Insurance

Looking for advice on life insurance. Did I mess up by opening up a whole life insurance policy?

Hey everyone, I hope you’re all doing well.
In July of 2019 I was sold a whole life insurance policy while I was in college by an intern from Northwestern Mutual that I went to school with and as more time goes on, the more uneasy I feel about this policy. The more I learn about investments the more I think I messed up. I feel like this is a complete waste of money and I really feel taken advantage of. I’m not entirely sure if my thoughts are correct, so that’s a part of the reason why I’m posting here.
Stats:
24/m
Policy opened July of 2019
Premium –> $100/month, $2400 “invested” so far
Net death benefit: $89,169
Own my own house, no debt from college, no vehicle debt, 100% debt free
Zero dependents
Very active lifestyle, healthy diet, etc., etc.
Income: ~$150/week. <— With this being my income, $100/month is kind of a lot of money to me. Especially now that I’m back in college and paying out of pocket for classes.

What are everyone’s thoughts on whole life insurance policy? From everything that I’ve read so far, there seems to be a very negative sentiment and for the majority of people, this is not a good product.

If I cancel this policy, will I receive any of the $2400 that I paid in back? Should I consider cancelling this policy? My account says that it has a “Net Worth” of ~$500. Will this be the only amount of money I’m entitled to receive back?

Of course I can talk to my “advisor”, but I wanted to hear some advice from a neutral third party before talking with them as I suspect they’re going to fight tooth and nail to keep me on this plan. After all, they’re a sales person and I truly don’t believe they have my best interests in mind because I’m assuming they make commission on me.

Tl;dr: Did I mess up by getting involved with this policy? If I cancel, will I be able to get ANY money back?

Disclaimer: I am aware of the sunken cost fallacy and know that if this policy is garbage, I may as well eat my losses and move on.

Thank you for taking the time to read this. I appreciate any help you’re willing to give.

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6 Comments

  1. My opinion on Whole Life is that it is a financial tool like any other financial tool. Honestly, the best time to get Whole Life if you’re going to get it is when you’re a minor because its gonna be super cheap. Whole life to me is best used for final expenses, anything outside of that, term is probably your best option for income/mortgage protection. Personally, I am definitely more partial to a return of premium term or a term that rolls into a reduce paid up whole life policy at the end of the term. I feel like these products provide the most “bang for your buck”. Although they can get a little pricey.

  2. You have to look at it for what it is…life insurance. It’s premiums don’t change and the death benefit and cash value increase over time.

    What this is not is an investment. At the most this can be viewed as a back up to your other investments. The cash value is consistent and if planned right can be tax free/deferred. Need cash and the market just tanked (I am sure you understand selling on a dip is not beneficial)take some cash from your whole life til the market bounces back and put it back after.

    Maxed out your 401k and want to put some money away, sure it probably has a better interest rate then a savings account but it definitely shouldnt be your biggest bucket.

    What I am getting at is that it can make sense, but only if your are doing other things as well. Even looking at price vs income it’s hard to tell you what to do because your income will change.

    Was it a quick sale? Probably. Will you retire off this? Absolutely not. Will it give you more options when you do retire? Definitely. Will you get all your money back? No, most likely the $500.


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  4. You’re doing the classic, “I’m going to live forever” already with this “I eat healthy, blah, blah, blah.”

    You bought when you should: while you’re young and it’s cheap. Is it going to accumulate as fast as a true investment like a mutual fund or EFT? No – because it’s completely safe. It’s going to be worth more and more every year and you’ll never pay more. Keep in mind that northwestern mutual has been around since almost the beginning of time, so there is probably no chance at all that they’re not going to be there to pay out the claim when you die.

    By the time most people realize that eating healthy and all the other ways the prices goes young and virile they were don’t stop life and all it’s accidents and illnesses from catching up to us, insurance is no longer affordable, so congrats for buying it when you should.

    The only thing I would have recommended if you were my client, is that if you look at a 20 pay or even a 10 pay policy. The premium is higher because the policy is paid in full in 10 or 20 years true, but that higher premium is offset by the fact that you’re young and insurance is naturally cheap. You might consider a whole life policy that isn’t going to have you paying until your dead or 100 years old, but whole life is a great tool in your insurance portfolio.

  5. How long are you paying it down for?

    This doesn’t inherently seem like a bad deal, but for someone making $600 a month, you definitely should not be spending $100 a month on life insurance with no dependents. If it will be paid down soon (doubtful), or if you get a huge income bump I’d keep it as you’ll have it your whole life. If it still has years to go I’d cut your losses and let it lapse. You could look into getting a term policy that will be way cheaper. I got a $250k 30 year team when I was 27 YO and my monthly is less than $20.

    Life Insurance IS NOT an investment so I would suggest not looking at it as one. It’s for the people you will leave behind (future spouse, children, etc) to pay off your debts and sustain their quality of life.

  6. I’m not in insurance sales but I’ve run the numbers. It’s a very effective tool that will give you flexibility and put you in a better position in the long run. You will have a competitive advantage amongst your peers by having an asset that gives your a cushion during down years and enhances total returns in good years. Plus, you can access cash values on a tax free if structured right. In addition, during retirement for example, assuming you have 1:1 ratio of death benefit to investable assets, you’ll be able to double your withdrawal rate (6% or 7%) vs 3%-4% which studies show is historically the withdrawal rate that gives investors a favorable chance of not out living your $$$. The returns in first couple of years in retirement are a biggest driver of your ability to not outlive your money. You made a good choice and I would buy as much as you can stomach while your young.

    Edit: disclaimer I’ve bought a boat load of whole life policies in my early 20’s.

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