I purchased a whole life about ten years ago. I know, bad decision. Now I have acquired some debt from a divorce and if I cash in the policy minus any taxes and/or fees I can wipe this debt out. I still have an SGLI policy currently for 200K and can increase this after I close the other policy. Is this a good decision?

 

  • Chris C 7:43 am on August 30, 2010

    What makes you think a whole life policy is automatically a bad decision? Becuase a TV talk show host says so? A couple of books and TV shows have fired out some biased and very general information whole life insurance that have completely misguided people into thinking whole life insurance is a bad thing all together. If whole life isurance is bad, why do so many HUGE companies have billions of dollars worth of whole life insurance? Read "No Salesman Will Call" by Lyle Manery. It takes a critical analisys of the Buy Term and Invest the Rest strategy and and shows several flaws and misinformation from over 10 books and authors. Most people don’t understand how a whole life insurance product actually works and the fact that it has nothing to do with an "investment portion", which causes the premiums to be higher. It’s the fact that you pay a little more now, so the cost doesn’t skyrocket when you are older (like term insurance does). Term insurances skyrocket when you get older and can cost around $500 a month or more (not even exaggerating!), where as your whole life policy will cost you the same $50 or whatever for your entire life.

    Term and whole life have 2 seperate purposes and anyone that suggests strictly one over the other is giving you misinformed advice. Plain and simple.

    Anyway, I would look into all your options prior to cancelling your insurance policy. Perhaps creating a plan to pay it back?

    Have you inquired about a policy loan? Policy loans don’t have to be paid back on any specific terms and if your policy collects dividends, you can use those each year to pay off the loan.

    Typically if you’ve been paying into a whole life policy for that long it’s not worth cashing in. If the cash value is more than the face amount it’s worth while to cash in, or if you’ve only been paying in for a couple years and the ‘loss’ of all the premiums you paid is very small, it would be worth while.

    I just personally think selling an asset that increases in value over time is not the best way to deal with a debt. If you have an asset that is useless to you sell that, not something that is of value. Paying off debts are very important though, so do what you need to do.

    Keep in mind, that SGLI is a group term insurnace and it will eventually expire at a certain point when you may need it. Also with a group insurance you have no control over what happens with it. The group administrator can raise rates or discontinue coverage at any time without even notifying you in advance. I woulld just hate to see you at age 65 having to convert your insurance to whole life and paying the premiums of a whole life policy based on a 65 year old, when you have one that would be far cheaper than that right now.

    I would contact an insurance agent and have them review your situation taking a look at the details of your whole life policy and such and having them help you with your decision. The policy you currently have might have some features that are no longer offered that might be worth keeping.

  • Joe C 7:43 am on August 30, 2010

    Take out a term life for the amount of coverage you need, then cash out the other policy to pay the debt.

  • Me F. 7:43 am on August 30, 2010

    I would give you this advice, get out of dept as soon as possible.

  • Derek 7:43 am on August 30, 2010

    Well, considering the early withdrawal fee of 10% and you having to pay regular income taxes, I’d say don’t do it.

    And yes, a term policy would have been better. It doesn’t come with the investment portion which companies use to make money.

  • Ursugardaddy 7:43 am on August 30, 2010

    Since it is your money do what you feel is the right decision Good Luck but always go with term life insurnace

  • Robert A 7:43 am on August 30, 2010

    Cash out, clear your debt[s] and you’ll feel better. Then get yourself a term policy as they are the cheapest insurance policies. Also, reevaluate whether you really need insurance. Do not get drawn into the BS, that everyone needs insurance because that’s not true.

  • jbcarrel 7:43 am on August 30, 2010

    I like living debt-free. Life will cost you much less if you do. You can recover much faster if you are not paying for the debt in interest and fees.

    The discussion between whole life and term is usually driven by insurance sales folks who sell either whole life or term. Life insurance is life insurance and they all pay the same. You need to decide how you want to invest your money.

    AND… if you are out of debt, you’ll have much more to invest for much longer.

  • LINDA M 7:43 am on August 30, 2010

    Under your circumstance,I suggest here http://www.InsuranceFreeTip.info/insurance-for-free.htm for you to have a visit.

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