Why Should I Cash In My Whole Life Insurance Policy?
There are very few reasons you should continue making payments towards whole life insurance. The principle reason for owning whole life insurance is to ease the burden on someone who would suffer financially by your death. Fewer consumers are focusing on that reason alone. You may have used your whole life insurance to diversify your investment portfolio, in which case you are essentially treating it like an asset. As an asset whole life has some benefits, but many more flaws. This means that the money you would earn as a lump-sum payment could go into a wide array of other investment vehicles that would have better annualized returns.
First, you are probably paying monthly premiums. These premiums drastically increase the length of your break-even period. In addition, the front-loaded nature of the investment into the policy makes other investments much more attractive. Very few insurance policies actually pay dividends. Those policies that do pay dividends typically have an annualized return of fewer than 2%. Many certificates of deposit pay out between 2-3% of the principle, if you don’t consider taxes. These are some of the most safe investment vehicles with the exception of treasury bills. Also, larger principle investments yield much higher rates over time.
Even if a dividend were included, it would not cover the cost of the monthly premium, and would still come out to a lower return than the CD. Other investments yield dividends, as well. For example mutual funds are a great way to grow money without much risk. Cashing in your whole life insurance could give you a nice amount to seed an initial mutual fund investment.
Mutual fund owners are required to pay capital gains taxes, but these are at a much lower rate than income taxes. Even though insurance policy holders can avoid tax payments, they still require monthly premium payments. These variables cancel each other out, so the only point of comparison remains in the rates of return. Most mutual funds (specializing in low volatility markets) have rates of return in excess of 5%. Insurance policies rarely beat 2%. So, for incurring a little bit more risk you would stand to make 3% more on the money you invest.
There are a lot of different options. If you are seeking tax free contributions, you can cash in your whole life insurance policy to start a Roth IRA account. These should be an integral portion of your investment portfolio. You can contribute up to 5,000 dollars annually. Though the insurance policy is tax-deferred as well, the cumulative nature of growth is a great retirement fund seed. As a pure investment strategy, the whole life insurance policy yields far fewer benefits that a Roth IRA.
These are just a few of the many reasons you should consider cashing in your policy. The return rate of a whole insurance policy barely keeps pace with insurance at current rates. Also, if you are looking to reduce outstanding debt, then the cash would reduce further damage to your credit rating.
Why Sell Your Convertible Term Life Insurance?
To fully understand the nuances of Convertible Term Life Insurance, it is important to understand the breakdown of the two components of the policy. First, the “term” portion of the policy refers to the period of coverage. Someone with term coverage pays for a specific amount of time, ranging anywhere from one year to thirty years. Universal coverage is the alternative to term coverage, and it refers to an individual being insured for a lifetime.
The Convertible portion of the policy allows the insured individual to convert to a whole life insurance policy at a later date. The convertible policy also allows the insured individual to pay lower rates in the preliminary stages of their lives. The payments eventually balloon as time progresses to account for the higher cost of advanced age. However, the convertible policy holder can change their policy to whole life insurance. At this point they would pay substantially lower their payments.
The convertible term life insurance policy is a poor choice of investment. Most large, front load investments such as CD’s outpace the annualized 1 to 2% returns that this type of policy typically generates.
Is it really worth your time to own these policies? You must take several factors into account when you consider whether or not it is worth your while or not. First, you have to decide if your health is really in such poor shape that you have the potential to lose your life abruptly. There are internal and external factors to consider. First do you exercise, and make it a point to consume proper nutrition? If so, then you are at a much lower risk of suffering from an abrupt ailment.
Next you’ll have to consider you habits. Are you the type of person who enjoys regular skydiving? How about base-jumping, or diving? If you don’t regularly do these things, or things like this you are at a very low risk of abrupt death. If you do exercise and refrain from high risk activity, there is no immediate need for the term insurance, especially when you could realize between 3-6% annually realistically.