For Mark Roberts’ Use: The life insurance industry has been around since the days of ancient Rome, helping to protect the dependent families of workers from worst-case scenarios. But a lot has changed in society since then, particularly over the last 100 years. Today’s life insurance policies are changing quickly with the times, just as your family dynamics and needs change over the years. If you haven’t updated your life insurance plan in the past few years, you might find that your policy no longer suits you.
For example, you might find that you need a significantly larger death benefit than is provided by your current policy. Or, you might need certain features which are not available from your current life insurance provider. As your family structure changes, your life insurance policy should also change.
Once every two to three years, you should conduct a new needs analysis with your life insurance specialist. This analysis helps you to understand your life insurance needs, as well as your financial capabilities. After your needs analysis and a discussion with your life insurance broker, you might realize that your old policy just isn’t cutting it.
What can you do? Are you stuck with your existing life insurance policy? No, not at all! In most cases you can actually cash out your current policy, and upgrade to one that better fits you and your family. But you must operate this exchange carefully, so that you don’t trigger certain problems with your income taxes.
One solution is to conduct a 1035 exchange, which allows you to switch an old insurance policy for a new one, without owing taxes on the accumulated funds in the old policy. However, the rules governing 1035 exchanges are complex, and you may incur surrender charges from your old policy or contract. In addition, you may be subject to new sales and surrender charges for the new policy or contract.
Don’t attempt to conduct a 1035 exchange without help. It’s a complicated maneuver that requires the oversight of an experienced professional. Even so, it’s important to make sure your life insurance adequately protects your family, so don’t neglect to get started with that needs analysis right away. Then let the professionals take care of the rest.