All Life Insurance Tips

Buy more life insurance or put into Roth IRA?

Hello- I am 30 years old, not married and I do not have kids. I was just made aware that my dad took out a whole life insurance policy with the Knights of Columbus when I was 3 for 5,000. At 31, I have the option to purchase more. I also have the option to cash the money out without penalty. The agent explained that it is just like a roth except that I can withdraw the funds at anytime without being taxed, and also have the benefits of loved ones being taken care of when I die. He said it grows at 8%. He explained the Knights of Columbus being different than other whole life insurance companies. I don't really know anything about this. I don't know if I should cash this out and start an IRA for investment or if I should buy more life insurance. The only benefit that I see is that I can withdraw the money if I need to in the future, say , if I ever do have children and they need money for college. Help! Thanks. :)

Public Comments

1. Insurance is insurance and you only need it when you have a family. First fully fund your 401k, then traditional IRA and lastly Roth IRA. You need the tax deduction at your age. You can always recharacterize your IRA to a Roth when you are older and in a lower tax bracket.
2. Rico's correct that insurance is not your best choice here. (And if you did need more insurance, whole life is not your best choice for insurance.) If you work for a company that offers a 401k where the company matches your investment, do that first. If not, or if you have even more money available to invest, consider an IRA or a Roth IRA depending on whether you qualify.
3. Cash it out. Insurance is not an investment. You're not married, and you don't have any kids. So who needs the money from the life insurance policy if you die? You are stating two different goals for your money, so you'll need two different accounts. 1) Your own investments. The Roth IRA is the way to go. 2) Children's college fund. Look into a "529 Plan", but your IRA is for your retirement. Your kids' degrees won't put food on your table when you're 65. If you get married and have kids, then you can look into buying another life insurance policy. But term life is much cheaper than whole life, and you'll get a better return investing the savings somewhere else.
4. I agree whole heartedly with the above answers. Life insurance is to protect those who depend upon you for support(you have nobody). Your insurance agent sounds like a snake oil salesman--don't trust him--he has his best interests at heart. You will be better off with a Roth IRA.
5. The agent is ripping you off. First, a life insurance product is not an investment. 2nd, ROTH IRA's are completely tax free for grow and dividends. Any Insurance Product (or annuity) is taxable at your earnings rate when drawn.... plus the "internal expenses" are higher than any other financial product. Bottom line: I don't have the time to write everything. But.... never buy investment products from insurance agents and bankers. Learn enough to know when you're being treated correctly. Run as far as you can from anyone suggesting an Annuity. Good luck.