Debt and Life Insurance

[Gwyndon]

Hello,

Been lurking for a while finally decided to post. I have just recently gotten serious about getting out of debt (within a week). Started tracking my spending closely and became pleasantly surprise that if I tighten the belt I have plenty of extra income to get on the fast track to being debt free.




14k in cc debt (but haven't charge anything in almost a year - debit card or cash only now)

Already have a $1500 emergency fund and I have made room in my budget to pay around $700 a month on my credit card, I may be able to squeeze more but I don't want to push it just yet.

HOWEVER

I also have a $250k UL policy. I have been paying $115 a month now for just over 6 years and it has a surrender value currently of $2400.

My question is should I surrender this polcy and apply the cash to my credit card to eliminate the debt faster or is this something I should keep to boost my retirement?

I have been contributing to my company 401k since the start of my employment at the age of 25(28 now). I personally like have the coverage for peace of mind for my spouse but I have read many things lately that UL's are a waste of money.

Thoughts?

[jIM_Ohio]

UIL is not going to boost your retirement as effective as investing. Do you have other retirement accounts (401ks, IRAs)?

That $115/mo to a 401k will do better than $115/mo to a UIL for retirement purposes
for insurance purposes that $115/mo will get you more with term.

[Gwyndon]

Originally Posted by jIM_Ohio

UIL is not going to boost your retirement as effective as investing. Do you have other retirement accounts (401ks, IRAs)?

That $115/mo to a 401k will do better than $115/mo to a UIL for retirement purposes
for insurance purposes that $115/mo will get you more with term.

Yes I contribute to my 401k at work. My goal is to start an IRA when I turn 30 (hopefully I'll be debt free by then) I know I can get more with term but I now 6 years older and my height and weight is not considered a preferred risk now what I would have to pay for a 30 year term now is around $80 monthly. (I work in the Life Ins industry).

[jIM_Ohio]

The UIL should be viewed as insurance only, not part of retirement planning. Do you have a family? Do you need insurance?

[Gwyndon]

Originally Posted by jIM_Ohio

The UIL should be viewed as insurance only, not part of retirement planning. Do you have a family? Do you need insurance?

I am married but currently no plans for children.

[TheStreetCeo]

If you have a UL you should have the ability to let the cash value pay your monthly premium for a while. If you haven't looked into it, you should. I would keep it. A UL is not a retirement vehicle and is designed to be self sufficent sometime during the policy. When you got it, you had a print out that shows the payemtns and cash value until age 110 or so. At some point, the cash value is designed to pay the monthly payments for you until the age of 100 or 110. I like term too, but only if there is a need for it such as children, otherwise stick with the UL.

Many people will agree and disagree with this. It's only when you are on the other side and see how it helps families in difficult times such as a loved ones death that you become a proponent of a UL or VUL policy. I had an insurance agency for years and unfortunately paid out a few life policies and it made a huge impact when I delivered a check for $150k to the spouse.

[Debt Relief]

Yea I would ditch the UL... Get term life for much less. Take the savings and apply to your debt.

[jpg7n16]

Would you be approved for a term policy? (are you uninsurable?)
Why do you need the coverage? How long will you need it?

Assuming you are insurable, then my steps would go like so:

I would cut/raise any 401k contributions to only the employer match (no more, no less).
Then I would get the term policy, and cash out the UIL.
Keep 1 month's expenses in cash. (any extra goes towards the CC)
Pay down the CC as fast as you can.
Build to a 3-6mo EF (3mo min, 6mo max)
Start investing for retirement.

[Credit Money & Life]

Ok for you being an insurance agent you should know that you should not cancel out the policy to pay off your debt. What you need is a plan. Keep the insurance especially if you got a preferred rate. Go online and look for a debt payoff calculator and create a plan to get out of debt in the next 3 years.

[Brad]

Speak to a financial advisor you trust.

A UL has a lot of different purposes most of which don't suit young single women (I am guessing here). Why did you get the UL in the first place. There must have been a reasons why it was the right fit for you at the time? More than likely you purchased life insurance because you are responsible and to protect your future insurability (buying it while you are healthy enough to qualify). Be aware that if you do cancel, there might be cancellation charges.

Purchasing term insurance a lot of times makes the most sense for people. It is cheap and you can afford the actual amount that you need. You would be surprised how much you need when you have children (another assumption) and other financial responsibilities later in life. I often see people shocked when I tell them they need a million dollars in coverage.

The best thing to do is to meet with your financial advisor and explain your concerns.

[snafu]

UL @ $115. x 6 yrs = $8,280. with cash surrender value $ 2,400. I too suggest you convert UL to term and let accrued value cover premiums. Kudos to you for recognizing the need to eliminate debt. Make a plan, chose a method and get it done!