All Life Insurance Tips - Should I cash out one of my life insurance policies and pay off my debt?

Should I cash out one of my life insurance policies and pay off my debt?

My parents got me a whole life insurance policy when I was young. Now I'm 24 and have a full time job (have worked here for over a year) and am receiving term life insurance from my employer. Do you think it would be a smart idea to cash in my Whole Life policy and pay off all of my debt. Instead of paying high interest rates and barely getting any of the principal paid off i could pay it all off and save my money for other things. I don't need two insurance policies right?! I am engaged but I don't have any children, and don't plan to for another 5-6 years. P.S. I'm not really looking for advice on getting an extra job, I'm looking for financial advice about Insurance. I have a Bachelors degree, I can do freelance work if i have to. I already work full time tho so I am avoiding getting another job. I would rather be broke than stressed to death, hah. I do own the policy, its in my name. I already talked to my parents about it and they are fine with any decision i make. Yall are giving me some really good things to think about. Appreciate the advice :) I'm just now starting to understand all of my insurance/disability/and 401k stuff, and man is it confusing!

Public Comments

yeah do it you only have one life so you don't really need more than one policy sense you don't have children, there really isn't much to worry about wait what about a husband/boyfriend??
Do you WANT whole life insurance? What is the financial GOAL of that policy? If you don't own the policy, you can't cash it out. But if you do, you can. Keep in mind, cash out value is usually much, much lower than payout if you die. You don't want to cancel it, just because you have one through work. What you NEED to do, is establish your financial goals, and see if this whole life policy - a financial tool - is helping you reach your GOALS. Me, I don't carry whole life. It's the least insurance for the most dollars. For a very few people, though, it's the right thing - especially if your GOAL, is to leave insurance money to your kids, even if they're 50. MOST people, though, do better buying term insurance - at a fraction of the price - and investing the difference. RUN THE NUMBERS. Set a goal. And, periodically, reevaluate your financial goals, and the tools you are using to reach them.
I would cash it in. But check first to see if the policy has dividends. If it does you might want to just withdraw all the dividends instead. If not, then I would cash it in and get term life insurance when you have a family.
Does your policy allow for a loan? because some whole life policies do and that would be a good option since you would be able to keep your policy and pay your debts too. My concern is that you might change jobs and lose your term insurance or worse yet not be eligible to get it "later on". However, if the policy doesn't offer a loan, then it should be about how that policy is working with your other LONG TERM goals... since a whole life policy is supposed to be for your options as they would be when you're older, not as you are now.
Typically, whole life is not a great investment. Given the limited information you have given, cashing out and paying off debt seems to be the correct move. One advantage, your credit score is going to improve quickly, and future credit costs will be lower because of it. Be aware there will be tax liability on the cashed value. However, it is a long term capital gain, which is taxed at only 15%, and most likely that rate will soar next year with new tax legislation. (another good reason to do it now).
you have several choices here. first of all, with regards to your term policy at work, it is just that, term. it will run out, and as you get older insurance only gets more expensive. without getting into your personal finances, it also depends on how much debt you are in, and how much cash value has been built in your whole life policy. if the cash value barely makes a dent into your debt, then i would keep it. if you can pay it all off with the cash value, then i would do that as well with this advice: with your savings from your debt payoff, i would invest in another PERMANENT life insurance policy. these policies can be geared for both premature death and retirement, or i would invest it into some other vehicle. the most important thing is planning for your future. while your policy at work is great, if you find a better job and switch companies, then that insurance is gone and some companies do not offer life insurance. also, you may be able to take out a loan on the cash value of the whole life policy, and still keep it active and make payments on it. one of the best things you can do is go to the agent who sold your policy to your parents and ask him/her all the essential questions that you have. if you're in TN, contact me as i am a TN agent. lol
Your term life insurance through work is likely inadequate. My advice is to get advice from a financial professional you can trust. You may have a really good policy that you don't just want to throw away, but then again it might be the right choice.
When your parents purchased whole life for you, it was probably at the best rate you will ever see for whole life. It would depend upon the face value and current cash surrender before you could be advised properly. I recommend some whole life (a small amount when you are young as it is rate stable and as long as you pay your premium it's yours.) Term is perfect for larger face values when you have a mortgage, children etc. Always keep enough whole life for final needs. My reasoning: If you leave your job - it is highly unlikely that the insurance with them is portable, that it can go with you at the same rate. True scenario: Client diagnosed with cancer, unable to work and had to leave his/her job. Just lost the life insurance with the employer and because of the diagnosis is not eligible for a policy with another provider. Always keep some amount of life that belongs to you. You are young enough to replace the current policy with a smaller whole life product for security if the one you have is larger and has a substantial cash value you need now. I know all this is confusing at 24 - find an agent you can trust - I wish you a long and healthy life, but no is promised tomorrow, protect yourself and those you love.
You are 24 and early in your career. You work at a job that offers term insurance. Do you plan on working at that same job with the same company until you retire? It is highly unlikely that you will stay at that company very long. Things change. When you leave that company, the insurance stops too. What if you leave that job because you became very sick and are unable to work but also have many debts like a mortgage and people who depend on you and your paycheck. You would be in a position of looking for life insurance while you are sick (and older). Insurance companies don't like to issue policies to those types of people. I find that it is usually best for a person to own both term life and a permanent policy (like whole life or universal life). No one can tell you what is best for you in your situation unless you can give lots more information like income, debts, living standard etc. Go meet with a financial planner to map out a strategy for your financial life. So many things will happen over the next 50, 60, 70 years of your life. It is good to have some flexibility in your personal finances. If you really need money to pay off some debts, look at your expenses and see what you can cut (Starbucks? eating out?) until you pay down some debts. Is there anyway you can earn more money like working overtime, part time job or selling stuff on ebay? Have you looked into a savings program? Saving for a down payment on a home, vacation, retirement? Pick up a book on personal finance and start learning. I also recommend reading "The Richest Man in Babylon." Your library should have it. Good Luck
My advice is to call a LOCAL agent; even your auto insurance agent, if local, and have him/her do a free Financial Need Analysis (FNA), or other Total Need Program, to help you determine in your own mind, and to meet your personal goals and objectives, how much coverage, and what type you need to reach those personal goals. Don't let ANY agent tell you that all you need is Term insurance, without doing the FNA. That will be YOUR decision, AFTER the FNA has been completed. Some unprofessional agents will say to buy Term and invest the difference, but MOST people won't invest the difference. Term insurance is good to cover a specific need for a specified period of time, should the unthinkable happen. I recommend it to be part of the plan, but not the TOTAL plan. The final authority would be the client, after he/she has been educated by the FNA. According to insurance industry studies, the likelihood of a Term policy paying the death benefit is only about 1%. So, the reason a Term policy premium seems very inexpensive is that the companies don't expect to be paying a death claim. The term policy will likely expire, cancel, or be converted to a permanent policy prior to the death of the insured. The FNA will also help you determine if you need additional Disability Income protection, to provide an income, should you be injured or ill, and can't work for a period of time. It will also help you determine if you need another tax shelter, such as an Individual Retirement Account (IRA). According to statistics, disability is a greater risk than death prior to age 65. Instead of cash surrendering your Whole Life policy, you could take a loan against it until you have the FNA done. Then, if you have a need for additional coverage, you could combine the current premium into the new plan and just have one policy, and cancel the old one. All this would be up to YOU, after you attain some additional knowledge from the FNA interview about what YOUR plan is all about, and how YOU want to reach YOUR goals and objectives. Best wishes. Note: I have been in the insurance business probably longer, and have had more life insurance training, and taught more life insurance classes, than any of the other answerers on this forum.