Whole life policy after 19yrs

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omeganuts0213
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Joined: Tue Feb 06, 2018 2:24 pm

Whole life policy after 19yrs

Post by omeganuts0213 »

I have a whole life policy I bought when I was younger and have kept it for 19yrs. Stupid me... I was thinking if I should surrender the policy.. not sure what to do...

Policy face value 300k
Net cash 45303
Cash value increase from previous year 3300
Divided available 7190
Anniversary dividend 264

Cost 2236/yr
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Nate79
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Location: Delaware

Re: Whole life policy after 19yrs

Post by Nate79 »

omeganuts0213 wrote: Thu May 16, 2019 8:21 am I have a whole life policy I bought when I was younger and have kept it for 19yrs. Stupid me... I was thinking if I should surrender the policy.. not sure what to do...

Policy face value 300k
Net cash 45303
Cash value increase from previous year 3300
Divided available 7190
Anniversary dividend 264

Cost 2236/yr
Do you have a need for life insurance?
Topic Author
omeganuts0213
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Joined: Tue Feb 06, 2018 2:24 pm

Re: Whole life policy after 19yrs

Post by omeganuts0213 »

I don’t need it but at the same time I don’t want to keep on paying for it if it is not generating a fair return.
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Nate79
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Re: Whole life policy after 19yrs

Post by Nate79 »

omeganuts0213 wrote: Thu May 16, 2019 9:34 am I don’t need it but at the same time I don’t want to keep on paying for it if it is not generating a fair return.
If you don't need life insurance then I would cancel and start investing. If you need life insurance get term insurance. Whole life insurance is a horrendous product, approaching scam territory. The only reason I would keep it is if you are today not capable of being approved for life insurance and think there is a chance you may need life insurance in the future. WL is a horrible horrible investment, complicated product and best to get term insurance (if needed) and invest the remainder.
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Wiggums
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Re: Whole life policy after 19yrs

Post by Wiggums »

I would get rid of the whole life policy.
Silk McCue
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Re: Whole life policy after 19yrs

Post by Silk McCue »

omeganuts0213 wrote: Thu May 16, 2019 9:34 am I don’t need it but at the same time I don’t want to keep on paying for it if it is not generating a fair return.
According to a prior post you are married with two children and 38/39 years old. You may not need a whole life policy but Term insurance on you and your wife should be purchased to assist the surviving spouse and children from an untimely early death and that policy should be substantial to protect your children should you both pass away unexpectedly. Sadly, it does happen.

A $1M 20 year term for both of you would be very affordable at your age if your health is decent.

Cheers
GGFINORE
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Re: Whole life policy after 19yrs

Post by GGFINORE »

I assume this is traditional whole life not UL right? Most policies that have been in force a long time are decent deals going forward. On traditional the commission is normally paid the first 10 years.

For a safer asset (e.g. not agressive like equities), you are getting something like a 1.4 multiplier on cash value increase to premium paid in a year.

If you want to stop paying on it you should just take the policy paid up. Surrendering beyond basis while you're still working is not particularly tax advantageous as gains are taxed at income rates.
inbox788
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Re: Whole life policy after 19yrs

Post by inbox788 »

omeganuts0213 wrote: Thu May 16, 2019 9:34 am I don’t need it but at the same time I don’t want to keep on paying for it if it is not generating a fair return.
It's a fair return for what you get the same way your local bank pays a fair return on a CD. Are you beating the CD returns? Did you pay a fair premium price for your auto insurance policy, even though you probably didn't file any claims?

You will likely do better taking the cash value and future premiums and investing it, say in a low cost total market index fund.

Do you need more insurance now? Do you need insurance in 50 years? Do you have any health issues that would make it hard for you to get preferred rates? Those are reasons to review your life insurance policies and needs and how this policy fits in that scheme.

FWIW, one way to figure out Y/Y return is (3300-2236)/(45303+2236)=2.238%. Some people use (3300-2236)/(45303)=2.3486%. You can figure out your guaranteed returns similarly.

Good news you broke even and even made a little profit and might even owe a little tax on that. And you even got free insurance out of that, though you didn't use it, which is also good news, I guess. Bad news is you lost a lot of opportunity cost. A total gain of 6.6% over 19 years isn't a very good investment return if you think about it that way, but it's not supposed to be an investment, even though it's sold as such.

2236*19=42484
45303/42484 = 1.06635439

Anyway, you should review the inforce illustration, but most likely there isn't a compelling reason to keep it going at this time.
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Nate79
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Re: Whole life policy after 19yrs

Post by Nate79 »

I disagree with the posters that WL is an investment - its incorrect to look at it like a savings account with an interest rate because the cash value is not your money. You can't access the funds without borrowing (which have a cost) or canceling the policy. And if you die they keep your cash value. So in other words the cash value is not part of your estate, you die they keep it. And you need to borrow just to access it unless you want to lose the insurance portion of the policy. Not to mention the actual insurance portion is almost always more expensive than just going out and buying a term insurance policy because the companies that sell WL are almost always the most expensive insurance companies. Term insurance shopped thru a site like term4sale will find much cheaper companies than the WL companies even selling term.
GGFINORE
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Re: Whole life policy after 19yrs

Post by GGFINORE »

If you contact the company and ask them to prep you an illustration for taking your policy paid up, you can pretty easily see what the performance looks like without ongoing contributions.

A lot of the advice so far is centered around the horrible performance that all insurance products have early on. This is effectively the opposite of the sunk cost fallacy. You are 19 years into the policy, and the correct analysis is to look forward at the marginal costs vs marginal reward.

Insurance is not an investment (though it is frequently sold as such). Comparing an insurance product that has a contractual guarantee to increase in nominal terms to an investment in VTSAX or something else with significant risk premium makes no sense as a comparison unless they have a VUL.

A more reasonable comparison would be buying term and VBMFX, understanding that an insurance product is going to have differences in rebalancing, duration, taxation in accumulation and withdrawal, etc.

Also Nate you can partially surrender the cash value from a whole life policy. Basis is tax free, gains are taxed as income, comes out basis first. This reduces the face value of the policy.
NYC_Guy
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Re: Whole life policy after 19yrs

Post by NYC_Guy »

Buying a new WL policy is almost always a poor choice (and is almost always a bad “investment”).

But once you have gotten through the first 10+ years, it often makes sense to keep the policy. If the annual increases in cash value less premium payments are greater than the after-tax yield on an investment grade, short term bond, then it may make sense to keep it and treat that cash value as part of your fixed income portfolio.
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Stinky
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Re: Whole life policy after 19yrs

Post by Stinky »

Nate79 wrote: Thu May 16, 2019 12:20 pm I disagree with the posters that WL is an investment - its incorrect to look at it like a savings account with an interest rate because the cash value is not your money. You can't access the funds without borrowing (which have a cost) or canceling the policy. And if you die they keep your cash value. So in other words the cash value is not part of your estate, you die they keep it. And you need to borrow just to access it unless you want to lose the insurance portion of the policy. Not to mention the actual insurance portion is almost always more expensive than just going out and buying a term insurance policy because the companies that sell WL are almost always the most expensive insurance companies. Term insurance shopped thru a site like term4sale will find much cheaper companies than the WL companies even selling term.
+1

Buy term insurance if you need insurance coverage. Get rid of the junk whole life policy. Invest the proceeds per your asset allocation model.

Don’t buy your term insurance from the whole life company. Go to term4sale.com or Zander.com for quotes from many great term insurance companies.

General rule - don’t mix insurance with investments. Whole life is not an “investment” - it is grossly overpriced life insurance.
It's a GREAT day to be alive! - Travis Tritt
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