Buying life insurance is generally a good thing, but getting the right type of coverage is crucial.
- My husband bought $1 million in life insurance before we got married.
- He purchased a whole life insurance policy instead of a term life insurance policy.
- We pay more than we should for coverage.
Before I got married, my husband bought a life insurance policy with a $1 million death benefit. His brother was originally the beneficiary, but after we bought a house together and decided to get married, he changed the policy to me getting the death benefit if he died.
While it might seem like a good thing at first glance that he provided so much financial protection in case something went wrong, the reality is that I wish he didn’t have this policy. And there are three big reasons why this is the case.
Politics is unnecessarily expensive
The big reason I wish my husband didn’t have his $1 million life insurance policy is because he bought a whole life plan instead of a plan. term life insurance. He did this on the advice of a financial adviser – likely an adviser who was tricked into selling him this coverage because of the higher commission that can be paid with permanent life insurance.
The fact that the policy is a whole life plan instead of a term life means that it is extremely expensive. It costs about five times what we would have paid for a comparable term life insurance policy with the same level of coverage. And the high premiums he pays leaves us with less money for other things.
Unfortunately, the extra coverage we pay for is not really necessary for us. While it’s true that whole life policies always pay a death benefit, while term life policies only pay if the policyholder dies during the term of coverage, we don’t need life insurance. Once our mortgage is paid off and our retirement accounts and children’s college funds are funded, we won’t need a death benefit at all.
We could earn better returns elsewhere
My husband was partially sold on the whole life policy because he was told it was a good investment. Part of his premiums are invested and he is guaranteed to obtain a certain return over time. His adviser told him that we could borrow against this sum to help finance retirement or that we could cash in the policy if we wanted.
The reality, however, is that even though whole life insurance policies have an investment component, the returns they promise are relatively low, especially after taking fees into account. We could easily make more money elsewhere if we had a cheaper term life insurance policy and invested the money we saved on premiums.
I don’t like the fact that we are getting less return than we could get, just because we have this policy in place that we have to send so much money to each month.
It is difficult and expensive to cancel
So, after reading the cons, you might be wondering why we don’t just cancel the policy. The answer to that question is the other big reason I wish we didn’t have this coverage.
Unfortunately there are surrender charges and other costs associated with cashing in the policy and we would end up losing virtually all the value of the money my husband has already paid out. Since he is older now, it would also be more expensive than he used. be to set up a temporary life plan.
In the end, we decided it wasn’t worth canceling the coverage now, even though it would have been better if he had never purchased the plan in the first place.