Universal Whole Life Policy

[rabshield]

I’m worried that I was scammed into a bad life insurance investment. I’m a 28 y/o lawyer with >$200k salary and a homeowner. My financial advisor convinced me to get a universal whole life insurance policy in September 2023: $1.1 mil death benefit, $12k annual premium. Am I over insured/overpaying? Should I cancel my policy now before I waste more money on monthly premiums, or should I stick it out for the long haul?

TYIA.

 

[clewis]

@rabshield Do you have a whole life or an index universal life policy? There are some dangers with an IUL that are not present with a whole life. Does the death benefit increase? I’m assuming it does

 

[sav3dbyhim]

@rabshield Literally that’s perfect for you. That’s an amazing rate while you’re young and successful. After 2 years your interest in your policy will pay the policy and your dividends will be normal income for the rest of your life.

Please stick it out and just enjoy the cash value building up. If you want to surrender your policy, which is what you do with Whole life, you don’t cancel you surrender the policy…you get pretty much everything you paid in after a certain period of time I can tell you exactly how much if you’d like.

But no bro great move if it’s ever food or your policy cancel but save your money.

 

[kim5398]

@rabshield Do you have a wife or kids? What was your goal for getting the policy originally?

 

[rabshield]

@kim5398 Neither wife nor kids. Goal was long term investment strategy.

 

[kim5398]

@rabshield Ok, thanks. If this is the goal, then the insurance amount is only important from a cost and accumulation efficiency perspective. I would need to know more to diagnose this, but generally speaking you want the least amount of death benefit for premium paid. In other words, maximally funding the policy as much as possible while keeping tax-free withdrawals.

A $12k/yr premium doesn't sound like you are max funding this $1.1 million policy so you may have some tweaks you could make to get more accumulation potential.

 

[rabshield]

@kim5398 Got it. Should I inquire about decreasing the death benefit (if possible)? I’m wondering if the $1k/month I’m paying towards the premium would be better invested in other ways. I’m also shifting my investment goals towards more short term (hopefully getting married in the next 3ish years), and wondering if whole life is really worth it as a long term strategy.

 

[kim5398]

@rabshield Sure you can, just make sure they don't create what is called a Modified Endowment Contract or MEC. I think any cash value life insurance policy can be a good asset to have, but you may get more yield in other places depending on where you park that capital and for how long. Eventually you will want life insurance regardless if your wife and any future children depend on you for income and it certainly is cheaper the younger and healthier you are.

 

[robertnduati]

@rabshield Show us an illustration. We would need to see that to really get a better picture. Was it an IUL or regular UL?

 

[ativyl]

@rabshield You are under insured if you have children or a dependent spouse. If you don't then not sure who you are insuring. You could easily justify something like $5m. At 28 with a $1.1m policy should be something like $40k if you were maxing it out. so I'm also thinking you are underfunding the policy if you are using it for accumulation.

What's entirely missing from your post is what this policy is designed to do for you, what purposes is it supposed to be serving. You are calling it a "life insurance investment" but you aren't talking like an investment. I did a series on permanent life insurance as an investment:

https://www.reddit.com/r/IncomeInvesting/comments/14j82hw

 

[ladyeag]

@rabshield I'd do a DIME calculation to see how much coverage you actually need and get a term policy. Pay an annual premium instead of monthly and you will save about a payment and a half of the monthly amount. Get some actual investments. Do the match on your 401k l. Max your IRA and your spouses, do backdoor Roth's or if your combined income is low enough just do a Roth. Then if you have more to invest start maxing your 401k. At that point you can look into other options.

Don't worry about the money you already paid to the policy or you will get stuck in the sunk cost fallacy throwing good money after bad when you could be making progress. Also do not cancel your current policy until you have something else in force.

 

[javelinda]

@rabshield Omg! Why do I see these post every day? So many post of people getting ripped off and convinced to by a policy that's not in their best interest so let's break this down one step at a time. #1 why did you want to buy the policy in the first place? Was it to protect your family or to accumulate money? Secondly, I can probably bet you your "financial advisor" doesn't meet the FINRA/SEC definition of Financial Advisor. Go to broker check.gov and type his name in. I'm willing to bet his name doesn't appear. #3 there are many types of life insurance and it can be daunting to pick the best one for you and your family. I have created a guide the breaks down everything you need to know about life insurance when making a purchase decision. The fact is most of the time, IULs are not the most appropriate choice but they generate high commissions so agents love to push them. You need to over fund them otherwise they implode and you lose everything. If you are interested in learning how this stuff works just let me know if you want me to send you the buyers guide.

 

[4_his_glory]

@javelinda Seriously... literally everyday.

Curiously, I get downvoted when I provide a guide that should prevent other people from making the same mistake -- getting into a permanent life insurance policy when its just not necessary, or even beneficial.

Maybe by other brokers who are trying to write permanent policies for people who don't need them? Or maybe by regular Reddit folks who think I come across as salesy? I dunno, just trying to help, I'm not soliciting business.

I'll keep posting the guidelines though, I hate to see people spend their money on something they don't benefit from/need.

This industry has been infiltrated by dishonest brokers who write policies to fatten up their wallet, not help the client and its really damaged the industry as a whole.

Eff that, I'd rather make less and do the right thing.

Here's the guide...

One should NOT consider a permanent policy (IUL or whole) unless they meet all the following criteria. They should opt for a term policy.

There's exceptions, but very few.

1. High Income Earners $150k or more. High Networth $250k or more liquid.
2. Currently saving between 10-20% of income for retirement.
3. Currently Contributing to the match in 401k.
4. Currently maxing out IRA/Roth
5. No consumer debt.
6. High Yield Savings Account with 6 months household expenses saved.

 

[resjudicata]

@4_his_glory I would also add to that. Once they have those things to 7. go back to maxing all contribution limits to the 401k to the 23,000 / 30,500 limits too.

He said he was a lawyer. So if self employed then a Solok where he can do up to $69k in deductions.

 

[javelinda]

@4_his_glory Because most of the agents in here hate RIAs CFPs and REAL financial advisors because they tell the truth and expose the nonsense. I've lost so much karma in this chat group because I refuse to just let people be misguided. They hate me but I stand on facts. If you were registered with FINRA you wouldn't need to recommend an IUL because there's things you could do that are way better without the negative downsides. I'm glad you're on the right side of history because many of these agents in here are wicked.

 

[garchris]

@javelinda Yeah, its crazy seeing numerous young people on here buying UL policies. Many of them seem to not even have a spouse or children.

 

[melissa49ers]

@javelinda Not OP, but I'd also be interested....

 

[javelinda]

@melissa49ers Sent you a message

 

[jamie2012]

@javelinda Happy cake day!

 

[javelinda]

@jamie2012 Thanks!