What Should I Do with an Unwanted Whole Life Policy?

Brendan’s question is up next. My parents purchased a whole life insurance policy for me when I turned 18. I am now realizing they are not great for life insurance. Like, this might not be the greatest call. They will pay the premium until I am 25, and I’m currently 21. How should I approach this?

Yeah, so it’s difficult. A lot of the times, our parents make decisions that they deem or think are the best decisions. And a lot of times, when we’re the child, when we’re the underling, it’s difficult to have that conversation with your parents about, “Hey, I think this might not be ideal.” So you have to navigate that kind of delicately. If I were in your situation, Brendan, I think I’d probably go with the Socratic method, right? I would start asking questions around, “Hey, Mom, Dad, I know you’ve got this whole life insurance policy. You bought it for me at 18. I’d love to just know a little bit more about it. What’s the reason for that?” “Oh, well, we want you to make sure you have insurance that when you get married and have kids, they’ll always be covered.” “Oh, that’s great. I noticed that the value of this whole life policy only has like a $50,000 face value. Do you realize for the amount of money that you guys are spending on that whole life policy, I could go get like a $500,000 term life policy? Should maybe we consider that?” “Oh, well, Brendan, that’s… no, no, no, that’s just part of it. We really want to be building up assets so that one day you can utilize us.” “Hey, you know, that’s a great idea. What if we just had like some sort of account that we set up, like a regular brokerage account? Or, you know, I’m 21 now. What if we started putting this money into a Roth IRA so those dollars could grow tax-free?” That way, you essentially ask your parents, “Hey, what’s the goal of these dollars? What was your purpose of putting this product in place?” And then you guys collectively can investigate, “Okay, if that’s the goal, is the solution we’re implementing, this whole life policy, is it the best solution to accomplish that goal? Or might there be some other ways to be able to do that?”

Yeah, I wrote down three things. There’s a Bo Echo here in the fact that the first thing I wrote down was to lean into the “why” of your parents. I’d love to know if there’s more information. Do you have a medical condition or something where they were preemptively trying to protect you from not being able to get insurance in the future, or they knew there was a family history or something? So if there’s some specific planning need or concern, that could be one thing. Now, however, if this thing was just sold to them because maybe you have a relative or a friend that sells insurance, and they got your parents all hopped up, that’s a different conversation.

So I’d first focus on step one: what was the “why,” and how did this get created? If it was purpose-driven, okay, rock and roll, that’s great. However, if this was sales-driven, now we need to move into the second part, and Bo alluded to that. Let’s talk about the opportunity cost of this. What are the needs that’s going to help you in your financial journey and create the best version of yourself? That’s where it’s that incremental decision. Do that A/B analysis and say, “Well, look, if you’re not married, you’re in good medical condition, underwriting shouldn’t be a problem in the future, and nobody’s counting on your current income or resources, then I would probably say, ‘Hey, maybe we ought to go ahead and start priming the pump on the get-rich activities instead of these stay-rich activities like life insurance and stuff because it’s starting out on the process.’

I would really focus on the stage of how do we get the dollar and your army of dollar bills to start recruiting them so they can start working as hard as you do with your back and your brain and your hands. Have that discussion with your parents and figure out what that best use of each dollar is. Maybe, and do something. Make it a win-win because that’s what parents want to know. They’ve loved on you enough, expressed your talents enough to help you hone your skills. You could even say, ‘Hey, I know you guys are doing this whole life. Why don’t we reevaluate? Future dollars, we’ll figure out if we can do paid-up insurance on what’s already been paid in. Or maybe it’s just a learning experience. But why don’t we, for the next four years, since you guys were committed, why don’t we come up with some matching program where I’m going to try to, you know, part-time jobs put in some, and then y’all put in, and then let’s load this thing up on the get-wealthy strategies? That would be pretty exciting.” And then I’d also, if this wasn’t medical or specific goal-driven, I’m really surprised it took until age 18 to get sold because I mean my parents were sold a whole life policy when I was born. We see this all the time where they scare the heck out of parents, saying, “Hey, you got a baby that was born. If they die between now and 18, not only is it going to be horrible that you lost your child, but you need to have funeral expenses. So let’s get a whole life set up to take care of that stuff.” Well, that’s what my parents were sold. And so when I turned 23 and I was, you know, found my significant other that I was, like, I went and told my parents, “I think I’m getting married. I just got to figure out how I’m going to pay for this diamond ring that I want to buy.” They’re like, “Well, you know, we got a whole life policy that we set up when you were born, and that’s actually what helped. I had to put another $1,000, I think. But I think I cashed… no, that ring was like $4,000. Maybe I shouldn’t say that out loud.” You know, this is… it is… you ever wondered his thoughts on… but I got a portion from the whole life. I mean, it did help buy my engagement ring. I just had my 25th wedding anniversary last week. So, I mean, whole life can turn into something. Now, I’ve often daydreamed about what if my parents, instead of doing those whole life premium payments, put $25 into the S&P 500 every month. You know, no telling what that would have been worth, paid for the ring and a house. It might have bought a first house. But maybe I wouldn’t have been the same version of myself at that point. Awesome. For more information, check out our free resources.