Should I keep my life insurance policy or take the cash value?

I have a $1,000,000 face value flexible premium adjustable life insurance policy that I received when I left my job. I do not need the coverage for my retirement or family. The annual premium is now $25,600 per year and the policy pays 3% interest. Monthly, this is about $570, but the insurance and admin cost is $1,700. The cash surrender value is $213,000 (net of a surrender charge of about $10,000). If I pay no further premiums (I have not paid any in the last 3 years) the policy will be worthless in April 2024. I am 80 years old and expect to live at least 5 more years. Should I keep the policy or take the cash value and invest it in a balanced portfolio?

Asset Allocation, Life Insurance
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August 2016

A few things you want want to consider that will help you find the right Life Insurance Decisions for you. Sounds like for your question here, that the goal is to not just let this policy lapse, wasting the cash value, and getting no benefit out if the policy does lapse, if you live longer than expected.

1) Look at reducing the Face Value (Death Benefit on this policy). This will lower the insurance cost, and will help extend the coverage out further. You generally can drop the face amount a certain percentage each calendar year.

2) If you are able to get new insurance, you may want to consider looking into a 1035 exchange to a policy that has living benefits to help coverage for things like Terminal Illnesses or Long Term Care. You could get a new policy with a much smaller death benefit (to lower the cost) and hopefully earn a bit more interest from a newer policy.

3) Consider what you would be doing with the cash value if you pulled it out (and if taxes would be due). If you are just pulling it out, and then investing it in to some account, you also need to consider things like probate etc, if you aren't expected to spend most of all of the account when you are alive.


Hopefully this helps just a bit. There a wide variety of options depending your specific goals and needs.


By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

August 2016
August 2016
August 2016
August 2016