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Should I terminate my Universal Life Insurance policy and put those premiums towards investing inside a Roth IRA?

I'm 27 years old, single with no dependents. I feel like I got suckered into a ULI for the savings benefits, but my premium is $100 a month! Should I keep my investment going or cut my losses and start investing that $100 a month into a Roth IRA instead? Is keeping my life insurance separate from my savings a smarter choice?

Investing, IRAs, Life Insurance
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May 2017

Seperating insurance and investments is one philosophy in the financial services world. (Buy Term Invest the Difference) There are pros and cons to this approach. I find it becoming more prevalent amongst financial pros and I'd argue it is not in the clients best interest to take such an ideological approach.

The smarter choice is relative to your situation. Can't really comment since I don't have all the facts but here are some thoughts to consider: 

My concern is to make sure you have adequate life insurance first.  Do you want a life long permanent death benefit? If so, keep it.

How long have you had the policy?  Do you have anyone else that would or could depend on you financially now or in the future? Maybe not ,maybe so, a lot will change in your life.

You are really young (and probably are looking to invest in higher yielding investments?) but this policy might be one to hold on to long term. One of the biggest cons of not sticking with permanent insurance is that quite frankly you do not know what the future holds. It may be well intentioned that you will not need insurance in the future because you have no debt or have a lot in your retirement accounts but I'd argue it is worth keeping as a tool for you to have. Your family situation may change.

You don't know if you are going to live to 30 or 100. You don't know how you will die. Your death might accompany high medical or other costs prior to death that you may leave others responsbile for. Your financial situation may not be that strong at the time of death and your family would not be financial secure without having the insurance payout. A lot to consider here that shouldn't be taken lightly . As the saying goes: It's better to have it and not need it than to need it and not have it.

Your health my change. So by choosing to not keep the permanent life insurance now could mean that you may no longer be able to buy insurance in the future.

And just a side note: If you are dead set on surrendering it, you might want to look into a 1035 exchange tax free to an annuity if you are looking to beef up retirement savings. And also make sure you have other insurance in place before surrendering it.


May 2017
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