I’m 33 and my parents just told me they took out a $500K whole life insurance policy for me when I turned 15 — but was that magnanimous or misguided?

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.

What is whole life insurance and who owns it?

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.

Pros and cons of whole life insurance

Here's a look at the common benefits and drawbacks of whole life insurance.

Pros

Whole life insurance features predictable, stable premiums that don’t increase with age or health conditions. This makes them a great tool for long-term budgeting. It also covers the insured for their entire life, as long as premiums are paid.

One of the biggest selling points of whole life insurance is that aforementioned cash value component. A portion of each premium goes into this savings-like account, which grows on a tax-deferred basis and can be borrowed against or withdrawn.

Finally, some whole life policies pay dividends (depending on the insurer), which can be reinvested to buy additional coverage, grow the cash value or reduce premiums.

Cons

On the flipside, these policies can cost five to 15 times more than term policies with similar coverage.