Another should I surrender whole life question

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derauqsdm
Posts: 13
Joined: Sun Sep 06, 2020 1:44 pm

Another should I surrender whole life question

Post by derauqsdm »

Trying to get others opinions on whether I should surrender my and my spouses whole life policies and re-invest? I know we are going to take some losses but at this point I am feeling that waiting it out to avoid further losses is kind of a wash, and have this whole thing to be done with.

A bit of background - got this policy before I started to get heavily interested in my own finances. Over the past 18 months I feel I have learned enough to take over from our "financial advisor" and fired him about 3 months ago:

- Policy started in 2018 - dual income~$400k ($200k each) in mid 30s, very stable jobs and we have $1.5m term policy as well with 1 new dependent (7 months old)
- Whole life policies ware $500k each
- We were adding $2k each per month until 8 months ago when we discussed with or advisor at the time - we were taking over our taxable accounts - switching them to Fidelity at the time so I think the writing was on the wall. Recommendation was to keep the policy but stop funding it. Let the surrender value catch up to the contribution over the next 8.5 years (catches up at 10 years in 2028) and then withdraw.
- We are financially stable, excellent disability policies, term life policies x 30 years, nearing $1m in net worth excluding home which has $600k in equity thanks to great market
- We each have about $24k accumulation value and about $12k surrender value (I have my illustration and can add any information that is useful). In 2028 the current estimate by us not contributing any more funds is that the surrender value will be about $14k which I believe they use a 3.25% estimated growth (I think I am reading the illustrations correctly.
- This is essentially identical for my wife so just copy paste for her as well.

Again, my gut is to surrender and transfer funds to our taxable account, invest in our current 3 fund portfolio and be done with it. i have seen some people due an annuity for some tax savings (I don't know the full details as I just read through this plan briefly) but I don't think our net losses are enough yet to complicate it with this.

I am happy to add any more information that people would find useful. Thank you so much as we start our financial journey!

derauqsdm
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Stinky
Posts: 8955
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Another should I surrender whole life question

Post by Stinky »

You said that your gut instinct was to surrender the policy and invest the proceeds in your taxable account.

I agree with that. You were sold a terrible product back in 2018. It takes years and years of losses and/or subpar returns until a whole life policy delivers even a 3-4% rate of return.

To keep on paying premiums would be throwing good money after bad. To keep this policy as paid up is to lock up your money in a low return investment.

I’d follow your gut and surrender.
Former life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
exodusNH
Posts: 1360
Joined: Wed Jan 06, 2021 8:21 pm

Re: Another should I surrender whole life question

Post by exodusNH »

derauqsdm wrote: Wed Nov 24, 2021 11:30 am Trying to get others opinions on whether I should surrender my and my spouses whole life policies and re-invest? I know we are going to take some losses but at this point I am feeling that waiting it out to avoid further losses is kind of a wash, and have this whole thing to be done with.

A bit of background - got this policy before I started to get heavily interested in my own finances. Over the past 18 months I feel I have learned enough to take over from our "financial advisor" and fired him about 3 months ago:

- Policy started in 2018 - dual income~$400k ($200k each) in mid 30s, very stable jobs and we have $1.5m term policy as well with 1 new dependent (7 months old)
- Whole life policies ware $500k each
- We were adding $2k each per month until 8 months ago when we discussed with or advisor at the time - we were taking over our taxable accounts - switching them to Fidelity at the time so I think the writing was on the wall. Recommendation was to keep the policy but stop funding it. Let the surrender value catch up to the contribution over the next 8.5 years (catches up at 10 years in 2028) and then withdraw.
- We are financially stable, excellent disability policies, term life policies x 30 years, nearing $1m in net worth excluding home which has $600k in equity thanks to great market
- We each have about $24k accumulation value and about $12k surrender value (I have my illustration and can add any information that is useful). In 2028 the current estimate by us not contributing any more funds is that the surrender value will be about $14k which I believe they use a 3.25% estimated growth (I think I am reading the illustrations correctly.
- This is essentially identical for my wife so just copy paste for her as well.

Again, my gut is to surrender and transfer funds to our taxable account, invest in our current 3 fund portfolio and be done with it. i have seen some people due an annuity for some tax savings (I don't know the full details as I just read through this plan briefly) but I don't think our net losses are enough yet to complicate it with this.

I am happy to add any more information that people would find useful. Thank you so much as we start our financial journey!

derauqsdm
After 3 years, you've probably paid in more than the cash value. This means there are no taxes to avoid -- which would be a reason (not necessarily a good reason, but a reason) to roll it into an annuity. You're getting your own money back (minus hundreds to thousands of dollars.)

Aside from the fact that you're going to get terrible returns, you're also paying for insurance that you don't need. The sooner you cash these in, the better.

I made the same mistake as you did and only realized it recently.
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JoeRetire
Posts: 10155
Joined: Tue Jan 16, 2018 2:44 pm

Re: Another should I surrender whole life question

Post by JoeRetire »

derauqsdm wrote: Wed Nov 24, 2021 11:30 am Trying to get others opinions on whether I should surrender my and my spouses whole life policies and re-invest?

Recommendation was to keep the policy but stop funding it. Let the surrender value catch up to the contribution over the next 8.5 years (catches up at 10 years in 2028) and then withdraw.
I think you got a good recommendation.
I love a good nap. Sometimes it’s the only thing getting me out of bed in the morning.
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