That was the subject line of an email I just got.
It was enough to get my attention, so hopefully it got yours too :) If not, I guess I can say anything I want right now and you’ll never see it? Hmm…
YOU LOVE JUSTIN BIEBER!!! HA-HA-HA!
I’m going to prank everyone tomorrow and you’re gonna fall for it!
Everyone gets $100 today, except for YOU!
Okay, that’s enough…
Let’s get back to more serious stuff like Whole Life Insurance… (you probably wish you didn’t click now, huh?)
I’ve literally had ZERO emails about Whole Life in the past 4-5 years of blogging, and then all of a sudden I get two emails asking for advice in the exact same week. Two! I generally shy away from stuff that downright bores me, but I figured it was a sign to share and that maybe some of you guys are going through something similar yourself?
Below are the two emails, along with my admittedly weak answers because I quite honestly don’t know jack about Whole Life other than the following:
- Everyone I know says it’s a rip off
- Everyone I know has Term Life Insurance instead – as do I.
Though I should point out that “everyone I know” means $$ bloggers and the online $$ community in general, which are also mostly in their 20s, 30s and 40s.
So it’s definitely skewed.
(Here’s a great article on the difference between Term and Whole Life btw. In a nutshell, Term covers you for a certain amount of time and if you die within that term it pays out (and is pretty damn cheap), whereas Whole Life covers you for your whole life and also builds up cash investments on the side. Though it’s significantly more expensive.)
What I was hoping for today is that YOU guys would chime in to better help out our readers, as I know many of you are more versed in this stuff and may have Whole Life yourself.
Both readers gave me permission to share, and said they’d greatly appreciate it if you did :)
So here’s the first question!
Since going through my finances with a fine tooth comb, I remembered I have a whole-life insurance policy (20-Pay Endowment at 65) with a coverage amount of $1,000 that my parents gave me. It was purchased in 1971, when I was 4 yrs old.
I just checked it and it now has a face value of $1556.26. I receive a 1099 from it every year from dividends reported to the IRS. I’m shocked and very disappointed at the low face value of this thing.
Do you have an opinion on what I should do with it? Leave it?, Cash it, to reinvest? Anything?
My answer to her was that I don’t know the ins and outs of Whole Life, but that if she’s anything like me she’s all about streamlining her finances. So my opinion would be to get rid of anything that doesn’t make sense to her and re-invest it into something that does. Minding the possible fees/implications along the way (which are usually worth the end goal).
And here’s Question #2, a bit edited to condense more:
Hey J. Money!
My husband hates change, and it took the first two years of our marriage to get him to change his First Command accts (military family) to Vanguard, but he agrees that it was a huge improvement all around.
Now on to this awful Whole Life policy… We have been paying $198 a month since he bought it in 2002. He just can’t seem to part with it. $300,000 pay out upon death. But we have a million in term so don’t really need it. And term is MUCH cheaper than $198 a month!!! Do you see this all the time? People hanging on just because the salesman convinced them it was NECESSARY? I hate making that payment when I could be putting it into Vanguard.
Sooo, in all these years we have paid $38,016 in premiums. Cash value $29,100. (Not just a loss, but what a loss on a return investment if we had invested that money anywhere but whole life! :() Tough pill to swallow! BUT maybe a light at the end of the tunnel, with Reduced, paid up insurance at $147,000.
So, I thought, what would J. Money do? Yes, the whole life is said and done, bought and buried, so moving forward… If we cash out we pay taxes on it, but would put into our Vanguard investments. But still a tax hit and loss of almost $10,000 in cash. And my hubs still can’t seem to digest selling it.
Is doing the reduced paid up the way to go? That way no premiums but still has a payout when he, hopefully in his late 90’s, is laid to rest?
That’s all the pertinent info, except for one thing – he’s a pilot, and a lot of policies have exceptions and won’t cover aviation deaths if the policy holder is the pilot. BUT our term insurance doesn’t have that exception, except it’s stuck in his head that that’s the reason we need it still. And flying in places that aren’t known as being particularly hospitable, like the Middle East, ups his angst.
He makes a good income, we have well over $500,000 in investments and a million in term life insurance, so the $300,000 policy is a drop in the bucket compared to everything else. (Right now I stay home with our three kids 4 years old and under).
Sorry – this was probably way more interesting for me than you – but if you were ever looking for a case study to write about – thought you might like this :)
I told her it was definitely interesting! Haha.. Who doesn’t like reading about $$ numbers? But I also pointed out that it seems more of a comfortability thing than it does purely a financial one, though of course I’m totally on her side.
Here’s what I wrote back:
Tricky indeed! I think the answer here just relies on what makes you BOTH feel the most comfortable. And obviously for him he loves it even though it sucks dishing out $200/mo (and I’m exactly like you – I’d MUCH rather have the $$ flowing into Vanguard long term if I could! I also wouldn’t mind taking the tax hit either and ripping off the band aid and just investing that big clump as well – would feel so good!!! Not to mention keeping things simpler.)
But I guess that’s the “compromising” of relationships, eh? Figuring out which desire is bigger between the two of you and then going with that one?
If you guys have an accountant I’d totally call them up and ask them what it all would look like with hard numbers. I call mine up about once a month asking “what ifs” and they love it cuz it prevents me from doing something stupid which then prevents them from having to clean up my mess! :) And even if they think you’re crazy for doing it, at the end of the day it’s YOUR GUYS’ money and you can still do whatever makes the most sense for y’all.
So my advice would be a) talk to an accountant, and then b) see whose desire is more – yours for cashing out or his for wanting to keep. As your husband’s shown he usually wises up over the years, so maybe keeping low and revisiting is an option too if you get to a stalemate?
Okay, so those are the two situations…
What would you do in either of these cases? Have you gone through something similar? Do you just LOVE Whole Life and want to state your claim?? :)
Please share your thoughts below so our dear questioners can get some better advice outside of me just wanting to simplify everything :) There has to be some good reasons to keep Whole Life around right? So many people have it?!
And thanks for reading my blog too btw, it means a lot… Not because of what we covered today or anything, but just for being here and making my life fun in general! It still surprises me to this day that someone can blog for a living, and it’s because of YOU GUYS that I get to. So thanks :)
[Pic above from Marfa, TX… Nothing to do with article, just really liked it!]
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!