Author Topic: Advice For Someone Currently 5 Years Into Whole Life Insurance  (Read 2266 times)

msencenb

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Advice For Someone Currently 5 Years Into Whole Life Insurance
« on: February 16, 2017, 11:42:15 AM »
I've read a bunch of advice on here and other places about how much of a racket whole life insurance is, and I'm finally waking up to it. I would appreciate advice, as I've been paying for the whole life for 5 years and have some sunken costs (queue ghostly psychology music).

Details:
I'm 28 making 80k a year pre-tax, no debts, currently max my roth IRA, and contribute as much as I can to a betterment savings plan. I'm in good health, however I have alzheimers, parkinsons, and heart disease in my family. My girlfriend is a freelance writer, but could carry on without me just fine financially. When I was 23 I got roped into a whole life insurance plan by someone I trusted and basically ignored the heebie jeebies I had in my gut when buying it at the time.

Here are the details of my whole life plan:
Currently annual premiums (paid monthly): $1,869.12
Current annual dividends: $338.56 -- I believe I can use this dividends to partly pay the premiums but it would still leave me out 1500 a year
Net cash value: $5,295.23   -- which I can take out an 8% loan against... hmpf

I also have a term rider:
Annual premiums of $483.60

What do you guys think? Is this something I should simply surrender for a pittance and recoup my 2k ish a year into a better system? Or should I stick it out for another 5 years and hope that my dividends can completely pay my policy price at that time?

« Last Edit: February 16, 2017, 06:04:31 PM by msencenb »

Saving in Austin

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #1 on: February 16, 2017, 07:53:48 PM »
Don't know if my math is correct but:

Seems like you've already spent $ 9,345 in premiums over 5 years.

Cash value is $ 5,295.

So you've spent $4,000 for 5 years worth of life insurance ($ 800 per year).

If your term premium is $ 483 then you are over spending by $ 317 per year.

I'd cash out and just purchase term insurance.

respond2u

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #2 on: February 16, 2017, 08:37:24 PM »
My thoughts:
Unless you feel you're financially responsible for someone, you don't need life insurance.

You and your heirs will be better off with you having the cash instead of your insurance agent.

My advice: Cash out and don't get any other insurance until you marry or have a baby. At that point, get cheap term life. And remember: a better insurance policy is to have a large estate.

You should get the $5K back, right?

--
Oh, also, look up "sunk cost fallacy", just in case you're thinking of keeping the policy.



sparkytheop

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #3 on: February 17, 2017, 01:28:31 AM »
Dump it.  I held on to mine for too many years out of ignorance and not knowing how to deal with it.  Yes, I had it long enough to have $3k in gains (that I had to pay tax on), but if I'd had put that money into any regular investment account (especially my tsp), I would have made many times that $2k. 

I may just be tired, but I don't see an amount of the life insurance payout, but it's probably not enough to be worth the premium on top of very poor dividends.  When I got mine, the policy seemed huge, but now I make more than that in a year. 

msencenb

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #4 on: February 17, 2017, 07:46:07 PM »
Thank you to everyone that replied, I think it's time to dump it. I just wanted to make sure that I wasn't missing something obvious that I would regret.

To answer some of the more specific questions above:
- Yes the math is stilted heavily in their favor over the last five years (I've put over 10k in, as I was paying more initially and reduced it later)

- No I don't get that 5k cash value when I 'surrender' the policy, they of course only give you a pittance in that scenario.

- The net death benefit is quite low at about 160k for the whole life (term is higher). That's actually quite terrible now that I'm a few years into having a 'real job' and not living as a student. In reality if I simply put the almost 2k I'm paying a year and stuck it into a mattress I would be at 120k in 60 years....

pbkmaine

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #5 on: February 17, 2017, 07:59:54 PM »
Get rid of it. In the end, it will be a rather inexpensive "buyer beware" lesson.

MrGreg

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #6 on: March 07, 2017, 08:35:04 PM »
I would investigate (1) the cash value if surrendered immediately; (2) the cash value if you waited (sometimes the surrender charge goes away after a while; granted the trade off is that you have to pay in longer and that may not be economical); and (3) what happens if you roll this policy into a low-cost variable annuity at Fidelity or Vanguard.

Goldielocks

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #7 on: March 08, 2017, 12:37:45 AM »
Most of the fees are front loaded, so 5 years in, you have almost cleared the account fees.

What you are left with is an investment at low (think fixed rate terms) for $1500 per year, plus term insurance for $483 per year.

The term you should be able to cancel if you want, or reduce, if set up separately.   The nice part is that the term rate does not increase until you get to the end of the term, so if you think you want insurance soon, it is your call, but I would reduce this.

Would you invest $1500 per year into a fixed income (tax deferred) account today?  What else would you do with the money?  Think of it that way.

MayDay

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #8 on: March 08, 2017, 04:27:58 AM »
Cancel, and you don't really need term either until you either buy a house with someone else, or have kids.


Beriberi

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #9 on: March 08, 2017, 04:59:20 AM »
I disagree with the idea that you don't need term.

The thing about term insurance is that it gets harder to get every day.  Next week you may get diagnosed with high blood pressure, or pre-diabetes, or slip and hurt your back. Those are all events that can cost you thousands in term premiums - or make you uninsurable.  Term is relatively cheap, and you could pick up a 30 year policy for <500/year for a $1M.  If you think you will never have any kind of dependents, you could skip this. However, I would argue to buy now and cancel in 10 years if you are still without financial dependents.

I wanted term insurance when I was 34, but had a (common) pregnancy complication. No one would insure me for any price until the child was delivered. If I had bought at 30, I would be paying much less today.

chasesfish

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Re: Advice For Someone Currently 5 Years Into Whole Life Insurance
« Reply #10 on: March 08, 2017, 05:43:10 AM »
Can you post the value if you surrender it this year?  What about next year?

All the fees are basically sunk costs at this point, I'd be halfway tempted to let the dividends offset the premium, drop the term rider with that company, and pay the difference in premium.

What company is the policy issued through?