Should I keep whole life insurance policy?

10 years ago

I am a 36 year old male, non-smoker in relatively good shape. I am single (divorced) and have no kids. I don'the owe any alimony either. I currently have the following life insurance policy:

20 year Pay Whole life $25,000

20 year level term rider $225,000

The combined annual premium on these is around $715 per year, which I would only pay for 20 years since it's a "20 pay" policy. I should also mention that I get a life insurance benefit from my employer (2x my salary) for free with the option to buy extra coverage very cheap. This is only valid while I am employed.

I've heard Dave Ramsey and Suze Ormond talk about what a waste the whole life product is and they have some valid arguments. They recommend buying term and investing the premium difference.

So my questions...since I am single and don't have any dependents, should I cancel and cash in the whole life policy and the term rider and just stick with my employer's insurance for now? I figured I could invest the premium in something worthwhile like my 401k or a Roth IRA. If I was to die, my 401k would be more than enough to handle my funeral costs and remaining debt. Do I even need life insurance at all? Should I get some now while I'm still young-ish and in the "preferred" group?

Thanks for you help!

Featured Answer

two25acres

10 years ago

Regarding the whole life policy, when was it taken out and are there any surrender charges? What's it costing you? What interest rate are you getting on it? Why did you purchase it? As for the term policy, 20 year term means the rate is locked for 20 years, after those 20 years you will have the option to renew it at the given rate/age at that time. Maybe you don't need life insurance now but that will more than likely change in the future. Does your term policy have a conversion privilege? When did you take out the policy? How far into your 20 year term are you?Your employer offers you free coverage now, that can change. You may also leave that employer and go somewhere else. What if you have a condition that prevents you from getting life insurance down the road when you do need it. Your cost is very minimal for what your getting. I'd keep them.

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Comments (8)

User
10 years ago
last modified: 10 years ago
Life insurance is a solution to a problem. Typically the problem is the chance of a premature death.

Problem: if I die, how will my wife be able to pay the mortgage, the credit card bills, etc?

Solution: life insurance.

You don't have that problem anymore, so you may not need the solution.

Yes, it gets more expensive the older you get. If you have a change in health you may not longer qualify for a policy.

Do you anticipate any future problems to which this particular policy is the solution?

The policy really is too small to be useful in estate planning. If your estate was over 5 million anyway.

Up to you. Just think of it as a tool. What are you going to fix with this tool? If you can't think of anything, well, you may have your answer.

Good luck!
Andy Henson thanked User
User
10 years ago
I allowed a whole life policy to lapse during my 40's because I saw no need. I now kick myself for doing that because it had a minimum 6% return. Before cancelling it check to see if there is a stated minimum. If I had continued paying for it the cash value would have helped fund my retirement. Hard to find that good of return on investments.
Andy Henson thanked User
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This being a fairly long thread, I'll answer a couple of points from ole joyful on behalf of the OP (but if I've gotten anything wrong, pls do correct me - I'm going on memory here, having contributed several times): >>This was term insurance/most are guaranteed renewals ... but usually at a substantially increased annual fee. >> No. This was an offer from the US Government. It is an unlimited term policy, which is unheard of from a private carrier. The premium remains the same in perpetuity, until the policyholder dies or allows the policy to lapse. >>If he could delay purchasing, until a time when people depended on him financially, he could (but - would he have?) invest the value of the premium for a few years until his need developed. >> The annual premium is a MAXIMUM of $365/yr and a minimum of $3.20/yr. I don't think there's an investment on this earth that would turn even the $365 maximum amount in a five- or ten-year period, into enough money to purchase a lifetime of premiums for a $400,000 30-yr Level Term policy on a male who is ratable for occupation and may by that time be ratable medically as well. Being ratable for occupation normally means a premium penalty from 40-150% in annual cost. The federal government is offering to insure this young man for: - The same premium a highly-rated A+ private carrier would charge to a healthy, non-smoking, "low-risk occupation" for $400K face amount - But instead of a 30-yr Level Term that would go up dramatically at age 54**, this policy remains in force and the premium remains the same, forever. ** For those that are not conversant with Level Term, the premium remains the same for the set number of years, but after that jumps so high (because you are now 10, 20, or 30 yrs older) that everybody drops the policy. So you want to have the term policy last until you have no need for it any longer. How high does it go? Well, after the Level Term period expires, it becomes an Annual Renewable Term policy, which is what ole joyful is referring to. For example, on a $250K policy I purchased on a 15-yr Level Term, I was rated standard for health, no rating for occupation. My premium is currently $600/yr. At the end of the 15 yr term, the annual premium jumps to $4,525, the year after that $4,912, then $5,360, etc. etc. Therefore, I will allow the policy to lapse at the end of the Level Term period.
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User
10 years ago
A 25k whole life policy will do little to fund anyone's retirement.

Again, what problem is the OP presenting to us to which life insurance is the solution? He's presented a pretty minimal overview of his situation. So there might be something! But so far, the need is pretty marginal.
Andy Henson thanked User
lucy132
10 years ago
I don't get the need for life insurance unless you have small children who need support/college/etc. if you were to die unexpectedly. If the employer funded insurance will cover any debts/funeral costs, and there is no spouse or family who needs support, what is the point? I think OP should use the money to invest in 401K, if he marries later and has dependents they would still inherit it if he were to die.
Andy Henson thanked lucy132
User
10 years ago
two25acres provided great advice. The insurance from work is tied to the job, it could change. You don't have spouse and kids now, but you may x number of years down the road.

You need more data to make decision such as what you would pay if you take out same policy today, or X number of years in the future.
Andy Henson thanked User
Elmer J Fudd
10 years ago
You've mentioned no obvious beneficiary you need insurance for - I'd drop it.

Whole life insurance can be a big financial positive - for the selling agent. Not for the customer. Until and unless your personal life situation changes, I think you're wasting your money by keeping it.
Andy Henson thanked Elmer J Fudd
joyfulguy
9 years ago
Usually with a 20-pay whole life policy, you pay a stated premium for 20 years and then the insurance continues throughout your life, with no more payments required.

If so, for how many years have you been paying on this policy? (How many more years of $715.00 per will it take to fulfill your obligation of 20 years in total to complete your end of the bargain/contract?).

If you are almost totally positive that you will never remarry, a wife who isn't able to care for her own needs with no financial infusion from you, at or after marriage and your death ...

... and if you're positive that you'll never have any children that may have need of care following your death until they are grown and providing fully for themselves ...

... and are absolutely positive that, should you collect such a wife and possibly kids, whether yours or included as baggage with the marriage, you'll be in almost-perfect enough health that you'll be able to qualify for insurance at that time, at a reasonable cost, or later ...

... then maybe it'd be a useful idea to let this policy lapse, collecting whatever benefit may have accrued, thus far.

But ... can you make the guarantees as suggested above?

Food for thought.

ole joyful

Should I keep whole life insurance policy?

two25acres

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