After doing some research.. I have come to the conclusion I may have made a stupid mistake. Some months ago I opened up Permanent life insurance with NWM. it was the whole scheme that I’ve read about. Honestly, I’m feeling sorta stupid because of this. I’m 20F and have a good stable job. I own my own home and was wanting to invest in something that will help me down the road.
The way the policy was set up, I pay $75 a month. My understanding is that at retirement age this policy will accumulate a large sum to pull out amongst other pools I have. I have a 401k through my job and I was thinking of opening up a Roth IRA as an investment for my future. I was about to sign the paperwork for the Roth, when I stumbled across this subreddit and some others about how many have made errors in using NWM for insurance.
Now, I’m freaking out a bit. I’ve put forth less than a year’s worth of payments. Should I cancel now, would it be smart to keep it open? I am not struggling to pay the policy, but I’m worried something is slipping through the cracks since I am not super educated when it comes to investing and financials.
Please help!! Thank you :,)
Is this Whole Life Policy worth it?
byu/urmomslaundry inInsurance
Posted by urmomslaundry
7 Comments
My boyfriend has whole life insurance and it’s peace of mind in case something happens and he dies. Because I’m disabled and we have a kid.
Honestly that’s not a bad price to have a permanent policy but it also depends on how much coverage you have. Life Insurance is all about health, habit and age so the older that you get the more difficult time to get a policy that premiums are super low such as in your case. So it all depends on what you want. I honestly I am surprised that they put you under a permanent whole life policy instead of a IUL which is what you are looking for in retirement and will grow more than the traditional permanent whole life.
Read the online reviews for NWM and you’ll have your answer. Whole life is the worst investment possible. It’s designed for people who have no discipline for saving money. Your return from term life and investing in your 401K and IRA will significantly exceed the returns of whole life.
Cancel it now before you commit even more. Do you have dependents? If not, you probably don’t need life insurance at all at this point. Put your resources toward retirement accounts, which will do a much better job of growing wealth than a whole life policy. Then when you have dependents in the future get term life.
If you put $75 per month into a Roth IRA for the next 45 years (assuming you retire at 65), and the rate of return is around 8% annually, compounding monthly (not necessarily valid assumptions, especially the compounding, but likely not far from historical trends), you’ll end up with about $395,000 you can withdraw tax free. You would have put a total of $30,600 of after-tax money into it (which means you likely paid another $10K-$12K in taxes over 45 years to be able to deposit that money into your Roth, so figure it really cost you closer to $41K-$43K to fund a Roth this way). If your rate of return was 10%, you’ll end up with about $786,000 you can withdraw tax free.
How does that compare to your projected rate of return on the policy? And of course, the value of the Roth can go down (and up) over time, while the policy may have guaranteed minimum returns (you’d have to check the language), but you have lots of time on your side and given the 4+ decades on your investment timeline, an 8%+ average rate of return on a Roth invested in index funds or similar funds is more or less a safe bet.
I’m an insurance professional. Generally speaking, whole life is a terrible investment product. If you set up an automatic plan for $75/mo that goes into an index fund you will likely have a far higher return.
But – the main benefit of whole life is your ability to acquire life insurance that is permanent. If at some point in the future you acquire a significant medical condition and you don’t already have life insurance you may find difficulty in being able to find any coverage.
Since you are young – and if you are healthy – your best bet is usually buying term life and investing the rest. For young healthy people you can generally buy a much higher amount of insurance for a long term, such as 30 years, and it will be far less expensive than whole life with a similar amount of death benefit.
It’s not the end of the world. It’s not a terrible policy. You can just outperformed the cash value that’s all. At least your beneficiary will have a guaranteed death benefit no matter when you pass away.