Is Your Cash Value Life Insurance Policy Still a Good Fit for You?
Over the years, you could have grown out of it. Or maybe your life insurance policy’s performance didn’t live up to your expectations. In any case, you have options, so here’s how to make the most of this valuable asset.

When most people buy a life insurance policy, they file it away hoping to never need it. But, if you have cash value life insurance policy, such as whole life, universal life or variable universal life, you purchased more than just insurance coverage. Your policy is also an investment, and some of your premiums over the years went to building cash value.
Like other assets in your portfolio, it’s important to review your policy regularly to make sure it still fits your goals and is performing as expected.
Ask yourself: Have my goals changed?
You likely purchased your policy with certain goals in mind, like saving for retirement or funding an inheritance for your children. But if you purchased your policy several years — or even decades — ago, your goals may be different today than when you paid your first premium. The first step in your review should be to revisit why you purchased the policy in the first place and consider if anything has changed. Maybe your financial or family situation is different than what you expected several years ago. Or perhaps your retirement goals have evolved over the years.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For example, we worked with one client who purchased a whole life policy in his 40s, but now at age 63 no longer felt he could comfortably pay the ongoing monthly premium that the policy demanded.
Did your policy do as well as was expected?
Another important thing to review is how your policy has performed. When you purchased the policy, you were shown an illustration of how the cash value and death benefit were expected to grow over time as investment performance and/or insurer dividends were earned. Take stock of what your cash value balance and death benefit are today versus what was projected.
If your policy balances are materially lower than what was projected, that could be an indication that your insurer has lowered dividends or raised fees materially. For variable universal life policies, lower balances could also mean that the funds you’re invested in have done poorly. Poor performance doesn’t just mean a lower cash value today, it could mean trouble down the road. If you were planning to use your policy for retirement income, poor performance could mean your future income will be lower than hoped. In some extreme cases, poor performance could also lead to additional premiums in the future.
If it’s time to make a change, consider a 1035 transfer
In general, permanent life policies are meant to be long-term holdings and should not be replaced or terminated frequently, if at all. If it’s performing well and still fits your goals, you’ll likely do best by keeping your policy. However, if your policy has under-performed or just isn’t a fit for you anymore, making changes to it or replacing it with something else could be the best option, particularly if you’ve built up substantial cash values. For example, you could consider a 1035 exchange into an income annuity or long-term care insurance policy that may better meet your retirement needs going forward.
A 1035 transfer, if executed properly, is tax-free upfront and allows you to continue deferring taxes on any un-taxed gains you currently have in your cash value policy.
One client’s story shows the possibilities
In a recent case, we worked with a 60-year-old client who had three whole life insurance policies he purchased over the years. The policies had not performed well, and results were not expected to improve going forward. In addition, the policies required tens of thousands of dollars of additional premium during his retirement years.
While he could easily have afforded the additional premiums, it was not the best use of his retirement income, so we consolidated his policies into a single hybrid long-term care policy that did not require any future premiums. The policy provided him with a substantial amount of long-term care coverage if he needed it and a return of his premium to his family if he passed away without needing care. With this transaction, our client was able to get an insurance policy that was a better fit for his needs going forward and simplify his financial life.
The next step for you
If you decide to go the 1035 route, make sure to consult with your insurance and tax advisers first, as an improperly executed transaction could invalidate some of the transaction’s important tax benefits. Also, if you decide to replace your current policy with a new one, make sure your new coverage is in place before canceling the old one. The last thing you want is to be stuck with no coverage if your new insurer does not approve your application.
For more information or to get help reviewing your current policies, you can visit www.saturdayinsurance.com/life-insurance.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Dennis Ho is co-founder and chief executive of Saturday Insurance, an online independent insurance agency. With over 20 years of industry experience, Dennis has a passion for insurance and the role that it can play in building financial security. Dennis is a Fellow of the Society of Actuaries and a CFA Charterholder. Originally from Winnipeg, Canada, Dennis now resides in New Jersey with his wife and three young children.
-
September Fed Meeting: Live Updates and Commentary
The September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
Ask the Editor: Questions on 529 Plan Rollovers to a Roth IRA
Ask the Editor In this week's Ask the Editor Q&A, we answer four questions from readers on transferring 529 plan money to a Roth IRA.
-
I'm an Investment Strategist: This Is How the Fed's Next Rate Move Could Impact Your Wallet
Interest rate cuts might be coming, which could affect everything from your credit card debt to your mortgage. It's smart to prepare now — here's how.
-
I'm a Retirement Planner: These Are Three Common Tax Mistakes You Could Be Making With Your Investments
Don't pay more tax on your investments than you need to. You can keep more money in your pocket (or for retirement) by avoiding these three common mistakes.
-
Want to Shave 10 Hours Off Your Workweek? A Startup Expert Shows How AI Can Help
Artificial intelligence is overhauling how companies operate, freeing up entrepreneurs and their workers to skip the menial stuff and get down to business.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial Planner
Holding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their Communities
Credit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth Adviser
From how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate Expert
Some new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps It
The Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.