At 33, Sarah from Denver was surprised to learn that her parents had taken out a $500,000 whole life insurance policy on her when she was just 15, costing nearly $500 a month. She didn’t sign up for it and is now wondering if she can reclaim control or recover the cash to use against a home she’s hoping to buy.
The problem is, her parents have asked her to take over payments — the exact opposite of what she’d like to do. Additionally, she’d need their consent to take out any cash value to purchase her home, since they own the policy.
But Sarah’s stressed about approaching them, as it’s a big ask and money hasn’t always been an easy subject in her family.
Sarah has learned that if they pass away, ownership could go to her, as a contingent owner, or to their estate, further complicating the situation. Unless they officially transfer ownership to her, Sarah could be stuck with either paying or surrendering the policy and may have to forget about her dream of a new home.
On top of this, while her folks surely thought it was a good investment at the time, this may not be the case today. Several considerations factor into this, particularly as many experts urge caution with whole life insurance.
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Whole life insurance is permanent coverage designed to last your entire life, with two main parts: the death benefit and cash value.
The death benefit is the guaranteed payout to beneficiaries, while cash value is a savings component that grows, is tax‑deferred and can be borrowed against.
Policyholders can boost their cash value by paying more than the required premium or reinvesting any policy dividends. Then, over time, interest and dividends can help the cash value grow beyond the total premiums paid.
This cash value can be accessed while the insured person is alive, either through tax-free withdrawals or low-interest loans that typically have lower rates than personal or home equity loans but must be repaid to avoid reducing the policy’s value (including the death benefit).
But here’s the twist: Because the policy was initiated by her parents while she was still a minor, they remain the owners of the policy, not Sarah. So, she can’t access the cash value or cancel the policy without their permission.
Parents often like whole life policies for their fixed premiums, tax breaks, lifelong protection and potential dividends. However, advisors warn that the high premiums and slow cash value growth make them poor investments for many families.
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