Life Insurance or ROTH IRA?

Question

When I was 22 I was advised to get life insurance. It's a $100,000 policy, but it gains interest over the years. I've been told I have living benifits of life insurance, and can pull money out when I reach retirement. Am I better off keeping this policy, or cancelling it and getting a ROTH-IRA? I turn 30 this year, and will get married next year. No children. Any thoughts?

Answer 1

The purpose of life insurance is to take care of your beneficiaries after you die. Since you have no kids to care for (yet), you don't really need to worry about it, so I would advise getting out. If you really need life insurance, get a term policy (10 years) and then start saving your money so you don't NEED a life insurance policy.

Put it this way, you can pay and pay on a policy that will pay your survivors $100,000 or you can save and invest and have more than that to pass on to your survivors, or use as you see fit! With life insurance, the insurance company gets rich and your beneficiaries get $100,000. With saving and investing, YOU get rich and your survivors get whatever you leave them.

Answer 2

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RE :Life Insurance or ROTH IRA?
When I was 22 I was advised to get life insurance. It's a $100,000 policy, but it gains interest over the years. I've been told I have living benifits of life insurance, and can pull money out when I reach retirement. Am I better off keeping this policy, or cancelling it and getting a ROTH-IRA? I turn 30 this year, and will get married next year. No children. Any thoughts?
Follow 10 answers

Answer 3

It sounds like you were sold a Whole Life Policy in which you can draw off the interest the policy gained over the life of policy. But you will be taxed if you take it out once retired. A Roth IRA, you are taxed up front and then when you retire you won't have to pay taxes. Either way you will pay taxes. I would advise that you talk to a bank representative who can tell you what implications there may be by switching.

Answer 4

Let me start by saying that life insurance pays very big commissions and so called whole life or variable life policies like yours pay the largest and continue to pay as long as you own the policy. So life insurance agents have a big incentive to sell life insurance products to solve every problem.

As a fee only financial planner I have a slightly different view of life insurance. I believe that insurance, of any kind, is very important to own to cover you in the event of an accident which would adversely affect your economic situation. In other words, if your wife is dependant upon you for income and could not manage if you were to die, economically, then life insurance is important. Obviously if you have kids it's important. But insurance is NOT typically the option strictly as an investment. It serves it's main purpose very well. For other things, such as saving for retirement, you are better off with products that focus on that goal, like IRA's.

All things being equal that insurance policy will not perform as well as your similar investment in a Roth. That's because the insurance company is also investing that money but taking a piece for themselves. If you are a wise investor, you should be able to outperform that contract easily.

What my clients typically do is to buy term insurance, if or when they need insurance. Term is the cheapest available and will cover you only for the time period you need coverage. Then, we'll take the remaining dollars and put them into a retirement account.

A Roth is a great option if you don't make too much money (it has income limits). It is especially benficial in todays market because tax rates are so low. When you pull that money out you don't pay taxes. With annuities, life insurance investment products, when you pull out your money you are taxed at your ordinary income tax rate, not the capital gains rate. Paying the tax now at a much lower rate makes more sense than paying at retirement at a much higher rate, IMO.

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Hope this helps,

Jason

Answer 5

See what the cash value of the life insurance policy is. Are you sure it is a life insurance policy/ Could it possibly be an annuity?

If it is an annuity, you may have "surrender fees."

I recommend a Roth IRA for just about everyone, since you will never have to pay income taxes on withdrawals

Answer 6

My thought are this: You didn't "buy" life insurance, it was "sold" to you. Since you are unmarried, no children, I would strongly advise you to "get out from under", as cheaply as possible. Furthermore, at your stage in life, a Roth IRA is the best deal around. If at anytime you feel the need for life insurance, go "Term".

Answer 7

Get an IRA, you need to make sur e you will have enough money to live once you retire. You are too young to be thinking about life iinsurance, you dont have any kids. Start saving for yourself when you get older. Once you are gone someone will pay the bills.

Answer 8

A term life policy is a much better and cheaper route. Those whole life policies are pretty much a scam. You really only need life insurance to cover a child/spouse who would not be able to support themselves easily upon your death.

Answer 9

Life insurance is for your survivors. Since you have none, get the IRA.

If you do eventually have kids, look into life insurance.

Answer 10

ROTH IRA, definitely.