should I walk away from my whole life policy.....

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PostPosted: Thu Sep 15, 2011 6:33 pm   Post subject: should I walk away from my whole life policy.....  

Hi all. Last year my wife and I purchased both term and whole life policy from New York life. We are now doubting our decision regarding the whole life policy.



We purchased the whole life as part of our retirement investment. But after doing further research I feel like we would be better off putting that money into ROTH IRA or just some growth mutual fund. The premium for the policy is around $11,000. money obviously we would lose if we walk away. But i'm thinking better own up to the mistake now than compound it further.



A little back ground info, my wife and I are in our early thirties with no kids, no debt except the house mortgage.



Thanks to all advice in advance!

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PostPosted: Fri Sep 16, 2011 1:15 am   Post subject:   

Life insurance is not an investment. Do you have a comprehensive individual disability insurance policy in place from a top company like Guardian, Principal, or Standard? If not, your money needs to be going there to protect the income you have yet to earn which will be funding your retirement later. If you couldn't work ever again, or in a diminished capacity, how would that change your financial future? I doubt you would have $10k+ to invest every year while not working.



Regarding the WL policy, dividends are not guaranteed and a reduced dividend scale can greatly impact the future cash value. While the non-guaranteed side of the illustration might be fun to look at it, the odds of it being accurate 30 years from now are slim to none. Pay attention to the guaranteed side and consider anything on top of that a bonus.


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Last edited by dgoldenz on Fri Sep 16, 2011 12:48 pm
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PostPosted: Fri Sep 16, 2011 9:39 am   Post subject:   

What dgoldenz says is absolutely practical.

you won't be able to save as much as you think you will through any growth fund. Since it's subject to market risks and on top of that you'll lose all the benefits of your WL as well. It's better to hang around with your WL which is NOT a mistake.


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PostPosted: Mon Sep 19, 2011 6:33 am   Post subject:   

Quote:
Regarding the WL policy, dividends are not guaranteed and a reduced dividend scale can greatly impact the future cash value. While the non-guaranteed side of the illustration might be fun to look at it, the odds of it being accurate 30 years from now are slim to none. Pay attention to the guaranteed side and consider anything on top of that a bonus.




The odds of it being accurate are slim to none and none just left town.



However, that doesn't mean that we should just pay attention to the guaranteed side. In order for the policy to perform exactly as guaranteed, we would need to assume that a company that has paid dividends for over 100 years would instantly stop paying dividends and never pay them again. That's not very realistic.



What you'll find historically with the big mutual companies is that policies issued in low interest rate environments, outperform their illustrations and those in high interest rate environments underperform their illustrations.





Personally, I think that the specific numbers in an illustration should be ignored, but we can use them to help understand how a policy works. If we look at an illustration, we know that it will be wrong. However, it is very helpful to understand that if today’s $1,000,000 policy is worth $1,100,000 in the future with a cash surrender value of $110,000, we won’t know the exact value the following year, but we do know that the cash surrender value the following year will be more than $110,000 and the death benefit will be $1,100,000 or greater.



The easiest way to understand guarantees is that the guaranteed column is EXACTLY how the policy will perform if all dividends are ALWAYS taken in cash.

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PostPosted: Tue Sep 20, 2011 6:14 am   Post subject:   

Quote:
The premium for the policy is around $11,000.




That whole life policy had better be a whole lot more than $1,000,000. $11,000 x 90 years of premiums = $990,000.



Quote:
my wife and I are in our early thirties with no kids, no debt except the house mortgage.


With a term policy (probably in an amount to pay off the mortgage), the need for $1,000,000+ in whole life coverage may be too much in your present situation.



As for B's suggestion that you won't do better in the stock market, I don't think many others would buy that argument in view of the long-term performance of the market. The last ten years or so have not been kind to many investors -- with essentially flat returns -- but the market has experienced similar periods in its history, and still returned a 10+% average rate of return over more than 120 years. No whole life policy will ever match that. Not unless you count the payment of the death benefit as a "return on investment" (and as dgoldenz has pointed out, life insurance is not an investment). But in that case, someone is dead, and someone else has lost something of value that money cannot replace.



Quote:
However, it is very helpful to understand that if today’s $1,000,000 policy is worth $1,100,000 in the future with a cash surrender value of $110,000, we won’t know the exact value the following year, but we do know that the cash surrender value the following year will be more than $110,000 and the death benefit will be $1,100,000 or greater.


This would only be true (as far as the death benefit is concerned) if dividends are being used to purchase paid-up additions, and, as dgoldenz points out, if dividends continue (they cannot be guaranteed, since they are based on profitability). And as long as premiums are being paid the cash value should increase every year. However, failure to pay a premium will cause the insurer to use the Automatic Premium Loan provision to take money from the cash value to pay the premium, which will likely cause the cash value to decline..



If dividends are used to pay premiums instead of for PUAs, the death benefit would not increase. Without PUAs, a whole life policy will not increase its death benefit unless there is some sort of increasing death benefit/COLA rider attached, and the benefit paid for. Universal life is a somewhat different story. But the OP did not say he has a UL policy, he says he has WL.



Finally, no one here would ever tell you to simply drop your existing coverage. That would be a bigger mistake. Until you meet with your agent, or another agent, and do a thorough job of evaluating your true life insurance needs and objectives, what you currently have keeps you in a better situation than not having any insurance at all.



After you determine your actual insurance needs, you may simply choose to reduce the death benefit (and premium) on your existing policy. There is probably greater value in doing that than dropping the coverage and applying for something new elsewhere (the only downside could be exposure to a MEC, but that's probably not a great concern, if at all). But a later issue age for sure, and a resulting higher rate ($$ / $1,000 of death benefit) is what you might be facing at a minimum in a new policy.


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PostPosted: Tue Sep 20, 2011 11:57 am   Post subject:   

An life insurance policy is purchased to secure future of your family,and if you think it will be a good investment then go for it.



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PostPosted: Tue Sep 20, 2011 4:51 pm   Post subject:   

Quote:
if you think it will be a good investment then go for it.


A common misperception of life insurance.



Quote:
An life insurance policy is purchased to secure future of your family


A person might think of life insurance in this way, but, fundamentally (unless used for a business purpose or estate-planning needs), life insurance is protection against premature death and the lost future income stream that represents to a family, or others. By itself, the life insurance policy does not secure a family's future. The insurance amount could be significantly lower than needed.


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