I don't actually post about whole life insurance (WL) all that much, but the comments on WL posts number in the thousands and go on for years and years after the post is written. Most of the posts address whether or not you should buy a whole life policy (or its cousins, Universal Life and Variable Life). I generally recommend against them, and the insurance salesmen who love to post comments longer than the post itself not only recommend them, but feed their children and pay their mortgage from the commissions (50-110% of the first year's premium) on the sales. They're not happy when WCI readers actually have responses to the myths they're using to sell them. Today, however, I'm going to address a different question that I get in my email box far more often—how to cancel a whole life insurance policy.
Should I Keep or Cancel My Whole Life Policy?
Long-time readers will recall I was once the proud owner of a whole life insurance policy from Northwestern Mutual (NML). It was sold to me as a medical student by a very dear friend who happened to be interning with NML that summer. He subsequently went into another line of work. The policy was not only inappropriate for me, but it was just a terrible policy. What I really needed was a $1 Million, 30-year, level-term policy. What I got was a convertible $280,000 term policy whose rates would go up every 5 years until long after I would be financially independent coupled with a $20,000 whole life policy.
This tiny whole life policy was something like $21 a month. The annual policy fee was relatively huge compared to the premiums, not to mention the premiums were being paid on a monthly basis (even a poor medical student could have come up with $240 all at once if he had known it would improve returns). The policy had a terrible return. After 7 years, I cashed it in for something like $1,100. I had paid in something like $21 * 12 * 7 = $1,764. That's a loss of 38%, or something like -12% per year. It didn't quite track the minimum guaranteed returns in the original illustration, but my returns were pretty darn close to the minimum and a long way away from the projected illustration. The in-force illustration I obtained (just for fun) prior to surrendering it indicated I was still many years away from breaking even.
For a few hundred dollars of ill-gotten profit, NML is partially responsible (along with a mortgage lender, a realtor, and a mutual fund salesman) for unleashing The White Coat Investor on the world. I wonder how much they would love to pay now to get me to take down the whole life posts on this blog given that over 12 million people have visited the site in its first decade and some of the most popular posts are about whole life insurance.
The question we will be addressing today, however, is not whether you should buy a policy. It is what you should do with the one you already have. There are a number of points to consider.
Do You Want or Need a Permanent Life Insurance Policy?
Although 75% of those who purchase whole life policies eventually surrender them, there are a select few who want them and even a tiny percentage who actually need them. If you are one of these people, you should keep your policy.
Examples of people who need permanent life insurance include:
- Someone who will never actually become financially independent (working until death) and will always have someone depending on their income financially
- Someone with an estate tax problem
- Someone with a liquidity problem
- Someone with some legitimate business issues that are best solved with these policies
Even if you don't need a policy, you might want one. Perhaps you can't stand the volatility of higher-returning investments like stocks or real estate. Or perhaps the 3-4% returns you reasonably expect on the policy are adequate for your needs. Or perhaps you're into the whole Bank on Yourself/Infinite Banking thing. If any of this describes you, then you may want to keep your policy, assuming it is actually correctly designed to do what you want it to do. You might be able to improve it by paying annually, changing dividends to offset premiums instead of paid-up additions, or even by purchasing additional paid-up additions, but you probably shouldn't get rid of it.
Keep Your Whole Life Insurance Policy If You've Had It for a Long Time
Whole life has low returns when held for decades. It has terrible returns if only held for a few years. That means that, after a while, the returns GOING FORWARD may not actually be too bad. The terrible returns are heavily front-loaded, and generally follow the period for which commissions are paid to the salesman. If you're past those years, you probably want to keep the policy, even if you don't like it. I think 15-20 years is about the turning point, but one could argue this occurs by year 10, or even sooner. It varies by policy and how much you hate it.
Certainly, you can't argue it is a good idea to keep it just because you've had it for a year or two or five. If you don't want to pay the premiums anymore, then change dividends to offset premiums. If you just want to maximize the return, then purchase paid-up additions up to the modified endowment contract (MEC) limit and make sure you're paying annually. If you don't want to hire someone to evaluate the policy, this post may help you to evaluate your own whole life policy.
If You're Going to Cancel Whole Life Insurance, Do It Now
Whole life insurance works out best when you hold it until death. Once you have decided you are going to cancel a whole life insurance policy, there is no point in waiting a few more years until it breaks even or gives you a certain return you will feel good about. You may want to wait until just before your next premium is due if it means the cash value will be a little higher, but you certainly don't want to pay more premiums on a policy you will drop at some point between now and your death.
Consider the Alternative
Remember that you cannot just consider the policy on its own merits. You also need to compare it to what you would do with the money if you were not using it for life insurance premiums. If you're going to be using the money to max out a 401(k), or even better, get a match in a 401(k), then it is a no-brainer to get rid of it. Likewise, if the alternative is something like maxing out an HSA or a personal or spousal Backdoor Roth IRA. If you, however, are comparing it to a taxable account, especially invested in low-risk assets, or to just spending the money, then it will compare a little more favorably. I often see agents selling whole life policies to doctors that still have 6-8% student loans. That's financial malpractice in my opinion. Heck, paying off your mortgage, even one with a relatively low-interest rate, may provide a better return than whole life, and it's guaranteed.
Get Term Life Insurance in Place First
Does your whole life policy belong in the trash? Probably.
It should go without saying that you should never cancel a permanent life insurance policy unless you already have sufficient term life insurance in place to meet your needs and wants. It usually only takes a couple of weeks to buy a term policy, but don't leave yourself exposed even for that long. Besides, you might be surprised by something found during underwriting.
Don't Worry About Tiny Policies
When you start talking about getting rid of a policy, the first thing to consider is any possible tax penalties or tax benefits of doing so. For a teeny, tiny policy like the one I had, that just doesn't matter much. My loss was only a few hundred dollars, and the tax benefit on that would be far outweighed by the hassle factor and the actual costs to claim that. If you have a tiny whole life policy, just cancel it.
You may have had one of these purchased for you by your parents, who dutifully paid a few bucks a month on it for two or three decades before presenting all $2,000 of cash value in it to you (and asking you to take over the payments). Be sure to thank them for their thoughtfulness, then cash it out and use the money to fund a Backdoor Roth IRA. You might not want to mention that you did that during Thanksgiving dinner, by the way.
Evaluate Your Options Carefully on a Large Policy
However, if you have paid tens of thousands of dollars in whole life premiums, you probably want to spend a little more time deciding what you wish to do with this policy. If your policy has a large gain, you've probably had it long enough that you should keep it. But if not, you can avoid taxation of that gain (typically taxed at your regular marginal tax rate) by exchanging it into a better cash value life insurance policy, a very low-cost variable annuity (VA), or even long-term care insurance.
The best of those options, in my view, used to be the VA, since buying another cash value life insurance policy most likely entails another fat commission, and most doctors reading this site ought to eventually be able to self-insure any long-term care needs. However, it is not so easy anymore to find a low-cost VA, so even that isn't a great option for a policy with a gain. Unfortunately, you can't even use losses from tax-loss harvesting to offset the gains since gains in a life insurance policy are not considered capital gains.
Preserving Your Loss
A much more likely scenario for someone who has only been paying premiums for a few years and now realizes they bought a “pig in a poke”, is that you are way underwater on your “investment” at this point. Perhaps you've been paying premiums of $20,000 per year for five years, and now have a cash value of $75,000. You could just surrender the policy, take your $75K to invest elsewhere, and consider the $25K a “stupid tax”. Or, you could have Uncle Sam share your pain a little bit.
Another Option If You Want to Get Rid of Your Whole Life Insurance
Yet another option is to just exchange that whole policy into a modified endowment contract. This can eliminate any need for you to make additional payments into the policy, a big reason why people want to dump their policies. Then you simply leave it alone until your death and have it be part of the inheritance you leave your heirs or your favorite charity. Note that if you go down this path, you can't use the cash value for a better use nor can you borrow against the policy later in life.
There are lots of options when you want to cancel your whole life insurance policy. Spend time evaluating them or you may make another mistake almost as big as the one that got you into this mess. But quit beating yourself up about your decision to buy it; many of us have done that.
What do you think? Have you had this dilemma? Did you cancel your whole life insurance policy or keep it? Comment below!
Appreciate this thread so much! Adding my own situation, with the hope of getting any input from experienced folks. I opened up a WLI policy with NWM in 2019. My monthly premiums are so high and I honestly don’t think I want this product anymore. My cost basis is about $10k and the accumulated cash-value is about $2500. I would love to do the 1035 exchange into a low-cost VA, like what’s being suggested above, but my NWM advisor said I couldn’t do a 1035 exchange with just $2500 – that I’d need a minimum of $15k. Is this true? If so, how would I go about doing a 1035 exchange? Would I have to keep paying into this WLI policy until I have a minimum value of $15k to transfer into an annuity??? Help appreciated!!
I’m not sure I would bother with the exchange at those amounts. I had put $360,000 into mine before making the transfer. You may want to just cut your losses, surrender it ASAP, learn from the mistake and move on. Especially if you are early on in your career. You have plenty of time to make that money back.
S$ – I am assuming your NWM advisor means that doing a 1035 exchange into a different product offered by NWM requires $15K.
Different providers will have different minimums. Unfortunately, the one I am most familiar with is Fidelity, and they have a $10K minimum. There may be good, low cost providers that have $2500 minimums, but I am not familiar with them.
With all of that said, your loss is $7500. Assuming you’re in the highest capital gains tax bracket, at best you’d be saving at best 20% of $7500 = $1500. While $1500 is certainly a good amount of money, it may not be worth the hassle of setting up a variable annuity. If I were in your situation, I would just cancel immediately (assuming term life insurance in place if needed).
My advice – don’t feel bad about the loss, but rather be grateful and happy you caught this as early as you have. People go many years before realizing how poor of investments these products are, and waste much more money than $7500.
I stand corrected. The lowest cost variable annuity from Fidelity that I can find appears to have no minimum – Fidelity VIP Index 500. https://fundresearch.fidelity.com/prospectus/v1/eproredirect?securityId=922175302&documentType=PROS&applicationId=FILI
It seems could transfer the $2500 to Fidelity and let it grow to $10K tax free there. I wouldn’t worry about what NWM says. I’d call Fidelity. They will likely handle the transfer for you.
hey Erik, actually I think that you are looking at a subaccount within the VA. the actual details with the minimum of 10k to open the Fidelity VA can be found here: https://www.fidelity.com/annuities/FPRA-variable-annuity/overview
and S$ as for doing the 1035 exchange, I echo what the other commentators above mentioned above that you only would be saving maybe around $1500, which is still a lot of money but not significant in the grand scheme of things. IMHO I think it’s worth it because it was so easy, I learned a lot about variable annuities and investing as I perused the subaccounts in the Fidelity VA, and emotionally felt like I was being proactive after being financially stupid. It’s your call if you want to do it or not. The most important thing is to get rid of this stupid whole life policy after having put appropriate term in place and stop losing money! And fire your “advisor”
Hi Rikki – thanks for sharing this perspective! I get that I may not be in the hole as deep as others, but I think emotionally the loss of just surrendering the policy completely and losing $7500 is too a lot for me! I’m just wondering, since there are minimums to open VA accounts, would I have to open one before doing the 1035 exchange and supplement it with my own $10k (assuming I open one at Fidelity that has a 10k minimum)? and then do the 1035 exchange and put in the $2500k that has accumulated in my WLC? I’m just confused on how to go about that.
and LOL! I too am eager to get rid of my advisor as soon as I understand my options! Thank you!
Hi Noraz123 – a little unclear on the $1500 in savings here. I would ideally like to just keep the VA until it grows to the cost basis (10k) and then surrender it. I read in a previous post here that this would be possible, and I’d be able to surrender without paying taxes on any gains (as there wouldn’t be any). Maybe I’m interpreting this wrong, but would love to understand this $1500 piece in savings. Thank you!
The $1500 is my best-guess of what you’d be saving doing a 1035 exchange vs. just canceling and putting the money in your brokerage account.
As Dr. Dahle explains below, the reason to do the 1035 exchange is to let your current cash value ($2500) grow back to your cost basis ($10,000) tax free. If you don’t do a 1035 exchange, your money still grows, but you’ll owe tax on the gains.
I was using the example of your money growing back to $10,000. In the VA example, you owe no taxes. In the regular brokerage example, you owe tax on the gains, which is $7500 ($10,000-$2500). This would be long term capital gains. I used the simple 20% rate (but as Dr. Dahle explains below it can be as low as 0% and higher than 20% when you factor in net investment income tax, known as NIIT).
20% of $7500 is $1500.
So in my estimate, you’d owe $1500 in taxes many years from now if you don’t do the VA.
I am with Rikki, Shareen, and Dr. Dahle – just cancel the policy, take your money, and be *HAPPY AND THANKFUL*. I was very upset when I learned about the policy that was sold to my wife by her financial advisor. But we caught in within a few years time, and we were able to get out with $50K loss. It greatly hurt, but it was because of that universal life policy that I found The White Coat Investor and Bogleheads.org websites. Because of those two sites, we have become very financially literate and have more than recouped our costs with better, lower cost investing and wiser tax strategies. If it weren’t for that policy, I may have never left the bad advisor, be in less than optimal investments and overpaying for financial “advice”.
I know a $7500 is painful. But if you read this website and others recommended by it (e..g, Bogleheads.org), you’ll more than make up that money. You lost $7500. But you just got many tens of thousands of dollars in free financial advice by some really enlightened people. You didn’t lose. You won.
Also, a follow-up to my question – I read on here that by doing a 1035 exchange, the cost-basis would be ‘preserved.’ Does this mean the cash value as well as the cost basis is transferred to the VA? If so, technically, wouldn’t I have enough to open a VA with Fidelity? (10k cost basis, 2500 cash value = 12500k total dollars to transfer?) Or is that not how that works?
You’re still a little confused on how this works. Your cost basis is the total of premiums paid. In your case, $10K. Your cash value is what you would either walk away with or 1035 exchange into a VA. In this case $2,500. The benefit of an exchange is to save the taxes on the gains between your cash value and your basis. In this case, $7,500. So you have to ask yourself, how much would the tax on $7,500 in gains cost? This depends on a lot of things. For some people it would be 0% since they’re in the 0% LTCGs bracket. For others it might be 23.8% or even higher. But let’s call it 15%. So your tax savings would be $7500 * 15% = $1,125. And you might be paying an extra $200 in fees to do the exchange. So now your benefit of the exchange is down to $925. What’s your time worth? Mine is worth more than the trouble of doing that. Now if your loss had been $150K or something I think it would be worth doing an exchange. But for $7,500? Not really. Sorry you lost money. Now you know why so many of us hate NML.
I doubt that is true (although maybe it is with a NML annuity or something), but I wouldn’t bother doing a 1035 exchange for only $7,500 in tax-free growth. I’d just walk away (as soon as I had term in place) and consider that $7500 to be, in the words of Dave Ramsey, “stupid tax.”
And you need a new advisor. Stop taking advice from the one who sold you something that you neither need nor want.
S$ – I am assuming your NWM advisor means that doing a 1035 exchange into a different product offered by NWM requires $15K.
Different providers will have different minimums. Unfortunately, the one I am most familiar with is Fidelity, and they have a $10K minimum. There may be good, low cost providers that have $2500 minimums, but I am not familiar with them.
With all of that said, your loss is $7500. Assuming you’re in the highest capital gains tax bracket, at best you’d be saving at best 20% of $7500 = $1500. While $1500 is certainly a good amount of money, it may not be worth the hassle of setting up a variable annuity. If I were in your situation, I would just cancel immediately (assuming term life insurance in place if needed).
My advice – don’t feel bad about the loss, but rather be grateful and happy you caught this as early as you have. People go many years before realizing how poor of investments these products are, and waste much more money than $7500.
Hi Noraz123 – can you expand a bit on the savings of only $1500 piece? Maybe I don’t fully understand the capital gains tax bracket piece yet. But my goal with doing a 1035 exchange into a VA would be to let the money grow in the account until I’ve recouped the $7500 lost in premiums essentially. I would then close it out at that point, so I wouldn’t pay taxes on any gains – as there wouldn’t be any. If i’m understanding this 1035 exchange to VA option correctly. So where would the $1500 come in? Thank you!
$1500 is my best guess what your savings will be with a 1035 exchange.
If you just cancel the policy, put the $2500 in your brokerage account, and let it grow. You will owe capital gains taxes on $7500 ($10,000 – $2500). I used 20% as the tax rate (but as Dr. Dahle mentioned, it can be anywhere between 0% – 23.8%).
20% of $7500 is $1500.
So if you do a VA, you can save $1500 on your taxes many years from now (the time it takes the VA to grow from $2500 to $10,000, – I’d guess about 20 years from now).
Or you can just cancel the policy, take the $2500 and put in your brokerage account. You’d have full use of those funds whenever you want, can tax loss harvest, and full choice of what to invest in.
I’d do the latter.
omg dude, I just realized- you can’t do the 1035 exchange because your cash value is too low! the fidelity minimum is $10k to open the low cost VA, and you only have $2.5k. so the discussion whether to do the 1035 is moot. Just cash the stupid thing in once you get term life insurance in place. btw, if your term is with NWM, then it likely is “Term to 80 convertible to whole life” which is way to expensive term. Please shop for the term insurance that you actually need.
don’t feel bad man! I lost $50,000! I made it back tax free, but I would trade situations with you anyday! $50,000 is much more than $7.5k. And don’t even mention the opportunity cost of my loss and cash value not being invested in a low cost index fund, paying off debt, or just having me and my wife blow it on ourselves.
Try not to think of it as a total loss. I like to think I just over paid (a lot!) for life insurance over 7 years. makes myself feel better psychologically like a Jedi mind trick. You luckily only overpaid for half that time. Also, use my loss as an anchor- I lost $50,000!!! They say comparison is the thief of joy, but in your case it is the bringer of joy when you compare yourself to a big stupid financial sucker like me!
also try not to lose the forest for the trees. forget the whole life mistake. sounds like you might be early in your career and are getting super financially literate, which is going to bring you opportunities to change jobs, FIRE, spend more time with kids and spouse instead of work, paydown debt, buy great vacations and make memories with your friends and family, all because you started early. My $50,000 loss means I missed out on those opportunities, and my life is much worse off with years of memories and vacation and more time spent at work to meet financial goals, time me and my wife will never get back. You are on the way to maximizing happiness for the rest of the time on this earth through early financial literacy!
Wow, wow, wow! I am truly blown away by this forum and all of the amazing advice and encouragement I’ve gotten from it. Thank you to everyone who took the time to share their recommendations and experiences and to explain all of the nuances of a 1035 exchange and capital gains tax to me (@Noraz123 and @WCI @Shareen, @Rikki – you guys rock). It gave me the strength to reframe my ‘loss’ of $7500k and to pull the trigger on closing my WLI policy. I notified my NWM advisor about it today after reading and re-reading all of your comments, which truly gave me the confidence I needed to do it.
And @Rikki Racela – you’re totally right, my term life insurance is also with NWM and is in fact a Term to 80 convertible to whole life type of policy. Although my monthly premiums for that are only about $16 for a $500k death benefit. Is this considered overpriced? I had read elsewhere that term life is generally around $15-20 so this seemed reasonable to me, but maybe I’m wrong on that. It’s open enrollment season at my work so I’m thinking I should also look into seeing what options are offered through my employer as far as life insurance goes, now that I’ve pulled out of my WLI plan.
You should get term in place BEFORE cancelling your whole life policy.
When comparing term life insurance policies, you have to compare apples to apples. A policy that goes up in price every 5 years like the NML Term 80 product cannot be compared to a policy where the price stays level for 30 years for example.
I got the Term to 80 and WLI policies from NWM at the same time, so I figured since I had TERM still in place, I was okay to cancel my WLI policy. I actually didn’t realize that the Term to 80 policy’s premiums increase every 5 years but looking at my statement now I do see that disclaimer “Premiums can increase annually on the policy anniversary date.” Should I start shopping for other TERM policies and have one in place before also cancelling my Term to 80 with NWM?
Does anyone have any thoughts on signing up for TERM life ins. through an employer? My employer offers a few different supplemental life insurance options – one of them being Term Life Cov – it looks like it’s through MetLife, and the employee rate would land me at about $9/month for 300k of coverage. I also have regular life ins. through my employer for about 225k so if I added the TERM option, I’d have about 525k of life ins. coverage. There is a note that says if I leave my employer, I could continue my term life ins. coverage as an individual policy and that MetLife would bill me directly – competitive rates apply but will likely be higher than my current rate. Not sure if I should enroll in this or just get a TERM policy outside of my employer that stays fixed. Appreciate any insights!
Two main problems with employer provided life insurance:
# 1 It doesn’t go with you when you go
# 2 You can’t buy very much, usually no more than 2X your salary.
Two benefits though:
# 1 It is often pretty cheap and maybe even subsidized by the employer
# 2 It is often easier to qualify for, so it may be the only option for someone with bad health or dangerous hobbies.
Why not take it as part of your coverage but also shop for an individual policy?
dude yes!!! buy individual term life policies on top of employer coverage. as per the great Jim Dahle: https://www.whitecoatinvestor.com/how-to-buy-life-insurance/
for myself, i calculated my liabilities I need covered why I die- the biggies were my mortgage, kids college, and my wife taking off work to watch the kids- so I needed 4 mil, and I used term4sale.com to get the cheapest policies laddered so as I build wealth what I don’t need drops off. I got 1.5mil for 10 year, 1.5mil for 15 years, and 1mil for 20 years.
Another question I had – is the cash value from a WLI policy taxed when you surrender the policy? As a reminder, I had about $2500 in cash value accumulated (premiums of about $10k). I’m expecting a check in the mail for the cash value, but is it going to be taxed as income/or capital gains? And therefore probably be a much smaller amount? Just trying to brace myself
If there are gains. For most that means you’ve owned it for 5-15+ years. If you’ve owned it less than 5 you likely have a loss, so no taxes due.
Ok that’s good to know. I’ve had mine since Sept 2019 so I don’t think it would qualify as “gains.” One of my friends pulled out of NWM WLI recently, she’s had it for much shorter time, since 2021. Her cash value was around $400 and her check after surrendering the policy was only like $130 so I’m not sure how that could have happened. Is it worth her contacting her NWM rep to understand why the cash value amount was slashed upon surrendering? That’s why I initially asked about my own.
I sure would ask.
Another victim of NWM here. My husband and I (both physicians) were sold whole life policies in 2021 with 18k each in premiums per year. After hearing from multiple people that whole life is no bueno I have been scouring the internet for solutions to get out of this. I’ve read so many good things on this comments section. We are considering a 1035 exchange into a Fidelity low cost VA. So far we have paid (total for both of us) 72k in premiums and our cash values is around 48k. Does this seem reasonable? My goal is to get out of the WL policies before premiums are due again in May. I brought the 1035 exchange up with our NWM advisor at our last meeting and he seemed fine with it (surprisingly). On a second note, I was reading through the Fidelity annuities products to see if there was a penalty on their end for withdrawing your money (early) once my cash value grows back to the premiums paid. I understand I wouldn’t be paying any taxes when I withdraw because there was technically no gain.
JSS – sorry to hear that you and your husband also “fell victim” to this.
In your case, I assume you would need to create two VAs – one for each policy (ie, one for you and one for your husband).
You would have $24000 of tax free growth. Assuming 20% capital gains, that would be $4800 saving in taxes in the future. Unlike $S above, in your case I’d probably deal with the hassle of setting up a variable annuity.
Your “advisor” is likely OK with the 1035 because s/he already made (most of) their commissions. That missing $24K had to go somewhere, namely to NWM and your advisor.
There is no penalty withdrawing early from the VA because you won’t have gains. You’re just trying to get back to your basis. Once the VA grows to $72K (or likely each VA grows to $36K assuming they are equal), you can cancel. No penalty from Fidelity, no tax or penalty from the IRS.
Assuming you don’t need the life insurance aspect, I’d pull the trigger ASAP. If you do need the life insurance, get term life in place, then pull the trigger.
Thank you for the advice. This is probably how we will proceed. We both have term (80) life policies in place (we were sold these by the same NWM folks when we were in residency to cover our student loans). Uncertain if we need to up the amount of term coverage- I think currently they are 250-300k each. We do not have any dependents/children. It’s a bit embarrassing how little we knew/know about all of this but we have certainly learned our lesson.
dude you are well on your way to recovering from this mistake. don’t be embarrassed! as I mentioned in other comments, I lost $50,000, and was financially stupid.
yes! after the 1035 exchange to Fidelity low cost VA for you and hubbie whole life policies, assess your need for life insurance. do you have student loans your spouse needs to cover when you die? you guys have a mortgage that your salary is covering the payments of? get that amount of coverage. here is how Jim Dahle says to do it: https://www.whitecoatinvestor.com/how-to-buy-life-insurance/
How much money do you want if your partner dies? Probably a lot more than $300K. The usual amount I recommend to the high income professionals on this site is a 7 figure amount, $1-5 million. Not just a few hundred thousand. Lots of readers spend that much in a single year. Certainly I wouldn’t expect $300K to last more than about 3 years if there is no other income. But it comes down to your plan in the event of death.
Where would you place the money in the annuity with Fidelity? They currently placed it in a monkey market account automatically. I know this isn’t the best product out there to make my money back the quickest. Any suggestions on which funds to invest in?
I would go with your chosen asset allocation. for me my overall asset allocation was 65% total US, 25% total international, and 10% small cap value. The total US subaccount in the annuity was only 13bps, and then total international was 17bps, so I invested my money in those subaccounts and I would suggest those. I believe the total bond fund was cheap as well as 14bps I think. anyway, just have it align with your overall asset allocation of your portfolio.
I’d probably invest it in stocks. More risk there but a higher expected long term return.
Even though we are trying to get to cost basis; then withdrawing? We might use that money towards real estate or possible pool in the future. We are not looking to keep the annuity long term.
The more you earn, the faster you get back to cost basis. So yea. It’s your call of course, but that’s what I’d do.
I’d choose their total market fund. The most diversified and lowest cost fund. Likely with the best expected growth as well.
https://fundresearch.fidelity.com/annuities/summary/FTMJC
My husband and I have had a whole life policy for the last year and 3 months. I am a PA and we are paying $500 monthly into this account. What would be the best route for cancelling this policy and is there any chance we would get some of the money back?
I’m sorry you are in that situation. For the relatively small amount of money you have contributed it probably makes the most sense to just surrender the policy and learn from your mistake. I know it’s painful, I’ve been there too. Make sure you get term life insurance policy in place ASAP (before you cancel whole life). Before you get the term in place simply stop contributing to the whole life policy.
Per Shareen’s comment – get term life in place before canceling. Absolutely do this if you need life insurance. However, I’d be willing to be that you were *sold* this whole life insurance policy as an investment, not as life insurance.
You may not need life insurance, or you may already have enough (typically through work).
15 months? I can’t imagine the right move isn’t going to be cancelling that sucker. Yes, you’ll get some money back. Perhaps as much as 2/3 of it. Get an in force illustration to see. And of course if there is a life insurance need, get term in place first.
You could just replace this whole article with “Don’t buy a hedge as an investment”.
so true! though I would add “especially if being recommended by an advisor.”