Regretting My Universal Life Insurance Policy

Hi everyone,

I’m seeking advice on a financial decision I made that I’m now regretting. Back when I had just graduated college during the COVID era, I had no job prospects, and my mom’s friend, who sells insurance, convinced us to sign up for a universal life insurance policy. Unfortunately, I didn’t fully understand what I was getting into.

The policy has a coverage amount of $500k. I now have a cash value of around $4,000. However, there’s a $7,000 surrender charge, and I pay $250 in premiums every month. At the time, the agent pitched it as a combination of an investment account and life insurance, which sounded appealing to me as someone new to managing finances.

Now that I’m working and earning, I deeply regret not putting that $250 a month into my 401(k) instead. I feel stuck and unsure of how to get out of this situation.

Has anyone been in a similar position? What’s the best way to exit this policy, and are there any financial repercussions I should prepare for?

*UPDATE*

Hi all,

I wanted to give you an update after calling the insurance company to clarify my options. Here’s what I learned:

If I stop paying the monthly premiums, the insurance company will start deducting the premium fee from my cash value, which is currently at $4,000. Once the cash value runs out, I’ll be placed on a 2-month grace period before they close the account with no penalty.

I asked about withdrawing the cash value now, but they explained that I’d be penalized since my surrender charge is higher than my cash value. To withdraw the cash value without penalties, I’d need to wait until the cash value exceeds the surrender charge, which isn’t a realistic option.

After considering everything, I’ve decided to stop paying into this policy, even though it’s frustrating to know I’ve already put about $10,000 into it over the past three years. It’s tough to let that go, but I really don’t see any long-term benefit in continuing with this policy. I’d rather cut ties and put that money into my 401(k) where it can grow more effectively.

Thanks for all your advice so far—it’s been really helpful during this process.