Another life insurance question

[Guest Robertd]

Right now I have a whole life with Colonial and I've been hearing that term is better to get. I've for whatever reason thought whole was better. Is whole life kinda like a savings account? I've been putting into it for about 3 years. Is it possible to just pull the money I have in it out and open up a term policy? FWIW I"m 30. Which do ya'll think is better, whole or term? I really can't afford to have both policies since I'm maxing out a 457b and my wife's Roth IRA. We have another baby on way, and I was thinking I could pull the money in my whole insurance policy out.

[ETA Consulting LLC]

Right now I have a whole life with Colonial and I've been hearing that term is better to get. I've for whatever reason thought whole was better. Is whole life kinda like a savings account? I've been putting into it for about 3 years. Is it possible to just pull the money I have in it out and open up a term policy? FWIW I"m 30. Which do ya'll think is better, whole or term? I really can't afford to have both policies since I'm maxing out a 457b and my wife's Roth IRA. We have another baby on way, and I was thinking I could pull the money in my whole insurance policy out.

There is no such thing is one is better than the other. It depends on the individual and what you're trying to accomplish. One advantage of whole life is that it is a permanent policy, so you're premiums will not change as you get older; so you did good to get underwritten at such a young age. Term, on the other hand, it limited by the term; say 20 years. Suppose, after that time, you're terminally ill and your term just expired. You'd be unable to get underwritten for a new policy. However, some term policies are now convertable to whole life where you're still in the same class (i.e. Preferred), but your premiums will still adjust for your increase in age.

There are many variables. You'd just have to choose the set that fits your situation, but don't think in terms one is better than the other in all instances.

Good Luck!

[MoJo]

Right now I have a whole life with Colonial and I've been hearing that term is better to get. I've for whatever reason thought whole was better. Is whole life kinda like a savings account? I've been putting into it for about 3 years. Is it possible to just pull the money I have in it out and open up a term policy? FWIW I"m 30. Which do ya'll think is better, whole or term? I really can't afford to have both policies since I'm maxing out a 457b and my wife's Roth IRA. We have another baby on way, and I was thinking I could pull the money in my whole insurance policy out.

What ERISAToolkit said is absolutely correct. I would add one thing - and that is with regard to your statement about pulling the money out of your whole life policy.... If it's been in force for only 3 years, there probably isn't much to pull out. Most whole life policies use a portion of the premium to 1) buy the life insurance protection (an expense paid for that coverage); 2) to pay the agent (commissions - and first year commission can be huge relative to the premium); and 3) to build cash value (whatever, if any, is left after 1 & 2). That is an oversimplification - but in reality, cash value doesn't build significantly until the policy has been in effect for a number of years.

Step one in any insurance decision is to determine how much you need. So, for example, if you want to fund college educations for kids and a bit of a buffer for the spouse (but not make them rich), then you need one amount. If the spouse has a good income, then you may need a lesser amount. Also determine the end point the insurance proceeds will be needed for (life, till the kids graduate, 5 years as a transition to allow for the sale of the house and downsizing, etc.). Then determine how best to achieve that "financial goal." For me, being "self insured" is the goal (that is, accumulate enough wealth that life insurance (for living expenses for my dependents) is not necessary (but it still may be necessary for liquidity, estate taxes, etc.). Hence, I use term life insurance - with a renewable term to get past the poitn in time where I believe I will have sufficient assets to fund what I want should I die. Term for me (and I stress "for me") is a better choice, as I get the protection ("pure protection") for less than whole life, and can invest teh difference as I see fit. Others would see whole life as more of a wealth accumulation vehicle with protection in the event of death.

[Guest rex]

Most people who appear similar to your situation are very under insured because they were sold whole life when term would have been more appropriate.

Since you mentioned you cant afford both then this is even more likely the case. If you died tomorrow, would the death benefit of your whole life policy be sufficient? I doubt it. Whole life is a ton more expensive for the same amount of death benefit but of course term is only for a specific term.

Typically the cash surrender value of a whole life policy will not equal the premiums paid for about 15 years and that is assuming dividends dont continue to decrease. Dividends are not guaranteed.

Whole life is a bad investment. If you need a permanent death benefit or want one knowing that likely most of the time if you lived a normal life that you would be giving less money then fine its for you.

The problem you now face is that once you purchase a whole life policy, you are mostly stuck. Id bet you have very little cash surrender value compared to your premiums paid. You could surrender it (after getting the appropriate level of term in place) and just consider this an expensive lesson. You could keep funding it with the plan for someone to eventually claim the death benefit. You could 1035 exchange into an annuity. What does for you is keep your cost basis such that the gains would be tax free until you reach the amount you paid in premiums.

Most people dont need insurance later in life if they plan appropriately. If they dont plan appropriately then most likely they will fail to maintain a whole life contract as well. If you died just before retirement then the amount you saved for you and your spouse now only needs to support one person instead of two. The idea that you need a permanent death benefit just bc death is inevitable is false. Finally i should add if you are putting money into this on a monthly basis instead of on a yearly basis, you are typically being charged 6-8%.

[david rigby]

Where is Ned Ryerson?

At age 30, with "another baby on the way", your primary concern should be protection for your family. That probably means get as much term life as you can afford, and leave behind your whole life policy. Think about why we have insurance, and you'll quickly realize that you don't need the same level of insurance at age 70 that you need now.

[Bill Presson]

I have no idea why you guys are even responding to this troll.

A week ago he was 68.

[K2retire]

A week ago he was 68.

There's trick I'd like to learn.