Whole Life Insurance mistake

[ssg187]

I was sold a $500,000 Whole Life Insurance policy 5 years ago.  Since following the blog and starting the WCI course, I now realize it was a terrible mistake.  But what do I do now?  I am 34, an ER doc, and four years out of residency.  My wife is currently a resident and in 2.5 years will be an attending and making a lot more money.  She has about $150,000 in loans and we are expecting to use the PSLF.  I am able to maximize both our retirements and still contribute to a 529 plan for my two kids.  My loans have been paid off.  I pay an annual premium of about 5500 for the whole life insurance.  I am in the process of saving for a new house.  We currently rent and won't buy until my wife is done with training.  I have about $ 30,000 in an emergency fund.  Do I quit the Whole life plan cold turkey?  Since I have started the process, should I just continue it?  Any suggestions would be helpful.

 

- Scott

[Donnie]

Is that a real name / email address?  Maybe a mod can fix your username and create a new thread if so?

[adventure]

ssg964 wrote:

Do I quit the Whole life plan cold turkey?  Since I have started the process, should I just continue it?

Click to expand...

https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/

I had a simliar annual cost - I bought a new term life policy, then cancelled the annual.

https://www.term4sale.com/ will help you know if you're getting accurate quotes for a new term policy.

I got some of the money back, but didn't worry about preserving my loss. The link above is pretty spot on - guided us through it. You'd want to get an in-force illustration (sometimes just online, sometimes you have to request from your agent), that will help tell you what (if any) cash value the policy has.

Good news - you might come out of this spending less, and get a check too! (look forward, not behind...)

[The White Coat Investor]

adventure wrote:

Ssg964 wrote:

Do I quit the Whole life plan cold turkey?  Since I have started the process, should I just continue it?

Click to expand…

https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/

 

Click to expand...

Exactly. And let me know if you want your forum name changed and can't figure out how to do it. Thanks for taking the course.

[Hank]

Get an in-force illustration and see if it makes sense to keep the policy going forward.  Since you've only had the policy five years and interest rates were quite low five years ago, you probably don't want to keep the policy, but you need to check the math to be sure.

Make sure you have a high quality term policy in place prior to dropping the whole life policy.  Who knows, you might find out that something's occurred that makes it expensive or even impossible for you to get coverage.  You don't want to get killed in an auto accident after you drop the whole life policy and before the term policy goes into effect.

[Craigy]

+1 don't just "quit cold turkey."  If you want to cancel the policy, take the effort to do it properly.  If you simply stop making payments without following all the steps, you'll eventually be borrowing against whatever value it has and it could end up costing you money to get out of the policy.

 

[Jason Veirs]

I concur with what others have mentioned. I would order an in-force illustration from the carrier in order to see what the Cash Surrender Value of the policy is, and then lock in some Term Life coverage.

Chances are that since you only took out this policy about 5yrs ago, there's not much (if any) cash value accumulation, unless it had a very aggressive design, but either way, cut your losses now, as you're still very early into the contract. The positive is that you came across WCI now and can make more informed decisions moving forward.

Hope this helps!

[ACN]

Donnie wrote:

Is that a real name / email address?  Maybe a mod can fix your username and create a new thread if so?

Click to expand...

Fixed.

[Tabaxus]

WCI, your quote does still display this person's actual email address.

[DMFA]

Tabaxus wrote:

WCI, your quote does still display this person’s actual email address.

Click to expand...

Was still there in a couple places, actually.

[Morsno]

I made a similar mistake 30 years ago.  The sales pitch was that the premiums would be paid by income in 10 years.  I’m still on the hook for some of the premium.  My policy is worth 500K.  I’m 63 and plan to work part time for 18 months.

So now with 200K in cash value do take the money and run? How long would it take to recover to the 500K value? I would have to pay income tax I think. Or, should I keep this as part of my “long Term Health Insurance” plan?

[Jason Veirs]

Morsno wrote:

I made a similar mistake 30 years ago.  The sales pitch was that the premiums would be paid by income in 10 years.  I’m still on the hook for some of the premium.  My policy is worth 500K.  I’m 63 and plan to work part time for 18 months.

So now with 200K in cash value do take the money and run? How long would it take to recover to the 500K value? I would have to pay income tax I think. Or, should I keep this as part of my “long Term Health Insurance” plan?

Click to expand...

It really depends. You need to first contact the insurance carrier and ask them to run an "as is" illustration, which will show you how the policy is expected to perform, given it's current state.

The insurance carrier will also be able to provide you with your current basis and the current cash value of the policy, as well as whether or not there are any loans outstanding, which should then help you determine the taxable gain. If you took out this policy 30 years ago, then my guess would be that there is a taxable gain, but it's hard to know for sure without contacting the carrier and getting the information that I previously mentioned.

Lastly, if the goal is to transfer the $500k to your heirs and the policy is almost fully paid-up, then this is something to strongly consider as well.

Hope this helps!

[Scott at MD Financial Services]

If you have a $500,000 death benefit and $200,000 of cash value in there then really you have a $300,000 of net death benefit.  Question is do you need $300,000 of death benefit and if so is the premium your paying the most efficient way to acquire that?  You can always roll out the $200k and just buy a $300k policy for the duration you want it to be around for.

[StatBariumEnema]

Do you have more than just this 500k in coverage? If not, with two kids, I would definitely get more.

[StatBariumEnema]

By more than 500k, I mean term of course. Not more whole life.