Over the last couple of years I have received a number of phone calls from people who bought life insurance policies anywhere from 10 to 30 years ago. In many cases the person who sold them those policies is either retired or passed on. These usually end up being assigned to an advisor you don’t know or worse yet, orphaned with no one to service it. What to do with these old life insurance policies?..
One of the reasons for this is the huge consolidation that has taken place in our industry. For example, Manulife Financial has taken over more than 20 insurance companies since 1970 including North American Life, Maritime Life, Excelsior Life, Commercial Union, Confederation Life, Royal & Sun Alliance Life and Aetna Life.
- Another reason is the average age of advisors is growing ever older, and it is getting more difficult for new people to enter the business.
- I get asked questions like, “Is this policy worth keeping?” “If I cancel it does it have any cash value?” “Is there something else that may be more relevant to my needs now?” “This term policy is now on its third renewal and the premiums are too expensive, what other option do I have?” “Is this policy still in force?” “Will its cash value pay the premiums now?” Etc. Etc.
- For example, a couple called me looking for a new advisor, as they had two policies that were on their second renewal, but the person who sold the policies to them had retired. We went over their current situation, and one of the outcomes was that I was able to give them substantially more coverage for the same amount as they were now paying.
- Many old whole life permanent plans out there may only be for $10,000 but may have $30,000 or more of cash value inside the policy, which can be borrowed against or the policy cashed in if no longer needed. Borrowing against the cash value means paying interest until the loan is repaid. Surrendering the policy for its cash value will have some tax consequence on any gain inside the policy.
- Some older policies may have enough cash value and annual dividend growth to carry themselves, so check to see if this may be an option to save you money.
- Many term plans offer the option to convert part or all of the coverage to a permanent plan without further medical underwriting. Plus if the original plan had a preferred health style rating with lower premiums, this may carry over to the new permanent plan.
- You may find that replacing that old term policy with a new term plan may be much cheaper. If you have a term plan that has had at least one renewal, you might be surprised at how affordable insurance has become, especially term coverage. Mortality risk is lower because we are living longer, people are allowing their old policies to lapse because of increasing premium costs, or the coverage ceases because policy holders hit age 75 or 80.
One note of caution though; don’t cancel any existing policies until you have been approved for the new policy. So dust off those old policies and call a licensed life insurance agent. You might be able to stop making payments and allow the cash value to carry the policy. You may be able to replace it with something cheaper and more suitable to your current needs. Or you may find that you no longer require the coverage, and another type of coverage such as Critical Illness or Long Term Care coverage might be more suitable.