To keep or to cash out, that is the question

plus Tom Holland + Tom Holland-er
͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ 
January 31, 2024 • Issue #223
Dollar Scholar

Hi y’all —

Lists of the Duggar children and the British Royal family. Instructions for how to access Netflix. Recipes for snowball cookies and buffalo chicken. Printed-out issues of Dollar Scholar, a Sam’s Club membership card and a thick stack of Arby’s coupons.

These are just a few of the items I found while going through the contents of my late grandmother’s desk. The papers she chose to keep are sweet, funny and often inexplicable, but nothing has baffled me more than the documents about the life insurance policy she’s been contributing to on my behalf for over a decade.

I have life insurance through work, and now that Oma has passed away, I need to decide whether to take over paying for that old policy or cash it out. I did a quick Google search, and it seems this isn’t an uncommon question. But everyone has a different answer.

Let’s ask the experts. Should I cash in an old life insurance policy?

Barbara Pietrangelo, chair at the life insurance nonprofit Life Happens, tells me that it’s generally possible to cash out a policy that has accumulated cash value over time. Not all life insurance policies offer this option, but permanent ones (like universal and whole life policies) tend to — so I’ll need to check what type my grandmother had to see whether cashing out is even an option.

For context, life insurance is a contract in which policyholder pays premiums to a carrier over time in exchange for payout upon a beneficiary's death. These policies usually work best for people who have lots of financial obligations or who have others relying on their income (and therefore would struggle if that income suddenly vanished).

The main perk of cashing out a life insurance policy is that I would receive a lump sum in return. Pietrangelo says this money can be helpful for emergency expenses, debt or a mortgage. (Between you and me, I’d almost definitely throw mine into my "Next Harry Styles Tour" savings bucket.)

To figure out how much that would actually be, I need to calculate the cash value. This is usually the sum of a policyholder’s contributions and compound interest, minus the surrender fees that I’ll incur when I cancel the plan.

I've canceled my life insurance policy. So at the funeral, it will be cash bar only.

That’s not the only math I need to do. Pietrangelo points out that there may be significant tax ramifications if I cash in my life insurance policy. Though contributions paid into a policy aren’t usually considered taxable income, gains are.

Paying taxes on what Oma put into the policy may not be worth the return on investment, she writes in an email.

Because of this, Pietrangelo says, figuring out the tax consequences should be a top priority. She recommends consulting with a tax advisor and then contacting my life insurance company to make sure I fully understand the repercussions of my decision.

This isn't an "all or nothing" choice. Jordan Skog, advanced markets director at Allianz, says I could take partial withdrawals if my carrier allows it or look into a 1035 exchange, which would let me transfer funds from one life insurance policy to another tax-free.

Speaking broadly, just because I can cash it out doesn’t mean I should. It actually might be worth playing the long game, because life insurance rates tend to go up as time goes on.

“It’s an uncommon occasion for a millennial to find greater value in surrendering a life insurance policy than in keeping one,” says Jack Dolan, spokesman for the American Council of Life Insurers.

Keeping both policies — my old one and my work one — might be a smart move. Pietrangelo says it’s not rare for people to have different types of policies with different goals in mind. For instance, a person may want a permanent policy for the long term and term policies for certain obligation-heavy periods when they’re younger (like, for instance, make sure there's enough money in the bank for tuition if my kid's in college).

Also, TBH, my work policy might not cut it.

“While employer-provided life insurance is a fabulous benefit, for many it only covers a portion of their life insurance needs,” Dolan adds.

To determine those needs and figure out whether I have quote-unquote “enough” life insurance, Pietrangelo recommends using a calculator. (Life Happens has a free one.) It’ll ask about my desired income replacement, debt, child care needs, emergency fund and more.

The bottom line
(but please don't tell me you scrolled past all of my hard work)

Deciding whether to cash out a life insurance policy is a personal decision, and one that should not be taken lightly. I should consult with a financial pro who can make recommendations based on my unique situation.

My work policy might be sufficient for now, when I have no spouse, no kids and no house, but that is likely to change later on. I could end up kicking myself if I decide in 30 years that I need additional coverage and I’ve lost the option to rely on my grandma’s inexpensive policy because I took the payout now.

Oh boy! Life insurance!
via Giphy

Smart MONEY MOVE
insure your apartment

RentMost of us know renters insurance can cover the cost of damaged or stolen personal belongings. But it can also do a whole lot more. It can provide liability coverage, meaning that if your friend slips on your waterlogged carpet, your insurer has your back. What if your laptop gets swiped at a coffee shop? Oof, that sucks, but yes — it’s covered. It’s not just about your living room; it’s about being ready for life’s unexpected plot twists.

Check out Money’s list of the best renters insurance companies to see policies starting at $5/month.

Receipt of the week
check out this wild celebrity purchase
Tom Hollander
via Instagram

Actor Tom Hollander (of White Lotus fame) had an unfortunate money mixup when he mistakenly got sent the Avengers bonus for actor Tom Holland (of Spider-Man fame). Hollander told Seth Meyers recently that the seven-figure deposit “was an astonishing amount of money” but had to return it. “People in the accounts department of my agency got confused. We were with the same agents briefly,” Hollander explained. “And it was a terrible moment.”

Internet gold
five things I'm loving online right now
1
I just learned about the Cat Art Show, which features feline-forward paintings, sculptures, mosaics and more. One artist created an illustration of Kobe Bryant in heaven surrounded by fluffy kittens, while another spoke bluntly about his muse, telling the Los Angeles Times that “[Cats] are evil but they’re also awesome.”
2
Hey, guys? I don’t want to alarm anyone, but I think Paris Hilton is taking over the metaverse??
3
I can’t get over this piece about the $500,000 (!) gift bag given out at the Golden Globes this month. In addition to free stays at luxury hotels and a five-day yacht cruise, the goodies included a $2,000 bottle of tequila and a $2,500 tattoo session.
4
Just look at this baby penguin born in December at the Fort Worth Zoo in Texas. Her name is Darcy, she’s fluffy, and she’s adorable.
5
You may have seen a photo of Jason Kelce leaning out of the window shirtless at the Bills-Chiefs game. But have you seen it side by side with the 1654 painting “The Feast of Bacchus” by Phillips de Koninck? Well, now you have.

401(k)ITTY CONTRIBUTION
send me cute pictures of your pets, please
Finnegan Screech
via Danielle Taylor
This is Finnegan Screech. Finnegan Screech is sleeping soundly knowing that his life insurance policy will provide for his family after his nine lives run out.

See you next week.

P.S. I loved your feedback on the last issue about my $5,000 mini-inheritance. Scholar Cathy told me that she bought a mountain bike with the money her grandpa left her, and she still has it 50 years later! Scholar Ruth said she used an inheritance from her uncle to buy three pieces of hand-carved furniture that she enjoys every day. Scholar Shannon suggested I spend my $5,000 on an experience, and Scholar Melissa said that she saved most of her inheritance from her grandmother — but did buy a sewing machine she still treasures.

P.P.S. What do you think I should do about my life insurance policy? Who are you rooting for in the Super Bowl? If you had a penguin, what would you name it? Send a Dolla Scholla holla to julia@money.com.

Facebook
Twitter
Instagram
Youtube
LinkedIn
TikTok
Threads

This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money.

Privacy PolicyAdvertise With UsWe're Hiring!

To stop receiving these emails, unsubscribe or manage your email preferences.

Copyright ©2024 Money Group, LLC. All rights reserved.

Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA

Older messages

The monster expenses eating up over 50% of retiree’s budgets

Tuesday, January 30, 2024

Also: Older Americans Now Own 80% of the Stock Market — Here's Why That's a Problem ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Start 2024 off on the right foot

Sunday, January 28, 2024

Make protecting your family's future a priority. ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Read this if you’re a homeowner in need of cash

Friday, January 26, 2024

Get in on the action while you still can. ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Renting? In this economy?!

Thursday, January 25, 2024

How to protect your wallet. ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Do you have $20,000 to spend on home repairs?

Wednesday, January 24, 2024

Repair and maintenance costs are steeper than ever. ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

You Might Also Like

🇨🇳 The US is out, China is in

Tuesday, March 11, 2025

Citigroup's forecast for US and Chinese stocks, Lego stacked bricks, and Boeing's investigation | Finimize Hi Reader, here's what you need to know for March 12th in 3:10 minutes. Citigroup

The Under-the-Radar Threat to Your Retirement

Tuesday, March 11, 2025

Nearly half of older adults are burdened by bad debt ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

15 Years Since We Bought Our Toxic Asset

Tuesday, March 11, 2025

In a new Planet Money plus episode, former Planet Money hosts David Kestenbaum and Chana Joffe-Walt look back at a pioneering series that sought to explain a major source of the 2008 financial crisis.

👋 Investors ditched the S&P 500

Monday, March 10, 2025

The US president didn't rule out a recession, but TSMC eased some of investors' other worries | Finimize Hi Reader, here's what you need to know for March 11th in 3:07 minutes. TSMC's

💳 Find a new credit card

Monday, March 10, 2025

Let's get those rewards ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Text and Telos

Monday, March 10, 2025

Plus! Diff Jobs; Scaling; Retail Investors; Comparative Advantage; Transaction Costs and Corporate Structure; DeepSeek Governance Text and Telos By Byrne Hobart • 10 Mar 2025 View in browser View in

Longreads + Open Thread

Saturday, March 8, 2025

Personal Essays, Lies, Popes, GPT-4.5, Banks, Buy-and-Hold, Advanced Portfolio Management, Trade, Karp Longreads + Open Thread By Byrne Hobart • 8 Mar 2025 View in browser View in browser Longreads

💸 A $24 billion grocery haul

Friday, March 7, 2025

Walgreens landed in a shopping basket, crypto investors felt pranked by the president, and a burger made of skin | Finimize Hi Reader, here's what you need to know for March 8th in 3:11 minutes.

The financial toll of a divorce can be devastating

Friday, March 7, 2025

Here are some options to get back on track ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌

Too Big To Fail?

Friday, March 7, 2025

Revisiting Millennium and Multi-Manager Hedge Funds ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏