Many, if not most of us, have purchased some form of life insurance during our lives, or have owned it as a benefit from an employer. As time goes on, our insurance needs change and it can be an expensive mistake to not periodically review our insurance coverages. Why do we buy life insurance?

  • Often when we are younger and have families, we need it to replace lost income or cover added expenses should one or both spouses die. Term insurance is usually the best product to address this need.
  • Some like the forced savings/investment and tax advantages of buying whole life insurance, which provides a guaranteed death benefit and builds cash value inside the policy, which may be used for various purposes down the road.
  • For business purposes, usually in closely held businesses with key employees/owners.
  • Some like the comfort of knowing they will surely leave something to their children or others.
  • High net worth families may buy permanent insurance to provide liquidity for their estate upon death and to provide cash to their heirs to offset estate taxes that may be owed.

These days we have countless types of whole life policies, including variable life and universal life, which provide greater flexibility, added risk and complexity and higher costs. We also have life insurance policies that can provide long term care benefits.

Our need for holding life insurance usually changes over time. In fact, most people at or near retirement may not have any continuing need at all. Your life insurance policies should be reviewed periodically to see that they are meeting your needs in the most cost-efficient manner, and for you to understand what options are available to you.

Options may include:

  • Terminating the policy and taking the cash value out. Note, there will likely be tax consequences when doing this.
  • Re-directing dividends and/or cash value to pay future premiums or buy additional insurance.
  • Borrowing from the cash value in your policy. Interest rates on borrowings can sometimes be quite attractive, other times be quite punitive.
  • Doing a tax-free exchange (a “1035 exchange”) into another life insurance policy that better meets your needs.
  • Doing a 1035 exchange into an annuity which can pay you income for life.
  •  Changing the investment approach inside your policy where applicable.

Terms and conditions of policies can vary significantly. A careful examination of the policy and possibly a discussion with the insurance company is often helpful.

If you have questions regarding your life insurance, please contact us. Rialto does not sell life insurance, however, can assist you in examining the need for and best use of your policy.