Life insurance policies (other than term policies) often include early surrender charges, which can reduce the amount of cash value available toward the new policy. The new policy will likely have its own new surrender charge schedule, which may extend beyond that of the original policy.
You may pay higher premiums if, for example, your health has declined since the purchase of the current policy.
The new policy typically will have a new contestability period 2-year period from the issuance of the new policy during which the insurance company could challenge a death claim based upon a misstatement on the application.
There may be unfavorable tax consequences caused by surrendering an existing policy, such as a potential tax on outstanding policy loans.
You should exchange your life insurance policy only when you determine, after knowing all of the facts that the exchange is better for you and not just better for the person who is trying to sell the policy to you.
Both variable life insurance and variable universal life insurance are securities. Those who offer these products must follow SEC, FINRA, and state securities regulations, in addition to state insurance law. This means that a broker must tell you the important facts about the pros and cons of the exchange. Your broker or insurance agent should recommend such an exchange only if it is in your best interest and only after evaluating your personal and financial situation and needs, tolerance for risk, and the financial ability to pay for the proposed insurance policy.
Your broker or insurance agent may recommend that you use insurance policy values, such as loans or withdrawals, to pay premiums for a new life insurance policy. This activity is generally called "financing" premiums. It may not be appropriate for you. For example, withdrawals from existing policies may be subject to federal income tax and may reduce the death benefit. Borrowing money from an existing policy will almost certainly reduce the death benefit. Withdrawals or loans may make it more difficult to keep the original policy in force without additional out-of-pocket premium payments. If you can't keep the original policy in force, you will lose the insurance protection and the loans themselves may give rise to tax consequences. Remember for a transaction to qualify as a 1035 exchange, the old policy must actually be exchanged for the new policy. Many states and brokerage firms require forms to reflect customer acknowledgement of a replacement transaction. These forms typically are signed by the insurance policy owner and the broker or agent. These forms may provide a comparison of the features and costs of an existing policy to a proposed policy, and point out what you need to focus on when considering an exchange. Some brokerage firms may provide brochures or educational material designed to outline the possible advantages and disadvantages of the transaction. You should review these forms and materials closely.
Regardless of anything you should ask the person recommending that you exchange or replace your existing policy to provide you with illustrations for your existing policy and the new policy. Make sure to ask the following: What is the total cost to me of the exchange? Which new features are being offered? Why do I need them? Are they worth the cost? Can the existing policy be modified or supplemented to provide some or all of these same features?
LIFE INSURANCE LITIGATION O F F I C E o f L A N C E W A L L A C H www.lifeinsurancelitigation.net | 516-938-5007 LIFE INSURANCE LITIGATION O F F I C E o f L A N C E W A L L A C H www.lifeinsurancelitigation.net | 516-938-5007
National Office Direct: 516-938-5007 Email: lawallach@aol.com
ReplyDeleteLife insurance policies (other than term policies) often include early surrender charges, which can reduce the amount of cash value available toward the new policy. The new policy will likely have
its own new surrender charge schedule, which may extend beyond that of the original policy.
You may pay higher premiums if, for example, your health has declined since the purchase of the current policy.
The new policy typically will have a new contestability period 2-year period from the issuance of the new policy during which the insurance company could challenge a death claim based upon a
misstatement on the application.
There may be unfavorable tax consequences caused by surrendering an existing policy, such as a potential tax on outstanding policy loans.
You should exchange your life insurance policy only when you determine, after knowing all of the facts that the exchange is better for you and not just better for the person who is trying to sell the
policy to you.
Both variable life insurance and variable universal life insurance are securities. Those who offer these products must follow SEC, FINRA, and state securities regulations, in addition to state
insurance law. This means that a broker must tell you the important facts about the pros and cons of the exchange. Your broker or insurance agent should recommend such an exchange only if it
is in your best interest and only after evaluating your personal and financial situation and needs, tolerance for risk, and the financial ability to pay for the proposed insurance policy.
Your broker or insurance agent may recommend that you use insurance policy values, such as loans or withdrawals, to pay premiums for a new life insurance policy. This activity is generally called
"financing" premiums. It may not be appropriate for you. For example, withdrawals from existing policies may be subject to federal income tax and may reduce the death benefit. Borrowing money
from an existing policy will almost certainly reduce the death benefit. Withdrawals or loans may make it more difficult to keep the original policy in force without additional out-of-pocket premium
payments. If you can't keep the original policy in force, you will lose the insurance protection and the loans themselves may give rise to tax consequences. Remember for a transaction to qualify as
a 1035 exchange, the old policy must actually be exchanged for the new policy. Many states and brokerage firms require forms to reflect customer acknowledgement of a replacement transaction.
These forms typically are signed by the insurance policy owner and the broker or agent. These forms may provide a comparison of the features and costs of an existing policy to a proposed
policy, and point out what you need to focus on when considering an exchange. Some brokerage firms may provide brochures or educational material designed to outline the possible advantages
and disadvantages of the transaction. You should review these forms and materials closely.
Regardless of anything you should ask the person recommending that you exchange or replace your existing policy to provide you with illustrations for your existing policy and the new policy. Make sure
to ask the following: What is the total cost to me of the exchange? Which new features are being offered? Why do I need them? Are they worth the cost? Can the existing policy be modified or supplemented to
provide some or all of these same features?
LIFE INSURANCE LITIGATION
O F F I C E o f L A N C E W A L L A C H
www.lifeinsurancelitigation.net | 516-938-5007
LIFE
INSURANCE
LITIGATION
O F F I C E o f L A N C E W A L L
A C H
www.lifeinsurancelitigation.net |
516-938-5007
National Office
Direct: 516-938-5007
Email: lawallach@aol.com