Find solution
Should I cash out a Variable Adjustable life insurance policy?

Personal Finance Question: Should I keep a small life insurance policy or cash it out and save/invest?

  • I have a life insurance policy purchased by my parents when I was an infant, and now that I'm 25 I am just now realizing this is a part of my "portfolio" of assets. Prior to this, it belonged to my parents. I'm trying to decide whether or not to keep the policy or cash it out in favor of other investments. It is a policy with a $50,000 benefit, and it currently has a surrender value of about $5600. The premiums and the interest on the cash balance are roughly in balance (made about $210 in interest, paid about $220 in premiums last year). On one hand, it's essentially a "free" life insurance policy because of the interest equaling the premium. Maybe I could let it sit and just be happy to have it? On the other hand, given that I don't have a family, and that a $50k benefit wouldn't be enough for income replacement when I do have a family to look out for, I'm thinking I'd be better off cashing out the policy for the surrender value and investing that $5600 in a way that can generate returns without premiums for a policy I don't really need. This option makes more sense to me, but I thought I'd run it by some other people to see what they thought. What do you think? For a single man in his 20's, is it better to have the policy or the cash?

  • Answer:

    If I was in your situation, I would cancel it and invest in mutual funds. If you are working and earning at least $5000/year in income, you should open a Roth IRA and contribute $5000 for the year. With the extra $600, I would put it into a money market fund. There is no one dependent on your income, so there is really no point of having life insurance right now. Building savings for retirement should be your top priority right now. The earlier you save, the more money you will have by the time you retire. Personally, I own a 30 year level term with $500,000 coverage and I bought it when I was 28 years old. I pay about $450/year for it. I have a mortgage to pay and a family to take care of. At the same time, I have been putting away $400/month into my Roth IRA and have it invested in 4 different mutual funds. The average annual return in my Roth IRA have been around 9% in the past 5 years. In the past 5 years, lots of bad things was going on in the economy, don't you agree? We had a recession, people were losing their jobs, and financial companies were failing and then bail out by Obama. Stock value lost nearly 60% during the recession. While many people were getting scare of their investments, I didn't act upon fear. I stayed in the market and consider it was the best time to invest since price per share were so low. I invest in the long term and I know that everytime the market crash, it has always rebound.

Robert at Yahoo! Answers Visit the source

Was this solution helpful to you?

Other answers

I'm going to back Huntsman on this one; those policies are a joke when it comes to investment. They are better off using a 529 or simply buying mutual funds, cd's or any sort of savings. There is a certain baby food company that pushes this insurance, the product just isn't a very good place for the money. That being said, I would make sure about the surrender penalties and then seriously consider taking that money out. Obviously, you are going to want to put that money somewhere relatively safe. At your age, you can get risky if you want to. Buy a term life policy when you buy a home, get married, and/or start having children.

Casey Y

Why not just let it sit and have the death benefit grow? While it's true that life insurance isn't a good investment due to it's high upfront costs. You're well beyond the high upfront costs. So, why not just think of this policy as the cash portion of your portfolio and let it sit? Also, anyone that gives you a blanket answer that they're bad is just a fool. Nobody can tell you how long you want insurance for. And, if you want insurance forever then term insurance just isn't going to do it. And, I would ignore the first responder because her answers are frequently incorrect. I don't own whole life, I don't sell whole, but I do think that having the option to carry some form insurance around with you forever makes sense. If it didn't make sense, then I wouldn't have retirees calling me on a daily basis trying to figure out how they can buy some life insurance. While, I also have an equal number of retired clients that have zero need for insurance. I can't imagine that it's not doing at least as well as your bank's savings account, plus you have insurance that's basically free. Whether you need it now is immaterial. I've had lots of friends develop some sort of disease in their 20s that has prevented them from getting coverage later. Finally, insurance on kids serves two purposes....1) if the child dies, their funerals aren't free and 2) getting a policy going for them later so they can keep it into their adult years. The one thing they are not good for is an investment, so by cashing it in you're defeating the purpose of the purchase. By keeping it, you're following the purpose your parents bought it for in the first place.

Insurance Pickle.com

These life insurance policies for kids - I wish they would become illegal. A study showed that the major of people that got them were subprime (those easily conned into thinking they are doing something good) You don't need life insurance. You have no dependents that cannot live without your income. Even since birth you did not need this. What you needed all along was a savings account. You would have a lot more money in there by now. Your parents fell for whole life insurance - never touch that again. When you get a family - then get term life insurance - with no cash value And save in your 401K, and IRA

Go with the flow

Related Q & A:

Just Added Q & A:

Find solution

For every problem there is a solution! Proved by Solucija.

  • Got an issue and looking for advice?

  • Ask Solucija to search every corner of the Web for help.

  • Get workable solutions and helpful tips in a moment.

Just ask Solucija about an issue you face and immediately get a list of ready solutions, answers and tips from other Internet users. We always provide the most suitable and complete answer to your question at the top, along with a few good alternatives below.