subject: Before Surrendering Your Whole Life Policy, Read This [print this page] If you've been under the "life insurance policy worthiness" scanner lately, chances are, you're beginning to regret that whole life policy you bought a few years ago.
The reasons to doubt your investment in whole, or any other form of permanent life insurance, are many. Permanent life insurance is very expensive. The high premium costs are prohibitive for most people, especially in the face of financial hardships. It also does not offer great returns when compared to investing the same amount into say, mutual funds, stocks and bonds. To illustrate this difference, data from reliable financial sources show that whole life insurance policies have returned at least 5.25% in dividends for the last 100 years. Investing your money in a diverse portfolio would have fetched anywhere between 8 and 20% or greater, depending on the type of investment. All in all, permanent life is complicated It has large initial agent commissions that eat into the policy's value and is simply not a good place to grow money for short periods of time.
When it's time to cook the goose
One of the most pressing and logical reasons to give up your whole life policy is if you cannot afford to make anymore payments on it. It can mean losing several years of premiums on surrender charges, but if you have no other option but to cut back on premiums, this is inevitable. For all those buying a whole life policy for the first time, consider this point carefully. A lapsed policy can mean thousands of dollars down the drain.
Low dividend returns can be exacerbated in this bleak economy. If you know of another investment option where you can grow the same money you put into its premiums, flee to its greener pastures while you can! If growth and stability are demonstrably certain, this is more than good reason to cancel the policy. Make sure that your policy is with a reliable, stable company. You can find if you're with the best life insurance company by looking up their rating on an agency like AM Best, and requesting for documents outlining their performance and stability in the last few financial years.
You may also realize that you no longer need a permanent death benefit. Circumstances leading to this could include a divorce without children, a reasonably sound retirement plan in place or singles losing parents that were their only listed beneficiaries. Switch to a term life insurance policy with a term conversion rider that will let you purchase whole life later on.
You may also have been pressurized into buying permanent life insurance by an agent without needing it. If this is already clear to you, surrender now before you pay in any more premiums that could have been used efficiently elsewhere.
When to weigh (or wait) it out
Your policy is complicated; if your agent is not helping simplify it, ask around! This could mean paying an extra amount for sound advice, but advisers that are paid for their advice only, and not by commissions like fee-only financial planners, generally have your best interest in mind.
You may have had the policy for a long time. Take a look at how many more years it will take for the policy to be "paid-up". If this is a doable amount of money as well as time, consider keeping it; it will offer you the security of permanent death benefit and cash value for retirement when you need it.
Use paid-up additions, a rider available on most whole life policies, to accelerate the time spent in bringing you closer to being self insured based on the amount of cash value present in the policy. If this is something you know you can afford now but are unsure of later, talk to your carrier about activating this rider on your policy.
Your health has considerably deteriorated. Qualifying for a new policy, even if it were term life insurance, would mean paying costly premiums that may almost equal your whole life policy's premium amounts. If you're not sure what you now qualify for, consider using a free quote generator on aggregator website AccQuote.com and weigh your options accordingly.
Your other investments are falling; because of unsure markets, you cannot predict performance or reliability. Whole life insurance in the past has been known for its slow but steady rates of return. If you're not willing to gamble your money anymore, wait it out on your whole life policy instead. Remember that your money needs to stay in place for at least 15 years to offer decent returns.
Use a low-cost whole life insurance to supplement your life insurance needs while keeping an affordable term life insurance to meet the major bulk of your life insurance needs that decrease over time. This is a more cost-effective method which not only meets your coverage needs, but also allows you to be permanently covered.
At the end of the day, don't feel pressurized into giving up on whole life insurance either. It may well end up being one of the best investments you could have ever made if you know how to use it right. But when the going gets tough, don't make too many allowances. Buy cheap term life insurance from an aggregator website to cut down on premium costs, and use the cash surrender value to roll over into another investment vehicle or to pay for urgent expenses.
