19 February 2014 0 Comments

Repair or Replace? That is the Question

shutterstock_49267327In my last entry I discussed some situations that might call for the replacement of a permanent life insurance policy.  Replacement of an existing life insurance policy might make sense, but might it instead be repaired?  There are some repairs to be considered before replacing.  Look at making the following policy changes to your current policy to be sure that your premium is being used to its full advantage:

Note:  Do not reduce the amount of any death benefit or make any changes to your current policy until you are certain you have qualified for the new policy being considered.

If your current policy is Whole Life obtain an in-force illustration with the following changes:

  • If you have elected to accumulate dividends at interest, change that option to “reduce premium” and used any current dividend accumulation to reduce any premium loan.
  • If you have been using dividends to purchase paid up additions and there is a current policy loan that you are unable to repay and the loan interest is a burden, surrender paid up additions to repay as much of the loan as possible.
  • Discontinue any additional term insurance rider since these riders tend to be expensive.
  • Discontinue future policy loans and pay interest on any remaining loan in cash.

If your current policy is Universal Life obtain an in-force illustration with the following changes:

  • If there is a policy loan for which the loan interest is 1% or more than the amount being credited to the borrowed funds, then repay the lion by making cash withdrawals.  This might take several transactions depending on the net amount of cash in the policy.
  • If the death benefit is “increasing” change it to “level” since the rising cost of insurance becomes very costly.

Once you have received approval for the new policy and you have obtained an in-force-illustration for current policies, you will be able to make an apples-to-apples comparison to determine which contract will best fulfill your future needs for insurance protection.  Be sure to pay attention to both the “current” assumptions and “guaranteed” benefits of both policies being considered.

Next, I’ll look at an often overlooked consideration when buying term insurance.

Leave a Reply