Question: My wife and I bought two whole life insurance policies 30 years ago in the amount of $40,000 each for a monthly premium of $65 for both. Now the carrier says it miscalculated, and the monthly premium from now on will be $158. Because it referenced my policy only, I am expecting a similar notice about my wife’s. We are not willing to pay the higher premiums, so our only alternative is to cash out the policies and no longer carry life insurance, which at our ages (I am 73 and she is 64) would be only for burial anyway. Doesn’t this situation show that paying for insurance is a waste of money?
Ric: I agree with you that, in your case and based on what you’ve described, continued ownership of the insurance policies may indeed be a waste of money. However, please don’t conclude that you have wasted your money by paying for the policies all these many years.
When you purchased the policies 30 years ago, you didn’t have as much wealth as you have today.
Had either of you died 10 or 20 years ago, the death likely would have constituted a devastating financial loss (not to mention an emotional one) — and the insurance would have reduced that crisis for the survivor.
Consider that you’ve been paying for auto insurance for decades. Do you consider your money wasted because you’ve never been in an accident? Of course not.
Insurance is the only product you buy where you hope you never use it. But not using it doesn’t mean the expense is a waste.
What might have been wasteful was purchasing whole life policies. They are far more expensive than level-term policies. Other than that nuance, I think you can be proud that you protected each other financially over the past 30 years and that you are now updating your planning to recognize that this protection is no longer needed — enabling yourself to save some money by cancelling the policies.
So rather than say you’ve wasted money, I’d say you’ve done a good job with your financial planning.
Please talk to your financial advisor and let him or her confirm that you really don’t need the policies and that cancelling them is indeed the most economic approach. As whole life policies, there might be cash value that you can salvage — and potential tax consequences for doing so.