| Cancelling Whole Life Poilicy |
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amcruz28
New Poster
Cash: $ 0.45
Posts: 2
Joined: 30 Oct 2006
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| Cancelling Whole Life Poilicy |
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Hello,
I currently have a whole life policy now for about 5 years. From reading around, I realized that It's not a good idea to keep, and instead go with a term insurance. Should I cancel the policy, take the cash out to pay down some existing debt? Or do I keep it since I have invested in it for that period of time?
What do I do?
Thanks,
Anthony
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Mon Oct 30, 2006 7:02 pm |
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efflandt
Senior Member
Cash: $ 80.45
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Joined: 25 Apr 2005
Location: Elgin, IL USA
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Not sure how much cash value you are talking about, but a portion of the initial premium (maybe 1st 5 yrs) goes towards paying the agent who sold it to you. The amount that builds cash value is what is left over after paying the insurance and agent (or after insurance cost when agent's commission expires).
The amount of your premium applied to insurance increases as you age, so once the agent's commission expires, you have compounding of the amount from the early years when insurance cost was less, offset by less from your premium added to cash value in later years as the insurance part increases.
If you cash out (surrender) a whole life policy, gains are taxed (they withhold 10% of the gain). But that does not count the cash value added from premiums, so only a small amount may be taxable in your case.
I did cash out a policy towards a down payment on my home. And another to contribute to a Roth IRA and pay off credit card debts. But I am in my 50's, so the insurance portion was increasing (less going towards cash value) and I have much more than the amount of the insurance in my retirement savings. So I am at the point where life insurance is not a necessity.
If you are young and may have present or future dependents, you may want to make sure you have some type of life insurance while you are healthy, in case you don't qualify later.
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Tue Oct 31, 2006 2:09 am |
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LottomagicZ4941
Senior Member
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Location: Earth
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Am I the only person on the planet that likes whole life that dosen't sell it?
I understand the theory buy term and invest the rest.
But if you young it is nice to lock in low rates.
I've seen term that costs as much as whole life.
So there are raw deals on BOTH TYPES!!!
I did attempt to sell life insurance when I got out of college.
And I did have people who wanted it but for health reasons couldn't get it.
If your healthy shop around and don't over pay regardless of whether you choose term or whole life.
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Tue Oct 31, 2006 7:50 pm |
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amcruz28
New Poster
Cash: $ 0.45
Posts: 2
Joined: 30 Oct 2006
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I appreciate the input, I am already purchasing term insurance. My
reasoning for doing this is to pay off bills. I need to cut down on a couple
of expenses and thought this is the best way to do it. I am contributing to
a 401k through work and I have a seperate Roth IRA account. So I was
thinking I need to take what I am contributing to the whole life and put it
my roth IRA instead. What do you guys think? Thanks in advance for your
responses.
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Wed Nov 01, 2006 3:25 am |
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oldguy
Senior Member
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Location: arizona
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""What do you guys think? Thanks in advance for your responses. ""
You are definitely on the right track. Cash out the whole life, invest the money into an Index inside a Roth - you will be far far ahead in 20 or 30 years.
""Am I the only person on the planet that likes whole life that dosen't sell it? ""
Lotto, yeah, most likely - in almost all situations, it is a loser when compared to investing that money elsewhere (mutual funds, real estate, etc). When I say loser, I mean by a big factor - it can prevent you from building up hundreds of thousands. But there are some situations where whole life can be useful for high net worth individuals to protect an estate
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Thu Nov 02, 2006 4:22 pm |
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