My wife has bought a whole life insurance policy as an investment before we met. She is currently in her early forties and she has been paying into it for roughly seven years.

I do not believe that life insurance makes a good investment, especially for us, as we have no need for actual life insurance. As such, I'd like to get rid of this policy, and I will schedule an appointment shortly with the "investment advisor" that sold her this insurance. Unfortunately the documents I have are very opaque: there's very little detail on fees/penalties, how the premium is allocated, or how the cash value grows over time. (I suspect this opaqueness isn't that unusual for life insurance products.) I'd like to arm myself with as much information as possible before that meeting so that I am not at a disadvantage.

Is best to just cash out the policy? Or is there a "break even" point somewhere because of the actuarial tables? (I am skeptical that this would be the case, but want to be forearmed against such an argument.)

Are there tax consequences to cashing out the policy? If so, would it be better to just stop making premium payments instead of cashing it out? (My understanding is that with her current product if you stop making premium payments it reverts to the amount of coverage that could be sustained with just the dividends from the current cash value.)

In short, if you are already several years into a whole life policy, what is the best way to get out?

  • Can you add the country tag
    – Dheer
    Commented May 20, 2014 at 3:19
  • Personally, I find the switch between "she" and "I"...disturbing. Like your comment, "I can't keep throwing good money after bad." Is she paying the premiums or are you?
    – mkennedy
    Commented Sep 11, 2014 at 18:34
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    @mkennedy They are married. If she is paying for it then he is paying for it as well.
    – Ben Miller
    Commented Sep 11, 2014 at 19:58
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    @BenMiller If I were married (I'm in a long-term relationship), that's not how it would work for me.
    – mkennedy
    Commented Sep 11, 2014 at 20:16
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    @mkennedy Ben Miller is right. "We" because it is our money, "I" because I (transparently to her) make the investing decisions. The reason she bought the policy in the first place was she doesn't want to make investment decisions. Commented Sep 17, 2014 at 10:55

3 Answers 3


The big question when canceling is if you have the insurance that you need in term insurance.

Once the answer to that question is yes, you can just cancel it. Don't think that the financial advisor will agree with the decision. He is getting paid as long as he persuades you to keep it. Just insist on canceling it.

If you want to hammer home an argument, it would be that when you die, they only pay the face value of the policy. You lose your investment.

In terms of taxes, every penny you paid in forms the basis of the investment. It is rare for a whole life policy to even break even with the premiums you paid, let alone be a big tax event. Either way, you will have the money to cover the tax bill from the cash value.

  • Thanks, exactly what I was looking for. The cost basis advice was particularly helpful. I worry a little bit that the premium breakdown between cash value and insurance won't work out in her favor due to cashing out early. But with 20+ years to go I can't keep throwing good money after bad. Commented May 22, 2014 at 12:39

Yes, the income tax consequences will depend on the cost basis. Yishai is correct. Since this is a whole life policy in the early years, you won't earn more than what the policy costed you.

The other consequence is if you have more liabilities than assets, it will puts you or your spouse in the risky financial position. If an unexpected death occurs and the liabilities depends on that income earner to cover, then it will have an impact on your finances.

The other option is to exchange your policy for one that is more in tune with your financial goals.

Insurance and investment goes hand in hand for a solid financial plan.


IF you have a guaranteed whole life policy, the worst financail decision you can make would be to surender the policy,... I teach my clients why everyone requires life insurance in every stage of life. I build pension plans with insurance and annuities. Guaranteed income for life...

  • 4
    Welcome to Money.SE! The most valuable answers here are those that address the original question ("what are the consequences of cashing out a policy"). Good answers support their points with explanations and references. Why is surrendering the policy "the worst financail [sic] decision you can make"? Why does "everyone requir[e] life insurance in every stage of life"?
    – dg99
    Commented Sep 11, 2014 at 16:00
  • So the person who makes their living selling people life insurance is saying that its a bad idea to not have life insurance... Big surprise. I've done some accounting to... and by accounting I mean looked at the financial statements of life insurance companies. They make a lot, which means they take in a lot more money then they pay out. Therefore on average all a life insurance policy does is scam you out of money.... They are only useful if you know you are going to need it... And you can't get one if you know you are going to need it.
    – Questor
    Commented Mar 7 at 23:09

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