Life and Money With Helaine

Dear Helaine: I’m self-employed and decided to take out some life insurance for my wife that doubled as an investment vehicle. It was explained to me that one advantage of it is that it’s permanent, rather than term, and as someone who is self-employed and in my late 30s, it’s helpful to have this locked in early.

My concern is that this appears to be a pretty inefficient investment vehicle. At the beginning of the year -- my third -- I had an accumulated balance of $566. This year I had a premium of $225 a month, and only wound up with an accumulating value of about $1,500. Is this a foolish product, or should I stick with it while investing in other retirement vehicles, like a Roth IRA? -- What to Do?

Dear What to Do: When my dad goes to a movie and he doesn’t like it, he’s not very patient. He gets up and leaves almost immediately. His reasoning? The money is already gone. He can either waste another hour of his life miserable, or he can get up and leave and get on with his day. I’m afraid you are at the same juncture here.

This is not a good investment, and it’s almost certainly not a particularly good life insurance policy either. If you need life insurance, you should have term life insurance. It’s significantly less expensive than whole life, which is what you are currently paying for.

You can get a term policy for 30 years, which is likely all you will need. Life insurance is meant to replace your work income, and when you retire, that will presumably no longer be necessary. Then take the cost difference on the two offerings and invest that for retirement via a Roth IRA.

As for whole life, it’s pitched as a way of protecting your loved ones while still setting money aside for retirement. In fact, you’ll pay multitudes more money for the protection, the investment options are limited, and it's often loaded with fees designed to make money for the seller and insurance company.

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