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Permanent Life Insurance - Keep it or scrap it?
Posted on 1/29/19 at 11:22 am
Posted on 1/29/19 at 11:22 am
Hey guys, I was talked into getting a permanent life insurance policy through Northwestern Mutual which I contribute $200/month. I also currently contribute $200/month to a Roth IRA. In hindsight, I wish I would've never gotten the permanent life insurance, but my financial rep sold it well and emphasized the cash value growth as the policy matures. I've been contributing to it for about 2-1/2 years (I am only 26). The cash value on it is $1,340. Should I scrap this policy and take my losses? I'd say I've contributed about $6,000 to it up until now. I can live with justifying it as a bad/naive investment. Any insight would be helpful. Would there be a benefit in keeping it? I plan to max out my Roth pretty soon regardless of having the permanent life insurance. For further information, I don't have a wife or kids, and I have a good job working in a family business that has a future in making pretty substantial money. Thanks!
13
Posted on 1/29/19 at 11:25 am to itsbigmikey
quote:
Hey guys, I was talked into getting a permanent life insurance policy through Northwestern Mutual which I contribute $200/month. I also currently contribute $200/month to a Roth IRA. In hindsight, I wish I would've never gotten the permanent life insurance, but my financial rep sold it well and emphasized the cash value growth as the policy matures. I've been contributing to it for about 2-1/2 years (I am only 26). The cash value on it is $1,340. Should I scrap this policy and take my losses? I'd say I've contributed about $6,000 to it up until now. I can live with justifying it as a bad/naive investment. Any insight would be helpful. Would there be a benefit in keeping it? I plan to max out my Roth pretty soon regardless of having the permanent life insurance. For further information, I don't have a wife or kids, and I have a good job working in a family business that has a future in making pretty substantial money. Thanks!
scrap it. take the loss. stop being friends with the rep who sold it to you.
Posted on 1/29/19 at 11:36 am to deNYEd
quote:
scrap it. take the loss. stop being friends with the rep who sold it to you.
Agree--walk away, and learn to make clear business decisions rather than being "talked into" things related to money.
Posted on 1/29/19 at 11:38 am to itsbigmikey
Has your health changed any? Diabetes, high blood pressure etc...? I would agree to scrap it and get a term policy for significantly less. Only cause for caution would be if your medical position has changed and thus would be uninsurable. Good for you though being up on your financial game 
Posted on 1/29/19 at 11:38 am to itsbigmikey
If you bought it as purely an investment, then yes it was a bad investment. They are not bad products in and of themselves when used in the right situations. If you were expecting quick cash value growth in the early years then you either weren't shown or didn't look at the illustrations. The policies are built for long term growth, not short term quick gains. Your cash outlay will be greater than the cash value in the early years as you are also paying for the insurance part of the policy. As those policies mature, that is where they are at their strength.
Without knowing more it is impossible to say if the policy is or isn't right for you. If you are under the assumption the policy will perform like your IRA on a year to year basis, that is just a wrong assumption. However, take a look at the illustration of the policy when you are in your 50's and 60's and see if you think that is worth holding onto. If not, trash it and invest what you save. They aren't right for everyone and any rep that sells them as such is doing a terrible job.
Without knowing more it is impossible to say if the policy is or isn't right for you. If you are under the assumption the policy will perform like your IRA on a year to year basis, that is just a wrong assumption. However, take a look at the illustration of the policy when you are in your 50's and 60's and see if you think that is worth holding onto. If not, trash it and invest what you save. They aren't right for everyone and any rep that sells them as such is doing a terrible job.
This post was edited on 1/29/19 at 11:41 am
Posted on 1/29/19 at 11:50 am to GoCrazyAuburn
I wasn't expecting a quick turnaround on my money. I thought of it as something I wouldn't touch until the policy growth exceeds what I have invested into it. In my mind, I figured when I start a family I would want life insurance and it seemed like having one that accumulates cash value would be beneficial.
Posted on 1/29/19 at 11:51 am to Crawfishking88
Nope. I am perfectly healthy and exercise 4-5 times per week and eat very well the majority of the time. I am a very health conscious person
Posted on 1/29/19 at 11:56 am to itsbigmikey
Is the $200 per month affecting your quality of life right now?
Posted on 1/29/19 at 12:02 pm to boosiebadazz
quote:
Is the $200 per month affecting your quality of life right now?
If he was burning the $200 a month his fireplace and it didn't affect his quality of life would that still be a good use of the money?
Posted on 1/29/19 at 12:03 pm to boosiebadazz
Not at all. I mean, I guess it's keeping me from throwing a little money at my mortgage and keeping me from putting more into my Roth, but I am content besides that
Posted on 1/29/19 at 12:04 pm to EA6B
quote:
If he was burning the $200 a month his fireplace and it didn't affect his quality of life would that still be a good use of the money?
If the ashes were to come back as $500,000 or more for his future family when he dies it may be
Posted on 1/29/19 at 12:08 pm to itsbigmikey
Do you foresee any salary increases in the near future?
Posted on 1/29/19 at 12:11 pm to itsbigmikey
If you can afford to hang on to it, then do it. At some point the growth each year will exceed what you’re putting into it. You can also stop paying on it down the road and have paid up life insurance for when you start a family.
Posted on 1/29/19 at 12:15 pm to boosiebadazz
Without getting into too much detail, I optimistically could make six figures within 3 or 4 years and have a chance to make more than that a few years after
Posted on 1/29/19 at 12:16 pm to itsbigmikey
So if your salary increases then you won't even notice the $200.00. I say set it on autodraft and forget it.
Posted on 1/29/19 at 12:19 pm to itsbigmikey
quote:
I wasn't expecting a quick turnaround on my money. I thought of it as something I wouldn't touch until the policy growth exceeds what I have invested into it. In my mind, I figured when I start a family I would want life insurance and it seemed like having one that accumulates cash value would be beneficial.
This is the right attitude to have. Starting the policy when you did, the insurance portion of it will be at its cheapest so you are setting the policy up to succeed. When the policy is in its mature stages, you will be glad you have it IMO. When you are in retirement, you will definitely be glad you have an asset in your portfolio that is guaranteed to never go backwards and positively compound every year.
Is it guaranteed to be the best performer you have in your portfolio? No clue. You could just go term and invest the difference and end up better off, there are no guarantees one way or the other. There isn't a right or wrong answer there, as long as you are saving/investing the right amount. However, if you have a good stock portfolio, a strong policy like this can allow you to keep your investments in more aggressive holdings for longer as this can be your more stable backbone. Just gives you options.
I would never recommend doing one instead of a Roth or 401k. However, it is not a bad asset to have as part of a portfolio if you can afford to do so.
This post was edited on 1/29/19 at 12:21 pm
Posted on 1/29/19 at 12:22 pm to Chuckiee
quote:
If you can afford to hang on to it, then do it. At some point the growth each year will exceed what you’re putting into it. You can also stop paying on it down the road and have paid up life insurance for when you start a family.
I was thinking the same thing, but I have just seen so much negativity on this topic and due to my inexperience with financial investments/insurance policies, I figured I would get the wisdom of the crowd on this one
Posted on 1/29/19 at 12:36 pm to itsbigmikey
quote:
I was thinking the same thing, but I have just seen so much negativity on this topic and due to my inexperience with financial investments/insurance policies, I figured I would get the wisdom of the crowd on this one
In the sticky'd thread up top there are some old discussion threads on it I believe. Permanent insurance has gotten a bad reputation for a long time, partly based on bad understanding of it, partly by bad companies and reps, and partly bad products out there.
"permanent insurance" lumps together a bunch of different types of products and then people try and use the bad ones to represent the entirety. I've never been much of a fan of universal life policies. The horror stories people have from Permanent life insurance usually involves those. I've said multiple times on here I'd only buy permanent insurance from a couple companies because they are the only ones with the track record and proven performance of their policies with the contractual language to ensure its security, Northwestern Mutual being one of them which is what you have.
The Dave Ramsey's of the world do not like the products, however for the vast majority of people that would be needing his advice, they aren't right for them. They have their benefits and there drawbacks just like any other financial tool.
Posted on 1/29/19 at 12:47 pm to itsbigmikey
The benefit in keeping it is that, if you have a wife and kids in the future, you've already got something in place were you to pass away. I'm guessing the value of your policy is $250k, since you're only 26 and it's still $200 per month. If in 5 or 10 years you're married and have a kid, you'd probably be looking into life insurance anyway, be it whole life or term life. At that point, whole life at age 36 would be significantly more expensive than it was for you a decade earlier. I say you've been proactive and I would suggest you keep the life insurance if you can afford it.
Posted on 1/29/19 at 12:52 pm to boosiebadazz
quote:you keep saying this,but while this may be the right investment for him personally that shouldn't be the reason why he doesn't get out.
you won't even notice
Someone using the fireplace analogy, to which you had a good rebuttal...but what if he can have 1 mil instead of the 500 you suggested?
OP, no one can answer the question without knowing your full situation. You could very well be one of the very few for whom this makes sense to have.
Obviously should have thought harder before committing years ago, but getting out now could also be the better move financially at this point in time.
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