Whole life vs. Term life

My husband has a $100,000 whole life insurance policy his parents started for him when he was young, perhaps 20 years ago. The interest earned per year is enough to cover the annual premium. The current cash value is around $14,500. We have no debt besides a mortgage, rental mortgage and small student loan.

I am pregnant and due in 2 months and we were wondering, should we cash the policy, pay the taxes, stash the cash, and buy term life insurance?

Gakline6,

I think it would be foolish to do so. What advantage do you gain by cashing in a paid-up policy that will last forever to replace it with a term policy that will also be an outflow of cash from your household and will disappear in 20 years or so?

Also, where would you stash the money? It is now "stashed" in a tax-free account that is likely earning a much higher rate than you can get from another guaranteed/fixed account anywhere else. You can still access the money using partial withdrawals or loans, so it will still be there for emergencies, etc.

Whole Life is a great asset to own...especially when you are no longer paying for it out of pocket. If someone is trying to talk you out of your paid permanent policy in order to sell you a term policy, your financial interests are not being met. You may however, want/need to pick up an additonal term policy to meet the increased needs of your new family.

I agree 100%. Think of it as an asset. When you do so, the question that you are effectively asking is, "We own a small home that is paid for, should we sell it and rent something bigger?" :) Seems sort of silly, does it not?
Because you more than likely need more coverage, you can purchase term insurance as a supplement.

Regards,

-Joe