“Everything I read says whole life is a bad investment, but the yearly return seems okay”: I’m questioning the value of my whole life insurance policy. How can I make an informed decision about ending it?

Hi Money Minder,

So, my grandparents set me up with a whole life insurance policy from the get-go. For 30 years, all good – the dividends were enough to cover the premium.

Currently, it’s got a $50,000 death benefit and around $7,000 cash value.

The catch? Now there’s a yearly premium to pay ($289 + $77 dividend). Last year, my cash value got a tiny $400 boost.

I keep hearing how whole life insurance is a terrible choice, but the yearly return seems pretty decent, and there’s that death benefit (sure, not as much as term policies).

What am I not seeing here?

Later,

Worried about Wealth

Response from THE MONEY MINDER:

Hello There,

Congratulations on having grandparents who had the foresight to open a whole life insurance policy for you when you were born. It sounds like you have been benefiting from the dividends covering the premiums for the first 30 years, which is a great start. However, I understand your concern now that you are required to pay a yearly premium and the cash value growth seems minimal.

Whole life insurance policies are often seen as more of a protection tool than an investment vehicle. While the death benefit and stable returns may seem appealing, it’s essential to weigh all your options. The yearly premium, even with dividends covering a part of it, could potentially be invested differently for higher returns. Additionally, the cash value growth may not be keeping pace with other investment opportunities.

I recommend looking into term life policies and separate investment options to compare and see if a switch or diversification makes sense for you. It’s crucial to understand the long-term implications and the overall financial impact of your decisions. Consider consulting with a financial advisor to get personalized advice based on your specific situation and goals.

Remember, financial decisions require careful consideration, so take the time to evaluate your options before making any changes to your current whole life insurance policy. Your grandparents’ initial gift was a valuable one, and now it’s about making the best choices moving forward to secure your financial future.

Best of luck, and if you have any more questions or need further guidance, feel free to reach out.

Farewell,
THE MONEY MINDER