In 2013, my dad bought me a whole life insurance policy with a death benefit of $250k for $200 a month. I didn't know much about finance at the time, but just trusted my dad so I've continue to pay it for the last 11 years. I've briefly looked at it over the years and didn't give it much thought, but this week I've started looking closely at my finances and I was shocked to see just how awful this policy is.
First of all, I've paid $28k into it over 11 years and the cash value (and cash surrender value) is only $22k. So basically after 11 years my "investment" is down $6k. This is over the same 11 years the market made a great recovery from 2013-2019 and then again after the pandemic.
One of the "perks" of this policy is that you can use it to take loans out for less than the market. I have a car that I'm currently paying off at 7.1% APR. So I checked to see if I could get a loan from my life insurance policy which should have a lower rate, right? NOPE! It's 7.4%!
I'm kicking myself because if I had just bought the S&P for $200 every month for the last 11 years, I'd be up 20k, instead I'm short 6k.
Now I'm trying to figure out what to do. I definitely want out on the policy and I'm going to buy myself a 1-2 million dollar term policy and probably pay less a month, but what do I do about this? Should I cash out? Should I take out my money as a loan and default on the loan? I feel so scammed right now and want to get as much money out as possible before I give any more of my hard earned dollars to this garbage investment.
My Whole Life Insurance Policy is a scam! Now what?
byu/onixmmgo inInsurance
Posted by onixmmgo
2 Comments
Something sounds iffy here. Was there ever a loan on the policy?
Let me put a defense for the non term policy here. The reason they get a bad rap is they were sold as retirement miracles when in reality it’s insurance for you that has some Cash value built in. Old days when the markets weren’t always up and money was tight that loan on cash value can be a big perk for people struggling for funds which I can actually foresee in the near future. You’re not having a credit check on that loan and given you’ve had it for a while that’s 20gs you can draw from.
So they have their purpose and while the past I’d say 20 years the market has been only up and you would have made out better I would ask you have you invested anything at all? If you haven’t done anything like that regularly then that 200 a month wouldn’t be doing a whole lot or worst case you have a drop. Which again hasn’t happened because era of easy money but hey still could happen.
It’s not a “scam” but your right you can withdraw and possibly make better use at the exchange of not having a death benefit and term has no cash value so if you live past the term that’s it. Up to you what you do with, check your surrender values and see maybe if you’ve had it long enough that you may not have to pay any surrender charges. Or maybe you could get into that cash value and see if there’s anything you can do with it.