Life insurance

[pontifex]

My parents took out a life insurance policy for me and my sister when we were born. Apparently I am paid up on it, and its currently worth $30k and is supposed to be paid/good until I am 100 years old.

They say I can take some tests to prove I am not a smoker and the amount its worth will increase.

I also have the option to cash it out which is worth $8000. I could really use that money to pay off some debts, like student loan and still have a few thousand left over. Money is really tight right now.

I have life insurance through my work which is worth a lot more than this one, but if I were to lose my job and I take the cash from the other one, I'd have no life insurance (or would have to pay for it again).

I am single, no kids, and the way it looks, this will always be the case.

My safe/prudent side says to hold on to the policy my parents took out since it's already paid for and good for the rest of my life (my chances of seeing 100 are very slim). But the other side of me says that will get me out of a hole I am in and let me start saving more money sooner.

 

[arcenite]

If you are single with no kids why do you have life insurance -- i'd cash it out

 

[JasonCoder]

I was once told by an actuary that whole life is a bad investment. You can cash that sucker out and take out a term life policy with the same coverage and be ahead. Almost anything has a higher rate of return IIRC.

Take this as an uninformed opinion of a random internet stranger. Talk to a tax pro to be sure!

 

[Jumpem]

If you are single with no kids why do you have life insurance -- i'd cash it out

To at least cover the cost of your funeral.

 

[x26]

Whole Life??

Cash it out.

If you want Life insurance get term life; No Wife No Kids? Get $20,000.00 Term life to pay for Burial, etc.

 

[IBMJunkman]

The key here is the policy is paid for. Buying a new term policy would mean payments. OP said money is tight. Cashing out for 8k and then turn around and pay 200-400 a year for term for many years makes no sense to me.

30k makes for a great funeral and paying off debt so those left don't have to.

 

[PowerEngineer]

There was a time (20-30 years ago) before 529 plans when whole life insurance was popular way to establish a tax-free college fund for your children or grandchildren. The benefactor would open a whole life policy in the child's name around the time of birth and then let the net worth of the policy grow over time. The child can then withdraw and/or borrow money from the whole life policy for college expenses (or whatever once he/she turns 21).

The reason that proving you are a non-smoker matters is that it reduces the premiums for the actual life insurance coverage that are deducted from the net worth of your policy (which is at the same time earning a rate of return through investing). Lowering the deductions increases the rate of growth.

Don't think of your whole life insurance policy as real life insurance; it's supposedly an investment vehicle.

The whole life policy functions somewhat like an IRA in the sense that its net worth will continue to grow tax-free over time. Whenever you decide to cash it out, you should look into the tax consequences; the increase in net worth (i.e. above the initial deposit) will be taxable income.

 

[OverVolt]

To at least cover the cost of your funeral.

Yup. Its not like they can use your leftover retirement for those expenses until your estate is taken care of. Lots of work. Having a policy makes it easier.

There was a time (20-30 years ago) before 529 plans when whole life insurance was popular way to establish a tax-free college fund for your children or grandchildren. The benefactor would open a whole life policy in the child's name around the time of birth and then let the net worth of the policy grow over time. The child can then withdraw and/or borrow money from the whole life policy for college expenses (or whatever once he/she turns 21).

The reason that proving you are a non-smoker matters is that it reduces the premiums for the actual life insurance coverage that are deducted from the net worth of your policy (which is at the same time earning a rate of return through investing). Lowering the deductions increases the rate of growth.

Don't think of your whole life insurance policy as real life insurance; it's supposedly an investment vehicle.

The whole life policy functions somewhat like an IRA in the sense that its net worth will continue to grow tax-free over time. Whenever you decide to cash it out, you should look into the tax consequences; the increase in net worth (i.e. above the initial deposit) will be taxable income.

Interesting info.

 

[pete6032]

Life insurance should cover the expenses that you could end up leaving with your estate if your died, minus any assets you have.