When do you walk away from whole life insurance?

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treehugger_
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When do you walk away from whole life insurance?

Post by treehugger_ »

Hi BH. Long-time reader/first-time poster here. My wife and I purchased life insurance through Northwestern Mutual, term and whole life, in 2017. We are very young (31) and have no children. It's clear I made every mistake possible when I agreed to buy whole life. To be honest, I still don't really understand it (which is never an encouraging sign), and this makes the conversation with my agent about canceling it difficult. In fact, he's urging us to buy more.

However, I'm certain about this:
- The magic formula with which NM will "guarantee" my future returns seems bogus, not to mention the haircut we're taking in fees.
- We should have been maxing out every tax-efficient account before considering whole life.
- I'm simply not comfortable mixing investing and insurance (taking a page out of the Boglehead Guide).

What is less clear is the surrender value system. We have been paying relatively low premiums on the whole life policy so far ($1200 yearly). This suggests to me it's largely worthless anyway, and I can't imagine we'll see any of this money again. I'm prepared to walk away, take the loss, and think of like an "education tax." But is there any universe where it makes sense to keep the policy?
Last edited by treehugger_ on Mon Apr 13, 2020 11:44 am, edited 1 time in total.
bluebolt
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Re: When do you walk away from whole life?

Post by bluebolt »

Walk away. Consider yourself lucky that you figured this out relatively early.
UpperNwGuy
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Re: When do you walk away from whole life?

Post by UpperNwGuy »

I stayed too long (late 40s) and wished I had walked away in my 30s. Whole life is a racket.
Jack FFR1846
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Re: When do you walk away from whole life?

Post by Jack FFR1846 »

As a person who found the ideal time to walk away, let me reveal that to you. Before finding Bogleheads, I had attend "College Planning" seminars at our local school for several years. Following my 3rd or 4th, this time with my wife, we decided to take them up on the free one on one planning session. There, they showed us how we could hide our assets (mainly in US Savings bonds) from the mean, old FAFSA and CSS demons and gain riches in free grants and scholarships and discounts on tuition. Yay! Except it's all for naught because I was still working and bringing in enough of a salary to pretty much bar us from receiving any aid beyond high interest, front loaded Stafford and PLUS loans.

I planned to put $300k into this whole life product, covering my wife, who was more easily insurable than I was. She did the medical and I pulled $50k out of Savings Bonds in anticipation of buying in.

Then.......I found Bogleheads. I asked and a resounding response was "STOP" and don't fall for this garbage. I cancelled the signing appointment and learned how to properly invest and how to separately properly insure.

So the best time to walk away? BEFORE getting the policy. The next best time? Right now. Today. Don't discuss it with your agent. He has another new BMW in mind for you to pay for. Call the company who wrote the policy and ask for a surrender form. Fill it out. Send it in. The end.
Bogle: Smart Beta is stupid
hudson
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Re: When do you walk away from whole life?

Post by hudson »

Do you even need life insurance? If so, how much? (Don't ask an agent...ask Google.)
Maybe compare term rates with whole life; when I did that it opened my eyes. (Ask Google NOT an agent.)

I kept my term life insurance until I was around 60, then the prices went through the roof. A few years before I retired, I realized that I was paying for a product that I no longer needed. What is that about riding a dead horse?

When looking at term rates, it pays to shop around.

Is there a universe where it makes sense to keep the policy?
Yes! If I am a beneficiary of your policy and you are 90 years old.

Maybe this? https://www.nerdwallet.com/blog/insuran ... -strategy/
denovo
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Re: When do you walk away from whole life?

Post by denovo »

treehugger_ wrote: Mon Apr 13, 2020 12:15 am Hi BH. Long-time reader/first-time poster here. My wife and I purchased life insurance through Northwestern Mutual, term and whole life, in 2017. We are very young (31) and have no children. It's clear I made every mistake possible when I agreed to buy whole life. To be honest, I still don't really understand it (which is never an encouraging sign), and this makes the conversation with my agent about canceling it difficult. In fact, he's urging us to buy more.

However, I'm certain about this:
- The magic formula with which NM will "guarantee" my future returns seems bogus, not to mention the haircut we're taking in fees.
- We should have been maxing out every tax-efficient account before considering whole life.
- I'm simply not comfortable mixing investing and insurance (taking a page out of the Boglehead Guide).

What is less clear is the surrender value system. We have been paying relatively low premiums on the whole life policy so far ($1200 yearly). This suggests to me it's largely worthless anyway, and I can't imagine we'll see any of this money again. I'm prepared to walk away, take the loss, and think of like an "education tax." But is there any universe where it makes sense to keep the policy?
You may want to add the word insurance to the title
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gr7070
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Re: When do you walk away from whole life?

Post by gr7070 »

If you already have a policy, after one has the needed term life insurance in place. If life insurance is needed.
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Nate79
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Re: When do you walk away from whole life?

Post by Nate79 »

asap. Whole scam insurance is trash.
achillesheel
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Re: When do you walk away from whole life?

Post by achillesheel »

Personal issues like a serious health condition might possibly change your calculation? But I assume you are, like me, healthy as well as young. That makes dropping the whole life a no-brainer.

To make this more palatable, don't anchor to the ($3600) dollars you've already spent. It's a sunk cost. Instead, focus on the future cost savings of surrendering now. That's tens of thousands of dollars at a minimum.

People don't surrender their whole life even when they know it's a bad deal, because they're fixated on the amount already "invested." I have found that whole life generally exploits this psychological weakness, this inability to let go of the premiums already paid. Try moving the goalpost. Re-frame this as an opportunity to save future income, and perhaps that makes it easier to do what's needed.
willygreen
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Re: When do you walk away from whole life?

Post by willygreen »

achillesheel wrote: Mon Apr 13, 2020 10:24 am Personal issues like a serious health condition might possibly change your calculation? But I assume you are, like me, healthy as well as young. That makes dropping the whole life a no-brainer.

To make this more palatable, don't anchor to the ($3600) dollars you've already spent. It's a sunk cost. Instead, focus on the future cost savings of surrendering now. That's tens of thousands of dollars at a minimum.

People don't surrender their whole life even when they know it's a bad deal, because they're fixated on the amount already "invested." I have found that whole life generally exploits this psychological weakness, this inability to let go of the premiums already paid. Try moving the goalpost. Re-frame this as an opportunity to save future income, and perhaps that makes it easier to do what's needed.
This is great advice! So many of us don't always realize the concept of "sunk cost" and focus on the amount already invested. I deal with this bias at work all the time, where managers focus on what is already invested in a venture, rather than how those resources can be best used moving forward.
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Re: When do you walk away from whole life?

Post by Stinky »

treehugger_ wrote: Mon Apr 13, 2020 12:15 am Hi BH. Long-time reader/first-time poster here. My wife and I purchased life insurance through Northwestern Mutual, term and whole life, in 2017. We are very young (31) and have no children. It's clear I made every mistake possible when I agreed to buy whole life. To be honest, I still don't really understand it (which is never an encouraging sign), and this makes the conversation with my agent about canceling it difficult. In fact, he's urging us to buy more.

However, I'm certain about this:
- The magic formula with which NM will "guarantee" my future returns seems bogus, not to mention the haircut we're taking in fees.
- We should have been maxing out every tax-efficient account before considering whole life.
- I'm simply not comfortable mixing investing and insurance (taking a page out of the Boglehead Guide).

What is less clear is the surrender value system. We have been paying relatively low premiums on the whole life policy so far ($1200 yearly). This suggests to me it's largely worthless anyway, and I can't imagine we'll see any of this money again. I'm prepared to walk away, take the loss, and think of like an "education tax." But is there any universe where it makes sense to keep the policy?
Welcome to the Forum! Glad that you posted your question.

The only "universe" in which it makes sense to keep a whole life policy like this is the Northwestern Mutual universe. (Or maybe the New York Life or Mass Mutual universe) In no other universe does it make sense.

You need to walk away from this agent. He made about $1,000 when he sold you the policy, and I expect that he's hoping to make $ thousands more when he sells you more insurance. Walk away. Even if he offers you term insurance - because NW Mutual term insurance is not price-competitive with industry leaders.

It's not clear from your original post that you need life insurance at this stage in your life. If you and your wife both work and would be in a good position (financially, that is) if one of you were to die, then you might not need life insurance at all. However, if your wife depends on you for financial support, you need life insurance now. And, if/when you have children, you definitely need life insurance.

The only kind of life insurance that I ever bought was level term life insurance. My go-to place for researching policies on line is zander.com. Another place that many BHs look is term4sale.com. Both sites will give you a wide range of level term insurance choices, with a wide variety of companies and level term periods.

OP, if you want more input as to whether you need life insurance (and how much), you could post back here on the Forum.

Walk away from your whole life. Consider it a sunk cost. And walk away from your NW Mutual agent.
It's a GREAT day to be alive! - Travis Tritt
jibantik
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Re: When do you walk away from whole life?

Post by jibantik »

ASAP.
Valuethinker
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Re: When do you walk away from whole life?

Post by Valuethinker »

treehugger_ wrote: Mon Apr 13, 2020 12:15 am Hi BH. Long-time reader/first-time poster here. My wife and I purchased life insurance through Northwestern Mutual, term and whole life, in 2017. We are very young (31) and have no children. It's clear I made every mistake possible when I agreed to buy whole life. To be honest, I still don't really understand it (which is never an encouraging sign), and this makes the conversation with my agent about canceling it difficult. In fact, he's urging us to buy more.

However, I'm certain about this:
- The magic formula with which NM will "guarantee" my future returns seems bogus, not to mention the haircut we're taking in fees.
- We should have been maxing out every tax-efficient account before considering whole life.
- I'm simply not comfortable mixing investing and insurance (taking a page out of the Boglehead Guide).

What is less clear is the surrender value system. We have been paying relatively low premiums on the whole life policy so far ($1200 yearly). This suggests to me it's largely worthless anyway, and I can't imagine we'll see any of this money again. I'm prepared to walk away, take the loss, and think of like an "education tax." But is there any universe where it makes sense to keep the policy?
If this is the only financial mistake you ever make then it will be a very cheap lesson (spoiler warning: it won't be).

Walk away. And count it as a very cheap lesson.

At your stage in life, you need life insurance to cover:

- any mortgage that you have taken on on your, or your joint, income
- children (which you don't have)
- another large, quantifiable liability (such as a car loan; I believe if you die your spouse is not liable for your student loans? (I am not US based)

I do wonder about uninsured medical costs - if you die, do they fall on your spouse? That might be another reason to have life insurance.

Unless you have some reason to believe your insurability might decline in future due to a family-inherited condition etc then there's no other major reason to have life insurance.

One warning. Pregnant women are usually not insurable, AFAIK.

As and if you do have children your insurable need just exploded. 10x your annual compensation is a rule of thumb - fairly useless, you have to do an actual calculation of need, but to give yourself a feel for what you will need.

And you will need that cover for at least 18 years, until your children are in college. A 20 year policy or longer would be norm on the birth of the first child (you might fairly shortly have a second).

You can only afford that level of cover with level term. Guaranteed premium (or it is essentially worthless, because if your health deteriorates then they will jack your premium through the roof at renewal). 20 years, or a 20 year policy and a longer term one (so you can lapse one as your assets grow past the point where it is not necessary).
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treehugger_
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Re: When do you walk away from whole life?

Post by treehugger_ »

Thanks, everyone. I appreciate all the suggestions and insights. Extremely helpful!
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Stinky
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Re: When do you walk away from whole life?

Post by Stinky »

treehugger_ wrote: Mon Apr 13, 2020 11:44 am Thanks, everyone. I appreciate all the suggestions and insights. Extremely helpful!
Please let us know what you decide to do.
It's a GREAT day to be alive! - Travis Tritt
Topic Author
treehugger_
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Re: When do you walk away from whole life insurance?

Post by treehugger_ »

I know the suspense has been killing you: I canceled the policy yesterday. Thanks again for the guidance, everyone.
Katietsu
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Re: When do you walk away from whole life insurance?

Post by Katietsu »

treehugger_ wrote: Sun Apr 19, 2020 4:11 pm I know the suspense has been killing you: I canceled the policy yesterday. Thanks again for the guidance, everyone.
Great. But did you get a term life policy first? I would not be married and 31 without one unless I had a significant net worth built up already. Even if your spouse has a good job, the emotional or physical toll should you develop a terminal illness or sudden death could cause a financial hardship. The risk of a pre existing condition will go up as you age. You may still have children. I have experienced friends who got pregnant and then found out they were ineligible for any reasonable term life policy. Bottom line, get a 20 year level term policy. Save and invest so that you do not need it by the time the twenty years is up.
Oilcans
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Re: When do you walk away from whole life insurance?

Post by Oilcans »

I've read with interest all the answers here. Seems there is a "herd mentality" when it comes to whole life insurance. Yet I haven't found anyone to explain any good things at all about it. There must be something good. Maybe someone could explain in detail how a whole life policy is structured? Or how is decreasing term a component of a whole life policy? Just curious.

Thanks.
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Re: When do you walk away from whole life insurance?

Post by hudson »

Oilcans wrote: Sun Apr 19, 2020 6:08 pm Yet I haven't found anyone to explain any good things at all about it. There must be something good.
Thanks.
If you have whole life...that you need...and you have health issues, it could work.
I've heard that there is a business advantage of some kind for partners.
If you are a beneficiary, it is good.
rustymutt
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Re: When do you walk away from whole life insurance?

Post by rustymutt »

Oilcans wrote: Sun Apr 19, 2020 6:08 pm I've read with interest all the answers here. Seems there is a "herd mentality" when it comes to whole life insurance. Yet I haven't found anyone to explain any good things at all about it. There must be something good. Maybe someone could explain in detail how a whole life policy is structured? Or how is decreasing term a component of a whole life policy? Just curious.

Thanks.
I use to sell replace products for whole life. Term insurance with the difference invested at Fidelity, or Vanguard. That was cheaper insurance cost, more savings in the 30 year period, way better return on money. But it takes a disciplined person to do it this way. In time you become self insuring. Life is good people, despite that economy. Check you state insurance company for safety of companies you might purchase from. Many great companies, but even insurance companies can go broke.
I guess you can lead a horse to water, but it won't drink til it's thirsty.
Last edited by rustymutt on Sun Apr 19, 2020 6:20 pm, edited 1 time in total.
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Re: When do you walk away from whole life insurance?

Post by rustymutt »

hudson wrote: Sun Apr 19, 2020 6:11 pm
Oilcans wrote: Sun Apr 19, 2020 6:08 pm Yet I haven't found anyone to explain any good things at all about it. There must be something good.
Thanks.
If you have whole life...that you need...and you have health issues, it could work.
I've heard that there is a business advantage of some kind for partners.
If you are a beneficiary, it is good.
I replaced WL policies written for CEOs, and doctors groups. Intelligent men. There is a better way. Ask a financial attorney specializing in tax laws.
Even educators need education. And some can be hard headed to the point of needing time out.
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Re: When do you walk away from whole life insurance?

Post by rustymutt »

treehugger_ wrote: Sun Apr 19, 2020 4:11 pm I know the suspense has been killing you: I canceled the policy yesterday. Thanks again for the guidance, everyone.
Good man! Be disciplined about investing, and get cheap term life.
Even educators need education. And some can be hard headed to the point of needing time out.
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Re: When do you walk away from whole life insurance?

Post by gr7070 »

Oilcans wrote: Sun Apr 19, 2020 6:08 pm I've read with interest all the answers here. Seems there is a "herd mentality" when it comes to whole life insurance. Yet I haven't found anyone to explain any good things at all about it. There must be something good. Maybe someone could explain in detail how a whole life policy is structured? Or how is decreasing term a component of a whole life policy? Just curious.

Thanks.
There doesn't have to be anything good about it. "X number of people" doing something is not evidence for anything. That is a logical fallacy.

The good thing I can point to is the sales force and their marketing. That's the only "good" here.

As for herd mentality against WL that is possible, but it's possible huge numbers of that herd dislike for it is based in facts and logic.
Oilcans
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Re: When do you walk away from whole life insurance?

Post by Oilcans »

I don't know much about whole life but still am curious as to why everyone is giving advice to never buy it.

Yet no one has (1) provided any numbers or (2) have given an explanation of how whole life insurance works. I would like to see someone give a numbers comparison of a 30 year old male buying a $100,000 whole life policy and illustrate the cash values at certain ages compared to investing in a mutual fund.

Again, just curious.
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Re: When do you walk away from whole life insurance?

Post by Herekittykitty »

If you bought both term and whole life, it is possible you and your wife decided that you needed the total amount of insurance that you bought. Before you do anything you and your wife should figure out how much insurance on each of your lives you want/need to have and how long you want/need to have it. Then look at your term insurance and see if it provides that - both the total amount of insurance wanted/needed on each of your lives and for the length of time you and your wife want/need to have it.

Until you have done that, you are not ready to ditch the whole life insurance, even if you wish you hadn't bought it and even if you want to get rid of it. Don't let your feelings about what is already done influence your decisions one way or another.

If you do decide to drop/cash out the whole life insurance, don't do it until you have the insurance you do want to have on each of your lives firmly on board.
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Re: When do you walk away from whole life insurance?

Post by jb1 »

Why do people not like whole life out of curiosity?

When compared to term, you at least are guaranteed the money to be given out to your beneficiary, whereas in term you aren’t. Am I missing something?
Oilcans
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Re: When do you walk away from whole life insurance?

Post by Oilcans »

Oilcans wrote: Sun Apr 19, 2020 6:51 pm I don't know much about whole life but still am curious as to why everyone is giving advice to never buy it.

Yet no one has (1) provided any numbers or (2) have given an explanation of how whole life insurance works. I would like to see someone give a numbers comparison of a 30 year old male buying a $100,000 whole life policy and illustrate the cash values at certain ages compared to investing in a mutual fund.

Again, just curious.
Should have said, "compared to investing in a mutual fund or another investment or some sort.
Sorry
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Nate79
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Re: When do you walk away from whole life insurance?

Post by Nate79 »

Oilcans wrote: Sun Apr 19, 2020 6:51 pm I don't know much about whole life but still am curious as to why everyone is giving advice to never buy it.

Yet no one has (1) provided any numbers or (2) have given an explanation of how whole life insurance works. I would like to see someone give a numbers comparison of a 30 year old male buying a $100,000 whole life policy and illustrate the cash values at certain ages compared to investing in a mutual fund.

Again, just curious.
There are hundreds of threads on the toxicity of Whole life and the other permanent life insurance products sold by the snakes, aka insurance salesman. There is even a warning at the top of the page warning about posts by members who have come on in the past and pushed these horrible products. Once you read all those threads come back with a relevant and informed question.
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Nate79
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Re: When do you walk away from whole life insurance?

Post by Nate79 »

jb1 wrote: Sun Apr 19, 2020 6:56 pm Why do people not like whole life out of curiosity?

When compared to term, you at least are guaranteed the money to be given out to your beneficiary, whereas in term you aren’t. Am I missing something?
Have you read the hundreds of threads on this topic? The search bar along with the warning thread at the top of the page are very informative.

These horrible permanent life insurance products (whole life and their even worse cousins like universal and indexed life products) are sold, not bought.

Be wary of Whole life threads:

viewtopic.php?f=2&t=57154

It's there for a reason.
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Stinky
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Re: When do you walk away from whole life insurance?

Post by Stinky »

+1 to both of Nate79’s posts.

Whole life is a combination of life insurance and “investment”. It does neither one particularly well. And it’s expensive to boot.
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basspond
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Re: When do you walk away from whole life insurance?

Post by basspond »

Walk away. We didn’t because at the time it covered our mortgage, we were maxed out in all tax efficient accounts, over 90% of our investments were in equities, and by the time (over 10 years) we thought about walking away the cash value increase was greater then our premiums.

It wasn’t all thrown away. You did have some very expensive life insurance coverage.
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Re: When do you walk away from whole life insurance?

Post by NotWhoYouThink »

Oilcans wrote: Sun Apr 19, 2020 6:51 pm I don't know much about whole life but still am curious as to why everyone is giving advice to never buy it.

Yet no one has (1) provided any numbers or (2) have given an explanation of how whole life insurance works. I would like to see someone give a numbers comparison of a 30 year old male buying a $100,000 whole life policy and illustrate the cash values at certain ages compared to investing in a mutual fund.

Again, just curious.
Fair enough. Check out this from a respected poster on this forum that has found great success giving advice to some high earning professionals.
https://www.whitecoatinvestor.com/debun ... insurance/

Includes this quote in the overview.
The problem is that for every use of whole life insurance, there is usually a better way to deal with that financial issue.
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