[USER]

Long story short I am three years into a 15 year whole life policy. (I already know it was a mistake, it was a pre-divorce decision and for many reasons, if I could go back in time and not do I certainly would but I am where I am).

Annual premium 36k
Have paid about 122k into policy

Current surrender value 59k
Death benefit just under 1 million

I am planning on surrendering the policy and reinvesting proceeds into index funds. I don’t need or care about the death benefit.

As far as I can tell I have a bunch of long term care benefits I neither need or care about as well.

I no longer work with the financial advisor who sold me the policy for numerous reasons.

I have spoken a couple of times with mass mutuals customer support team (it is amazing to me that I can write a check for that much money but my only resource is a 1-800 number) and reviewed the contract and my understanding is that I can terminate pretty cleanly right now for the surrender amount of 59k ie the policy and its benefits simply end.

My thought is that it would be ridiculous to pay this for another 12 years for essentially the death benefit and this money would be much better invested as well as more flexible elsewhere.

What other questions should I be asking about this decision? Am I missing anything critical here?

Thank you in advance for your feedback!

[Julie]

Taxes have to be paid on this if you cash out…correct?

[Ben]

Id get an inforce illustration. The worst years of a permanent policy are the early ones.

You’ve pretty much finished that, so in theory performance should get better.

It might still not make sense to keep it, but just to help make an informed decision.

If you need insurance, make sure you have the new policy in force before canceling your existing coverage.

[Celese]

It’s pretty impossible to predict whether you will need long term care. If the LTC coverage is good, I’d consider keeping it.

What happens with the policy after year 15?

[Tuan]

Get rid of the policy. take the money and invest in the index. Done. Just 3 years out of 15ys, you have not dig too deep of a hole for yourself.

[Scott]

Well you certainly want to replace it with some term ins. If people depend on your income. As painful as it is, you don’t want to do what’s called a ‘sunk fallacy’ what’s done is done.

Continuing to throw good money at it won’t make you feel better.

It’s a hard lesson, but you’re not alone in being burned.

In summary, it sucks, but you’re making the right decision.

[Russell]

So, I can’t speak to those policies in general, but I can say this.
Starting with $59k and contributing $36k annually (I entered it as an annual contribution) with an assumed 10% annual growth would give you $955,001 in 12 years.

If you did it as $3000 per month, it would be $1.02M.

Assuming you live 20 years from now (8 past the pay off date here), and stop adding to it at all in 12 years, you’d have about $2.2M.

So, while eating the sunk cost will feel bad, assuming you follow through on investing the same amount yourself you’ll be better off.

Using fairly standard assumptions, of course.

[Author]

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