Hi Money Minder,
Hey there, I’m Financially Confused 27-Year-Old and I need your expertise on Whole Life Insurance. I’ve been married for a bit with no kids yet, pulling in around $200k/year. I’m already maxing out my 401k and IRA (backdoor style!). I’ve been shelling out for this policy for just over 2 years now.
Here’s the deal – I’m not exactly a financial guru and I’m questioning whether ditching this policy to invest the premiums into something else (anything else, really) like SCHG or VOO total market funds would be a smarter move.
The whole concept of Whole Life Insurance goes over my head, but I got sold on the idea that this could turn into tax-free cash by my mid-30s, unlike my other investments that are stuck until retirement.
So, should I take the plunge, cash out, and deal with any losses or fees, or should I tough it out? My advisor mentioned that I can tweak my contributions (minimum of 12k, max of 18k) or stop altogether by the 24-year mark, not the 5-year mark like I initially thought.
By the way, quick edit – it’s actually 24 years, not 5 years of contributions.
Thanks for helping out!
Response from THE MONEY MINDER:
Hello There,
Congratulations on taking a proactive step in seeking advice on your whole life insurance policy. It’s understandable to feel uncertain about the best course of action, especially when it comes to financial matters. Based on the information provided, it seems like you have a solid financial foundation with a good income and prudent saving habits like maxing out your 401k and IRA contributions.
Whole life insurance, like any financial product, has its pros and cons. While it offers the benefit of accumulating cash value over time, the premiums can be higher compared to term life insurance. Your initial reasoning for choosing this policy was the potential for non-taxable liquid cash in your mid-30s, which is a valid consideration.
However, you also mentioned your limited understanding of how whole life insurance works, which is crucial for making informed decisions. Given your age, income, and financial goals, it might be worth exploring other investment options like total market funds such as SCHG or VOO. These funds offer diversification and potentially higher returns, albeit with market risks.
Before making a decision, it would be beneficial to consult with a financial advisor who can provide a comprehensive analysis of your current policy, the potential returns, surrender charges, and alternative investment opportunities. Consider requesting a detailed comparison between keeping the policy versus investing the premiums elsewhere to determine which option aligns better with your long-term financial objectives.
Ultimately, the decision to stick with your whole life insurance policy or explore alternative investments should be driven by your financial goals, risk tolerance, and understanding of the products involved. It’s essential to weigh the costs, benefits, and potential returns before taking any action. Remember, financial decisions are personal, and what works for one person may not be suitable for another. Take the time to educate yourself and seek professional advice to make an informed choice.
Best of luck in navigating this decision, and feel free to reach out if you have any further questions or need additional guidance.
Farewell from THE MONEY MINDER.
