Should I keep my whole life policy?

Seeking Advice
1

I’m 30, married, with one kid, and I make $160k a year. I’ve had a financial advisor since I was 25 and bought a $2 million whole life insurance policy at 26, before marriage and having a child. I’ve been earning six figures since I was 22 and wasn’t sure how to handle my money, so I got a financial advisor. She sold me this policy, presenting it as an investment vehicle since I was already maxing out my 401k and Roth IRA.

Back then, I didn’t have dependents, but I felt like the financial savior of my family. My parents made huge sacrifices to raise me, and their finances are still a mess. If I died, I wanted them taken care of with this policy. Also, my job was dangerous, and people have died doing it, so I felt okay with the coverage.

Now, after four years and a career change, I don’t see the point. The premium is about $250/month, but I’ve been paying $750/month because I thought it was a good investment strategy. Despite that, I still have a negative surrender value, and all that extra money seems gone.

I feel like I messed up by not getting a term life policy and investing the rest in a brokerage account. I can’t change that now, but I was young and naive, and I’m sure my financial advisor saw that. My cash value is about $18,000, but the surrender value is negative $9,500.

Should I just cut my losses, surrender the policy, and rework my investments? Or should I keep it and maybe reduce the death benefit? I don’t feel like I can trust my financial advisor anymore after realizing what she sold me, but otherwise, I’ve been happy with her. What would you do in my situation?

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2

What on earth did she put you in that you’ve got no cash value after 4 years?

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3

There’s definitely cash value. OP probably means they have a negative total return.

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4

Cash value is 18k. But the surrender value is negative. So after 4 years of over payments, I get nothing if I cancel. I could take a loan out against the cash value, with interest…at least that’s how I perceive it

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5

You won’t break even until about 10 years in, so it’s better to keep it since your rate is locked in. Your health could change, which might affect future insurance rates.

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6

He’s healthy and can get term now.

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7

I am perfectly healthy. Blessed in that aspect. Getting any other insurance wouldn’t be an issue. I’m just a few years older

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8

OP, you should stop working with this advisor right away. She sold you something you didn’t need or fully understand, likely for a big commission. She’s not looking out for your best interests.

Consider finding a fee-based CFP who doesn’t sell insurance to help you build a plan. Your instinct about the drawbacks of permanent cash value life insurance and the advantages of term life plus investing is absolutely right.

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9

Just a FYI you cannot have a negative surrender value in a permanent life insurance contract.

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10

I would just get 0 if I cancelled

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11

If your surrender value is $0, that’s correct. Based on what you shared, it seems your policy wasn’t set up to meet your goals. If your intention was to leave money to your parents and also contribute to supplemental retirement income, a $2M permanent death benefit wasn’t the best choice. You likely would have been better off buying around $1.75M in term life and using the remaining premium to max fund a VUL with the smallest death benefit possible.

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12

OP, your title is a bit misleading. You don’t have a whole life policy. With whole life policies, the cash value always matches the surrender value. It sounds like you have a Universal Life policy instead.

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13

Well…I’m not an insurance expert. That’s what my fa referred to it as

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14

If you decide to keep the policy, consider lowering the death benefit significantly. This way, the insurance cost drops, and more of the money you contribute will go toward building cash value. Also, by year four, your surrender value should be a portion of your cash, not zero.