It looks like my father in-law is ready to hand over a whole life insurance policy to us that he started for my wife ~30 years ago. He wants us to continue to pay the monthly premium but I'm honestly not sure what to do with it. It's a terrible product that I never would have purchased on my own. The ROI is horrible and I don't want to pay another dime into it if I don't have to. But because we'd lose the entire death benefit if we stopped paying I'm afraid we may be roped into paying that premium for the rest of our lives to keep a death benefit that we'll receive at a time when we won't have any use for it. To be honest I don't know much about whole life so I don't know what the best move is.

Here are the details I have as of 2012:

Policy start date - July 1985
Monthly Premium - $13.72
Total Cash Value - $4,784.64
Past Year Cash Value Increase - $341.65
Total Death Benefit (as of 2012) - $32,786
Total Paid Into Plan since '85 (by my calculations): $4,445.28

Projected value at age 60:
Total Cash Value - $40,020
Total Death Benefit - $76,255

If it matters we're <30, have kids, and we're on track to have plenty of money saved for retirement.

What's my play?
What relevant information am I missing?

Why do you care so much about the death benefit? You can buy cheap ass term insurance for 10x that much for the same monthly premium. Take the cash now and run. Don't tell FIL he pissed away his money.

If he's been paying into this thing for 29 years, he will hassle you about it every christmas for the rest of his life if you sell the fund. $13 dollars a month is a small price to pay to keep him off your back.

Since you describe yourself as being financially stable, the amount of money in this policy is essentially irrelevant to you. Your best play then is going to be that which doesn't cause any family fights. Just pay into it for a few years until he forgets about it at which point your kids will be old enough to appreciate a free trip to disneyland.

How would he have any knowledge about cancelling it?

if you want to lie about it, sure, whatever. still results in increased risk of hassle when you show gramps the pics of his grandkids wearing mickey mouse ears and he asks you what spurred the splurge and your wife slips and spurts out the whole life policy without thinking.

See if you can freeze it. Essentially, they policy can be self sufficient depending on the Paid up dividend amount. You may get a reduced death benefit if you do so, but you will always have it without putting up anymore premiums.

The cash value and death benefit will also continue to grow, just at a slower rate. even if you dont contribute anything more.

May i ask why you hate this product? strictly for its ROI?

Dont use life insurance as an investment. If you need protection (kids, mortgage, etc) buy term.

Whole make a little more sense when youre dealing with a very wealthy individual.

The dump 30K into a policy each year for life, building a huge death benefit and cash value. They use the cash value as retirement money by loaning the money to themselves, avoiding high taxes in retirement assuming you wish to live a lavish retirement. the death benefit is large enough to cover the loan amount from the cash value and any surplus goes to beneficiaries.

some benefits to it...You can use it as collateral(ish), designate bank as beneficiary and it can act as a down payment. (talk to your insurance guy)


a post like this came up about a month ago, essentially all you here is whole life is garbage. never ever ever buy it. I got super flamed for it, for saying it makes sense in certain situations. (thats a whole different story though)

In my opinion, this whole life policy for you currently, is not covering your needs for your children/wife if you pass away. you need more coverage for the next X years. buy term, nice and cheap.

at the end of the day, dont buy life insurance as investments unless you're in the top 1%.

If you have the illustration infront of you, run the IRR over the life of the cash value. see what it is. (usually after 15 years it should start averaging Fixed Income rates. 4-5% per annum. (a lot of rich people use whole life as a fixed income portion in their portfolios.)

If you have any questions PM me. i will try and provide an unbiased opinion.

bottom line: If you need more coverage, this is not the way to go.

If youre that against sinking in 13$ per month into this, then see if you can make policy self sufficient or "paid up" you will never have to sink another dime in it.

You're right, and we both currently have enough term insurance to dwarf that amount.

My only hesitation is that we'll be throwing away tens of thousands of dollars when my wife dies by cashing out the policy. At this point I don't think we'd be able to invest the cash value today and make up for the loss we'd incur from losing the death benefit. And I'm guessing there is some benefit to keeping this fund as a sort of hedge since it carries a guaranteed return. But aside from leaving a little more to my children I don't see any reason why I'd need that money when it would become available.

And yes, family politics is a concern. My father in-law is one of the greatest guys I've ever known but I know he'd get really upset if we cashed out and that's another concern. But I'm sure we can find a discreet way to do it.

I'm still not sure which way to go on this one.

Awesome answer! Thanks!

We're not planning on using this as coverage as we already have an adequate term policy on her. And this fund was never a part of our retirement plans. Until recently we didn't even know how much was in it since it was always maintained by her father. It seems like looking into making this a self-sufficient policy may be the way we need to go to ensure we don't lose out on the death benefit. I'm sure our children will appreciate getting a little extra cash when we pass.

Edit: To answer your question yes I'm not a fan because of the low ROI and the fact that it's probably the most illiquid "investment" I can think of.

And a youre reasoning is absolutly correct. another thing is the tax free benefit and the creditor protection. god forbid you run into some serious debt troubles and end up owing people lots of money, the creditors cannot access this. Its more of a wealth succession tool in this case. that being said, i doubt the kids will complain when this time comes!

You aren't throwing it tens of thousands, because she likely won't die soon (and if she does, you are covered), and by the time she does die, you will have paid tens of thousands into this (in costs and opportunity costs). The death benefit is coming from a fraction of the future payments, not what you put into it and the cash value. Your wife has 47 years left if she is 30 (according to actuary tables). You are going to dump 7K into this thing

Depending on how much into your financial situation your FIL has, that's the key. Not sure why he would even be that aware of the situation. If your wife has a big mouth, that's the other big concern. Otherwise, say nothing and if he asks, tell him you still have it. Unless he comes to you saying its a bad idea or something, then you can tell him you'll get rid of it. The business decision is incredibly easy, the politics is the only tricky part, and only you know how that will go.