SECOND THOUGHTS on Whole Life Insurance 1 Year in - ADVICE???

[frymiller]

Hello all,

I'm hoping to get any advice on our whole life insurance - We are coming up on 1 year after starting, and I am hesitating to send in the 2nd year premium after seeing negative feedback online regarding whole life, include Dave Ramsey's take on it. Unfortunately, I do not feel we did enough research at the start of the policy, and bought into the idea at the advice of our financial advisor.

We have two nearly identical policies of $5500 premium and $3500 rider. We have good term insurance in addition to this, which can be converted in the future if we choose. If we quit the policy, we would obviously lose the 1st year premium ($11k total). Our 2nd year renewal payment is due in 3 weeks.

We are age 35, young professionals, making about $240k per year, with 2 young kids. So we DO have the means to continue paying the premium forever. I max out my 403b- however, my job does offer a tax-sheltered 457b which we are NOT doing at the moment. We also do NOT have a 529 for our kids college. Our plan was to contribute to the education using the money available from the whole life.

MY QUESTION IS: Does this seem like a good financial plan? Or should we cut whole life, take the $11k loss, and take advantage of other options. Or try to do both???

Thank you in advance - VERY much appreciated!

 

[hockeyday]

Hello all,

I'm hoping to get any advice on our whole life insurance - We are coming up on 1 year after starting, and I am hesitating to send in the 2nd year premium after seeing negative feedback online regarding whole life, include Dave Ramsey's take on it. Unfortunately, I do not feel we did enough research at the start of the policy, and bought into the idea at the advice of our financial advisor.

We have two nearly identical policies of $5500 premium and $3500 rider. We have good term insurance in addition to this, which can be converted in the future if we choose. If we quit the policy, we would obviously lose the 1st year premium ($11k total). Our 2nd year renewal payment is due in 3 weeks.

We are age 35, young professionals, making about $240k per year, with 2 young kids. So we DO have the means to continue paying the premium forever. I max out my 403b- however, my job does offer a tax-sheltered 457b which we are NOT doing at the moment. We also do NOT have a 529 for our kids college. Our plan was to contribute to the education using the money available from the whole life.

MY QUESTION IS: Does this seem like a good financial plan? Or should we cut whole life, take the $11k loss, and take advantage of other options. Or try to do both???

Thank you in advance - VERY much appreciated!

First off why did you buy it? 2nd question are you sure that you have no cash
built up in the policy? If you bought it for college planning only then you should have about 70-80% cash valve at the end of year one.. and Dave Ramsey does not have an insurance lic................. enough said,

 

[///MJay]

This is ultimately going to be your decision and I feel you know that.

Marketing 101 it doesn't matter which extreme you fall into as long as you don't get lost in the boring middle ground. There is so much "marketing" around either end of this debate.

Do you need the insurance? You have 2 kids and a healthy income, so let's assume a yes here.

You are young so you should have some aggressive investment choices in line with your personal goals. Are you taking advantage of those?

Do you have a liquid emergency fund?

Do you have a safe fixed asset class in your portfolio now?

I can't answer your question without knowing you, and your goals. I also have no idea if your plan was structured properly. But you will never be any younger than you are now,and your life insurance rates will reflect that.

You say you can tolerate the premium so it sounds more like you need to get a grasp on your overall plan and the reason you started the WL plan in the first place. Do you still have a relationship with that advisor? Do you feel you got bad advice to begin with? They will obviously be biased towards keeping the plan, but they "should" be best able to work through your initial logic.

If you don't trust them or want a second opinion you need to find someone you can trust and build a relationship with. That person can then dissect the plan and review your goals. That is beyond the scope of what you want to reveal here on a forum most likely. But those are some of the most important factors to consider before giving an opinion on this.

 

[rkjb195]

What kind of projections were you given when applying? the illustration should have shown you your approximate cash values yearly Some WL policies will really start building up cash value in the later years and some earlier. Usually if you can afford it WL is your best bet. I don't agree with Dave Ramsey as most people will never get the kind of return that they can get with WL. He is not a licensed insurance agent nor a licensed financial planner.

 

[DHK]

I cannot comment without knowing more about your policy, so let me ask you some questions:

If this was real estate and buying a home, would you quit after the 1st year? If not, why not? Would you still have bought a home if the mortgage interest wasn't deductible? After all, you get little to no equity in your first year of a 30-year mortgage, right?

Life insurance is far more comparable to owning property than it is an investment. The longer you hold it, the more policy equity you will have, and the better it gets. But it WON'T get better if you quit after the first couple of years.

----------

Can you borrow your home's equity? Yes. Why do you pay interest to borrow your own money? You AREN'T. You borrow from the bank against the value of the equity in your home. It's precisely the same thing with life insurance.

How much do you expect your home to grow in value? Probably as much as your whole life insurance policy is expected (or perhaps even GUARANTEED) to grow - just enough to keep pace with inflation. (Look at long-term bond rates to get an idea of what inflation is estimated to be.)

Way too many similarities between owning a home and owning permanent whole life insurance that you may begin to understand that giving it up... would be like giving up on having bought a home within the first year or so.

 

[LostDollar]

First, 2 caveats. I am not an insurance professional and my income/living status is on the order of your number without the 2 in front.

1 assumption, your whole life is participating whole life and the dividends are going to go towards additional paid up insurance.

There is a stability and versatility that those whole life funds will provide your family that other financial options may not. Assuming you are both working and there is a policy on each of you, in the event of an unanticipated death of one of you, there are additional funds available, beyond the term funds, for the remaining spouse and children. College is another option. A family medical emergency of some kind. And if you both continue to have successful careers, good health and good financial results in your lives, you may find them useful for estate planning for transferring assets to your children.

You have an age 35 rate locked in and you have the insurance locked in. What if one of you has a heart attack at age 45 and becomes unable to renew term insurance? And so on.

My personal opinion is that, when you reach age 70, you will think retaining the whole life policies was one of your wise financial decisions.

 

[LGilmore]

I've had WL for over 25 years, I actually OWN some. Smartest thing I did.

Who did you buy from? That helps tell us a lot.

Before I invest my time talking about WL, who do you have, what did you buy?

Let's start there.

 

[jboussea]

- It's great that you're seeking advice from both the mainstream financial media and insurance professionals.. you get to hear both sides and make an informed decision
-I think your first mistake was not understanding whole life before committing to it..
- like others have said it all depends on YOUR specific situation... we can make assumptions but that won't be a speicific advice for YOUR need unless we know more about your situation. ... I've said it before here .... for my own plan... I would want to have a permanent life insurance policy .. a term life policy .. and exposure to the stock market.. they all play a role and on the surface it sounds like you have all 3 ..that sounds like a great plan but it's not unless you know the purpose of all 3.. the 4th item I think people should have is an emergency fund in a bank acccount .The term life would cover the death benefit for 20/30 years .. the whole life if designed correctly would increase over time and catch up to the term life during your retirement years. The cash value and the death benefit of the whole l ife policy would allow you to be more aggressive in the stocks because if the market is down you can always pull form the cash in your whole life policy... but all that only works if the WL policy is designed correctly in the 1st place..

DHK and SCAGNT3 are 2 great resources o n the forum.. there are others but those 2 have been the most helpful with me. Another great source is www.theinsuranproblog.com ... if you actually listen to their podcasts you will get a much better understanding of whole life as an asset.

also as far as the college funding goes .. I think whole life is a good tool for that (if designed correctly) because it's a reliable predictable savings tool and you can get a predictable rate of return.. but that rate of return won't be that great if you only have 10 years before your kids go to college... even if you have 18 years.. it won't be 6%.. but it's predictable.. you won't have to worry about your balance dropping by 20% while your kids is trying to withdraw money for his junior year..

if you take anything away from this post ... i would say you should learn more about whole life from the experts I mentioned.

 

[Golfnut2112]

It's hard to recommend a definite strategy but here are a few things to consider:

Was the advisor who recommended the whole life for college security licenced who could offer a 529 or just an insurance agent?

Is the rider a paid up additions rider? If so, the policy will perform a lot better and you should get most of the $3,500 back if you did cancel.

There are tax advantages with the 529 plan that are not available with your whole life policy.

You are going to pay interest on the money you use from the whole life policy, generally between 4 to 8 percent. I just put two kids thru college and it cost me well over $200,000 and I could not imagine having to pay $12,000 to $15,000 a year in interest year after year after year!! Then if you get tired of paying the interest and cash in the policy you have to pay income tax on the gain!!

I do not see any advantage by using whole life for college funding unless you die. For the record I own two whole life policies I bought over 20 years ago which I am happy with, however I never plan on taking money out and paying loan interest

 

[LostDollar]

Interest and/or income taxes--if negative themselves, do not make life insurance a negative.

You are going to pay interest on the money you use from the whole life policy,

I believe that statement would be true for money obtained temporarily from almost any source.

Then if you get tired of paying the interest and cash in the policy you have to pay income tax on the gain!!

I believe the capital gains tax applies to other financial investments too. No different if you bought stock and then sold it.