Hello everyone, I’m new to this forum. I’m 33, currently employed with benefits. Over the last two years, I started investing and looking into options like life insurance because I was previously a contractor without benefits. I bought a whole life insurance policy valued at about $900,000. I thought it would grow over time and be useful as a liquid asset if needed in the future. But now, I’m wondering if I made a mistake. It’s expensive, and I’m thinking if investing the money monthly would have been better. My advisor says to keep it because I’ve already paid for two years, but fixing a mistake now is better than waiting five years. What do you think?
Insurance shouldn’t be used as an investment. Whole life only makes sense after you’ve maxed out tax-advantaged accounts, and even then, only if you’re very risk-averse. Insurance is meant for financial protection, not growing wealth.
@Akira
So maybe term insurance would be better?
Timber said:
@Akira
So maybe term insurance would be better?
It might be a bit late to switch to term now since you’ve already been paying for two years. Plus, whole life is like a long-term savings account that builds cash value you can use later. It’s also insurance, and if it includes Accelerated Benefit Riders (ABRs), you could access some of the death benefit early for long-term care or emergencies.
Accelerated Benefit Riders
@Bailey
Or you could surrender the policy and use the surrender value, if there is any, to pay for term premiums.
Ripley said:
@Bailey
Or you could surrender the policy and use the surrender value, if there is any, to pay for term premiums.
That’s true, but it would likely cost more now that you’re two years older, and any new medical conditions could also affect the price.
@Akira
Insurance can be an investment too. Maybe you just haven’t heard of VULs or PPLI?
Ripley said:
@Akira
Insurance can be an investment too. Maybe you just haven’t heard of VULs or PPLI?
Sure, it can be used that way, but it shouldn’t be. If you need insurance, you could get a variable policy for better returns, but the main reason to buy insurance is protection, not profit.
@Akira
PPLI isn’t bought for the death benefit, it’s for the tax advantages. It’s just not something 99.9% of buyers use.
Ripley said:
@Akira
PPLI isn’t bought for the death benefit, it’s for the tax advantages. It’s just not something 99.9% of buyers use.
Once you’ve maxed out tax-advantaged accounts, life insurance could be an option for extra savings. But the fees don’t outweigh the benefits compared to just using taxable accounts.
@Akira
With PPLI, the fees are much lower compared to regular products, and the ability to access alternative investments in a tax-favorable way is important for ultra-high-net-worth clients.
Ripley said:
@Akira
With PPLI, the fees are much lower compared to regular products, and the ability to access alternative investments in a tax-favorable way is important for ultra-high-net-worth clients.
Right, we can agree on that. The ultra-high-net-worth market is totally different from regular insurance buyers. Once you’re above the estate tax threshold, life insurance becomes very valuable. But that’s not relevant for most people who don’t have teams of advisors managing their assets.
I got this policy to cover the mortgage and my student loans for my husband. Is that what most people do?
It’s hard to give specific advice without knowing more details like your premiums and how long you’ll be paying for the policy. But in general, life insurance should bring peace of mind. Whole life insurance is costly early on because you’re actually buying the insurance, not just renting it like term insurance.
The way I and my clients see it, whole life is like owning a house versus renting one. Some people prefer the control and the chance to create a legacy. At the end of the day, you either leave wealth or debt. Whole life insurance can also let you take some of the cash value later in life for things like retirement, starting a business, or paying for a grandkid’s education. It’s your own personal bank.
But if your current insurance is stopping you from investing in other areas, it might be time to talk to another agent and look at different options.
@Finch
Thanks for the detailed response! To add some context, I recently took a pay cut, and saving while paying this $500 monthly premium has been tough. I would be paying this until I turn 65, so another 32 years.
@Timber
What’s the cash value right now?
Unclewaffl3s said:
@Timber
What’s the cash value right now?
It’s only about $250 right now since it’s still new.
Unclewaffl3s said:
@Timber
What’s the cash value right now?
It’s only about $250 right now since it’s still new.
Sounds like the policy was set up poorly.
@Unclewaffl3s
What do you suggest I do?
Timber said:
@Unclewaffl3s
What do you suggest I do?
You mean $250, not $250k, right?
I’d cancel it and look for a new policy designed for cash value. With the one you have, it could take decades just to break even on what you’ve paid. You need a policy with a Paid-Up Additions (PUA) and term rider. That way, you’ll start getting cash value in the first year instead of waiting decades.