*BEFORE CANCELING YOUR WHOLE LIFE, UNIVERSAL LIFE, OR VARIABLE LIFE INSURANCE INSURANCE, FIRST FIND OUT IF THERE IS STILL A NEED FOR LIFE INSURANCE. IF YOU DO, THEN GET TERM LIFE INSURANCE. AFTER THE TERM POLICY IS ISSUED TO YOU, THEN CANCEL YOUR WHOLE LIFE, UNIVERSAL LIFE OR VARIABLE LIFE INSURANCE.*
Cash value life insurance vs Term Insurance
PART 1: A husband (age 36) and wife both own whole life insurance with $50k coverage on each. They claim to have 3 years left to pay off the whole life insurance. They been paying $270 every 3 months for the past 12 years (a total of $1080/year). The cash value amount is unknown, but it should be around $9000 to $10000. If they invested $270 every 3 months and got 8% return, in 12 years they would have about $21,000 today. If they invest it for the next 50 years, they would have about $638,000.
He also has 2 kids ages 6 and 9 bought whole life insurance on them. Both policies have $25,000 coverage and pay $150/year on each (a total of $300/year).
What I recommend: If he and his wife both get a 20 year level term policy with $500,000 coverage on each, it would cost about $800/year, saving them about $500/year. If they invest the difference of $500/year, with 8% return they would have around $25,500 in 20 years.
PART 2: Husband and wife both age 29. Husband have $500k whole life policy and pays $350/month for it. With a 20 year level term, it would cost about $30/month. If they invest the difference of $320/month, with 8% return, they would have about $190,000 in savings.
Be Aware of Your Friend recommending Whole Life Insurance as "Investment"
A 31 yr old man buys $500,000 coverage for $14000/year from his friend and thought it was an investment. His friend got a nice paycheck of over $10,000. With 20 year level term, it would cost $25/year to $30/month or $300/year to $360/year. If he invested the difference of $13600/year in equity mutual funds for the next 20 years, with a 10% return he would have over $900,000 in savings. Even if the fund performed at 5%, he would have about $480,000 in savings.
Be Aware of Financial Advisor recommending Variable Life Insurance
A wife with 2 kids has a husband that own a variable life insurance for 6 years. They pay $650/month with death benefit of $750,000. A 30 year old can buy 20 year level term for about $50/month. If they invest the difference of $600/month for the next 20 years, with a 10% return they would have about $460k.
