Should I Surrender my Variable Life Policy?

My wife and I are strongly considering surrendering one or both of our permanent, Variable Life insurance policies. The death benefit amounts are $100k for me and $130k for her. I’m not sure if I should mention the name of our insurance company but I’ve read in some posts that it may be germane to the discussion so it’s Northwestern Mutual.

We’ve had the policies for 12 years and the cash values have now (finally) surpassed the premiums we paid. My surrender value is $16k and hers is $22k which is essentially equal to the cash value. The surrender value is just a tad less and not enough for me to consider it in the decision. Also since the cash surrender value is only modestly above the premiums paid, the tax implications are minor and not enough to factor into my decision.

Here are a few more issues that play into the decision.

1) I invest 8% in my 401k. That gets me the company match but there is still room for me to invest more.
2) We do not have any Roth IRAs.
3) We have approx $15k in credit card debt. (Ouch, I know it’s bad so please no lectures. It’s very much under control now.) But using the cash from the life insurance policies to pay off that debt completely and forever would sure be nice.
4) We also have term policies that will end in our early and mid 60s and one at age 70. My term polices are for $1.1 million and my wife’s is for $120k. These are in addition to the variable comp life policies. If I surrender the var. policies I would buy more term insurance to maintain the same total insurance.
5) I am of the mindset that life insurance is to replace lost income in the event of death and not something that I would need forever (aka permanent).

Shortly after we were sold the policies I had buyer’s remorse. But after the first several years there was very little cash surrender value so there was no point in jumping ship then. But now it’s twelve years later and I feel I can finally undo a bad decision, take the cash, and do better things with it.

But before I do, I would be grateful if some of you could comment and either endorse this decision of give me a reason why keeping our policies intact is the wiser choice.

Thanks for your consideration and input.
John

if you are only going to be paying the target premium (which is what you sound as you have been doing and it also sounds like that is pretty much all you are capable of doing), then perhaps VUL is not right for you.

however, income replacement is the primary reason for permanent life but there are other reasons that take on more relevance the older you get. such as; a safety net for income replacement, creating an estate, providing for long term care, and supplementing retirement, and some others too.

that said, NWM is a fine company and offers exceptional products. you may consider a whole life policy and exchange the money from the VUL into the whole life. if the premiums on the whole life are more than what you are paying now, it is a stronger indication that you were underpaying what you should have been paying to the VUL from the outset.

VUL can be a strong investment but without a doubt it should be an investment you consider AFTER you have gotten the match from your 401k (which you are) and after you have maxed out both Roths (which is appears you have not).

good luck john.

John,

Being familiar with Northwestern Mutual, I have a question: is the Complife an Adjustable Complife product? Because if that is what it is, it IS a permanent product not a VUL.

To clarify what the Variable Complife policy is here is how Northwestern Mutual describes it directly from their website:

"Variable CompLife® is an excellent option for permanent protection, a systematic method to accumulate cash value, and a way to direct your net premium and cash value into a variety of investment divisions."

Just wanted to make sure it was a variable complife and not an adjustable complife. Anyway, I would give NM the benefit of the doubt. They are a stellar company and usually place their clients with the proper products. For this reason I would give your rep a call and voice your concerns to him; he will better help you figure out what you need to do. We don't know anything about your situation, where your rep does. Because of that, no one here is in as good a position as your agent is to figure out what to do with your policy.

-Joe

I am happy with Northwestern Mutal and agree they are a stellar company. Although I like NWM I am not very happy with my agent. I am intelligent and have an MBA in finance but he talks me in circles. He says I should keep it but has yet to provide a few simple reasons why I should. I also realize that you don't know my complete situation. That said, the reason for my post was to try and get some comments that might help me consider the pros and cons of surrendering my policy.

Right now, I feel that cash value would be better served to:
1) Invest in Roth IRAs
2) Increase my 401k contributions
3) Pay off credit card debt

Are there any reasons why the permanent cash value policy is better than a Roth IRA or contributing more to my 401k?

In my opinion, the main con of surrendering si that I would lose the permanent death benefit coverage. I would replace the death benefit with term but even a level 30 policy would end when I am 73 years old. But by then I am long since retired so I am not replacing lost income anyway.

All I am looking for are some basic pros and cons that I can collect and decide what to do.

Any more input is appreciated. John

John,
Thought I would throw my two cents in there and I am with a different but reputable company like NWM. From reading your replies it sounds like you have some pros and cons already in the posts. Your Pros seem to outweigh your cons.

What I can say for Pros would be you did mention that you have more cash value than you have paid in so basically that is saying the policies are now paying for themselves which I don't see why that is a bad thing? Eventually over the years it will be an investment that will start to (hopefully) grow exponetially. The term insurance you have, although you have more death benefit and is a great product to take care of the need doesn't have any cash value in them so to say would be more expensive than the VUL (so to say). There are some options for accessing some of that cash value with in the forms of loans as opposed to surrendering that. That way you could pay down some of the credit card adn also keep them in force. That would be something to check with your agent. I would also say if that agent is running you in circles see if you can talk to someone else within the company like his senior? So not sure if you can tell after 12 years what your return has been each year with NWM, but that can also help to see if your money is getting good return that may not be getting elsewhere. I agree with maxing out 401K but just to the company matching then the rest throw in a ROTH and don't be ashamed by the VUL that you have cause it is serving a purpose of life insurance with the investment vehilce. Ideally like you said you should and hopefully will outlive those terms and then will be glad that you have the VULs in place cause they are guaranteed to payout. Also look at the option of adjusting your premium if you think you are paying to much becasue with cash value you can have the policies pay for themselves and should be able to see how long that money will keep it in force but do risk the chance of it running out if not funded again. Just some options and hopefully it helped some?