in about 27.5 years. If you think you'll die before then, it is worth it to keep the policy. If you think you'll live longer (and you can self-insure the $30k) I would vote to cash out put the funds to better use.
$14 isn't much money, but neither is $30k of insurance you don't seem to need. For reference, I pay $30 a month for $500k of term insurance on a 20 year policy.
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You have had this since you were 17ish... paid in $17 a month(17*12*18=3672*4%=7348.80(using investment calc at 4%) and you have a value of 2400. If you live to an average age, say 81 you will have spent( 3672+(46*12*17)) or 13056 plus interst you will have aprox 60000 in the account.... to give your estate 30000
Or you could cancle now and invest the 1600 and the 207 a year and have aprox 98000 at 7% of your money for you and yours... You decide.
Whole life in never good from an investment point of veiw. They have been sued over the inventment protion over and over again. Only you can decide if it make sense from a life insurance point of view. And By the way... as my calculation above states the policy has cost you 3672 so far - and you have a max value of 2400(if you borrow the money from the policy - in wich case you have to pay them intrest to acess your money??? I have never gotten this) that does not sound like a 4% ROR.
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I work as a secretary for a regulator agency that oversees whole life insurance policies - my advice - GET OUT NOW!!!! Yes I'm yelling at you! If you think that you need insurance for when you have kids get a 20 year term life policy. I hear more horror stories of people who thought that their family would have X when they died and instead end up with close to 0! IMO whole life is only good if you die at 40 or so and that's not something you plan.