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Cancel Whole Life Policy?

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  • Cancel Whole Life Policy?

    A reader of my blog reached out to me with this question.  I'm inclined to recommend getting term life policies in place and then cancelling the whole life.  I thought I would get some thoughts from you guys .....
    "I am an emergency physician with custom whole life policies (with cash values that are on track to break even at the 10 yr mark) for myself and my 3 children (ages 8, 7, 3). Mine is 4 yrs old and I have put in $2k/mo. My children have had theirs for 2-3 yrs and have put in $500/mo in each. The children's policy premiums are until they reach 18 yo. Based on your experience, does it make sense to cancel either mine or the children's policies and consider it a stupid mistake or just continue, knowing that after the policy term is done, the policy cash value grows yearly without additional premiums paid. For example, mine is projected to add $30k yearly after age 60."

  • #2
    As you know the board hates whole life policies. I am on the fringes and believe they can possibly play a role for high income earners for asset protection, legacy gifts, tax planning/draws in retirement, estate issues. Depends on structure and cost.

    Definitely lots of bad plans out there. But even if theoretically financially one can do better wit term life and investments, it depends on how one values some of the other issues mentioned above.



    • #3

      I'd make these 2 points:

      1. Only have insurance you actually need. Kids don't need it.

      2. For those that do need it, get term in place, then dump whole.



      • #4
        Don't know the policy specifics, but if it's an over-funded policy he runs the risk of it being classified as a MEC.  Might not be a problem depending on the goal, but something to consider.


        • #5
          This would be a pretty easy choice for me. I'm not hearing a need for a permanent insurance policy and it's clearly not a very well designed policy as an investment.

          I'd start with asking "Why'd you buy it?" The usual answer is "It was sold to me."

          Helping those who wear the white coat get a fair shake on Wall Street since 2011


          • #6
            I view insurance as transferring risk of a catastrophic event to another party and nothing else. I do not believe that insuring ones children is reasonable unless they are a child producing income that the entire family depends on. Insurance is insurance, not an investment vehicle.


            • #7
              Thanks for all of the great input.  I will share these thoughts with the good doctor.