Cancel whole life and put it in a ROTH: Good idea?

peace_roseNovember 26, 2006

My husband, who is 39, has a whole life policy that his parents opened for him when he was 23. They paid into it for about 14 years, then handed it over to us. We paid into it for a year or so, but couldnÂt afford to keep up the quarterly premiums ($109). The last payment we made was in August 2005. So it has declined in value by about $550 in the past year.

The Policy face amount is $74,500.

The accumulation value is $4,800

The surrender charge is $405

The cash surrender value is $3,300

In the meantime we did the responsible thing and took out a 20 year term-life policy for each of us. So having enough life insurance now is not a big priority. I just want to figure out the best way to go about investing this money. HereÂs what IÂm considering:

1. IÂve been told that for people in our income bracket the ROTH is the way to go. Should I cancel the whole life policy and plop the $3,300 into a Roth?

2. Will we be taxed heavily if we cancel the policy? (The surrender paperwork says we could be taxed, but the company representative told me that we wonÂt be taxed because the surrender value is less than the accumulation value).

3. Is there any good reason to maintain the whole life policy and keep contributing to it? (It earns a 4.5% interest rate).

4. Should we make this move in 2006 or wait until after January 1?

We donÂt really have a lot of debt, other than our mortgage.

Thank you!


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From everything I've heard, whole life insurance policies are lousy investments and ROTH IRAs are a wonderful idea, if...

If the ROTH Is invested sensibly. The real question is what is "sensibly," and people can disagree about that. The main thing is to find something that you can be confident will return more than 4.5% over the long term.

    Bookmark   November 27, 2006 at 10:19AM
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This is andreson. Your are thinking in a correct way investing in ROTH is a good work but you must believe in your own confidence and must proceed to further step. Their will no problem if every thing goes fine. I hope this will happen for you. All The Best!

for more information on this...

    Bookmark   October 12, 2008 at 9:58AM
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I think the strategy to close the whole life policy and to invest in a Roth is a good idea. I would go to the IRS website ( and put in life insurance as a search term to find out the possible tax consequences, or ask your tax accountant if you have one and he doesn't charge you too much for a few minutes time.

How you invest in the Roth depends on your other investments and your whole financial situation. Given your ages, you have a long time horizon. So you should be in stocks. Because the dollar has depreciated so much in value lately, and may continue to depreciate relative to other currencies, make sure you have a reasonable percentage of your stock holdings in international (foreign) companies. You can do that with a well managed mutual fund that invests in the developed world -- mostly Europe and Pacific rim -- or in an index fund like one of the Vanguard funds.

Good luck.

    Bookmark   October 12, 2008 at 10:43AM
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Dump the whole life! A Roth is a much better investment vehicle.

    Bookmark   October 12, 2008 at 2:39PM
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