A whole life insurance policy can offer some extra peace of mind. It can give your loved ones an extra blanket of financial protection in case you pass away. These policies aim to minimize the financial loss for beneficiaries if the policyholder doesn't live as long as expected.
However, these same policies can turn into expensive nightmares for their policyholders, and that was certainly the case for an unmarried 23-year-old who shared his experience on Reddit.
A financial advisor took the 23-year-old on a ride, telling him that the whole life insurance policy would be a good investment. Instead, he's stuck with a $16 surrender value after putting $2,500 into the policy. The financial advisor also manages the 23-year-old's Roth IRA and charges an excessive 1% account balance fee every quarter. Some Redditors speculated it's really a 1% annual fee split into quarterly payments, but that's still high. They then offered advice in the comments.
Cancel The Whole Life Insurance Policy
The 23-year-old is currently getting a raw deal with the whole life insurance policy. He doesn't care about the death benefit and primarily wanted it as an investment. However, he would have more control over the money he contributes to a Roth IRA, and it can eventually grow to the size of the death benefit.
It's frustrating to see $2,500 in premiums only yield a $16 surrender value, but any additional premiums will put the 23-year-old into a deeper hole. There are better ways to use the money than life insurance premiums, and one commenter was quick to point this out.
"At this point you probably don't 'need' life insurance anyway, but even if you wanted to at your age, you could get a 20-year $500,000 policy for something like $15 to $20 per month," the commenter said. "Investing that money in a simple target date or total market index fund in an IRA (one that doesn't charge you 4% per year) will have you way ahead immediately."
Move The Roth IRA To A Better Option
Financial advisors can be expensive in a hurry, and if consumers do not compare their options, they can get stuck with exorbitant fees. The 23-year-old finds himself in this predicament, and the same commenter who suggested abandoning the life insurance policy also suggested a few brokerage firms to use instead of the advisor.