Many boomers bought larger life insurance policies when younger and now in our 50’s and 60’s have to look again at the situation and find that we don’t need the coverage and/or the premium could be better used for other things.
Often we bought permanent life insurance with cash value thinking that it was a good way to build assets and keep the insurance in case we still needed it in our older years. To wait to purchase life insurance until the older years carries the risk of uninsurability, and the high cost of coverage due to the older age. So now we are older and don’t feel that this policy serves a need, or is not performing well due to recent economic conditions.
So what to do with this old policy?
The choices are simple, but deciding is complicated. If the total amount of coverage is no longer needed, there are a few reasonable choices:
Surrender the policy for the cash value. This was the original game plan: Build cash value and if the policy is not needed, which was an unknown back then, surrender it or take tax free loans as income. So is this the best choice? Doing so will eliminate the premium payment and get the cash value. But the death benefit is also eliminated and there might be a taxable consequence if the cash value is greater than the sum of the premiums paid.
Exchange the policy for a paid up policy of lesser amount. This is attractive because it eliminates the premium, no tax consequences and provides for the tax free death benefit to a chosen beneficiary which could be a Child, Grandchild or charity. If it is a charity that is chosen, you can also gift it to them and potentially receive a tax deduction(see your tax advisor).
Sell the policy on the secondary Life Settlement market. While most of the life settlement companies are looking for larger policies and very advanced age, it can often provide more cash than the surrender value. Many corporate and trust owned policies find this an attractive alternative. Tax consequences will apply.
If you need the current policy, but it is not performing well and your company projections show that it will lapse sooner than you will and if you are in good health, you have a couple of options Adjust the current premium/death benefits to assure the policy outlasts you or you might find that you can exchange the policy for more insurance, keeping the premium comparable to the current level, with living benefits as well. The types of these policies that should be reviewed are the variable life policy from any issuer, and the traditional universal life (UL) polices that are 5 plus years old or older. Traditional UL policies issued in the 1980’s and 1990’s are especially vulnerable to underperformance problems and should be reviewed.
We have a fee based service that provides a company evaluation, performance analysis and market comparison.