Pay for DSC or Wait

Investing
#1

Hi, just wanted to get some opinions on what to do. So, I have an investment account (retirement account but under an insurance company) that I opened a couple of years ago. At the time, I was just starting to get a hold of my finances (reading and learning from books, online, etc). So when I was asked if I will not need the money for the forseeable future, I said no.

Now that I know more, I want to invest on my own and wanting to pull the funds out of there. However, I need to pay DSC if I take my money out. Should I wait until I no longer have to pay the DSC or just pull/transfer them out now?

#2

What’s DSC? Some kind of cancellation fee on your insurance product?

#3

Sorry, DSC is deferred sales charge. So the earlier I take out my money, the higher the charge. And then it goes away after 7 years I think.

#4

Hi I see you’re from Vancouver. What kind of retirement account is this? Sorry I know you said it’s under an insurance company but you lost me.

#5

Hi, sorry for not mentioning that. It is a Tax Free Savings Account (TFSA) but offered by an insurance company.

#6

Oh I see. I’m not familiar enough to provide any input but I hope others can help!

1 Like
#7

Hey @darwin.ayson!

I usually say “don’t throw good money after bad”. i.e. it was probably a mistake to get into this insurance contract. But don’t make it even worse my throwing new payments at it.

That said, if I were you I’d basically pull out a spreadsheet and do the math. Model it both ways. Cancelling today, taking whatever cash value you can get out of it, putting that and all future payments into the market. Then make another column for letting it ride out for 7 years (you could even model it each year until 7 years to see if there’s a better opportunity).

It might be possible that you have such a high cash value and the DSC is so high, that it’s worth riding it out until the DSC drops. Although, I suspect you’ll find that you shouldn’t throw good money after bad and cut your losses and invest in index funds going forward :slight_smile:

#8

@Jeremy, thank you for your insights. I will try to check how much I can take out minus the DSC and decide if it is worth it or not. Last I checked, I have about $25K on there. And just to be clear, I have stopped my contributions to it a few months ago.

1 Like
#9

Ohh… you can stop contributions?! That might cause your cash value to erode away as they cannibalize it to pay for the cost of insurance (and their fees). I’d still run the numbers. And if you need life insurance (because others depend on your income to survive) make sure to get term life insurance in place before you cancel. :slight_smile:

#10

@Jeremy, this account is solely an investment account. I don’t have life insurance with this company. They just happened to be an insurance company that offers investment accounts. So the money is being invested into Segregated Funds where they let you choose the percentage of guaranteed money. So if you choose 100% guarantee then you get your money even if the market is down.