What Do Financial Professionals Do With That Legacy Whole Life Policy They Own?

June 18, 2019

“What do I do with this whole life insurance policy I have?” I am constantly asked this question when I work with financial professionals (private equity professionals, investment bankers, and asset managers). Within this industry, a lot of professionals are sold this policy early in their career to protect a budding family and save money, at least that is how the sales pitch goes. But, does it make sense to keep it as you progress in your career and what are some options to make it more effective?

What is whole life insurance?

To step back, whole life insurance is a policy that offers you a death benefit throughout your whole life, very aptly named. During your lifetime, premium payments support both the death benefit and the accumulation of a cash savings balance. Many consider this cash value as a type of savings. With these two elements, the premium can end up getting quite high and a large check to pay annually.

Two questions to help determine the best course of action are:

  1. Will you need the death benefit upon your retirement?
  2. Do you intend to tap into the cash value of your policy to support your lifestyle?

Answers to both of those can help you determine which of the steps below could be your best option:

Keep the Policytaking no action is still taking an action. If you need the death benefit to support the goals for you and your family even after retirement it makes a lot of sense to keep. Many people need this for estate plan purposes, tax management, or ensuring your legacy. Maintaining a policy could be a great option.

Convert to a Term Insurance Policy – an appropriately elected 1035 exchange could allow you to convert your cash value into a term insurance policy with no tax impact. Term policies are generally cheaper as they offer the death benefit only for a certain amount of time and do not have cash value built up. This conversion could be used to get rid of or decrease your premiums paid while there is a need for a death benefit, usually while you are still working. This can end up supporting your goals and increasing your annual cash flow without a hefty check.

Convert to a Hybrid Policy with Long Term Care Benefits – recently, hybrid policies that offer long-term care benefits have been increasing in usage. These benefits offer not only the death benefit, but the death benefit amount can be tapped into during life in case of any long-term care needs that may arise. These are great options for those that have a risk or concern of this being a large expense in their future.

Determining the right course of action is individualized for each person and situation. Based on your overall plan and goals there are several courses of action that one could take. The process is one that evolves over time, but you should know there are many options for that policy that you probably forget about until you have to write a big check when it comes due!

Matt Kocanda is a Wealth Manager at BDF and a member of the Investment Committee. The investment committee develops BDF’s overall investment strategy. Matt focuses on advising Financial Service Professionals through their complex needs – including cash flow, tax, or estate planning. Matt received an undergraduate degree in Finance from Indiana University.