For Mark Roberts’ Use: Consumer needs are always changing, and most industries know they have to change their products to keep up with demand. This is certainly true in the case of life insurance. If traditional life insurance products don’t appear to meet your needs, there may be other options that are better suited to you.
For example, universal life and variable universal life insurance policies have been developed to meet the changing needs of policy owners. These types of policies allow the owner to adjust premiums and death benefits as their financial situations change, or as their philosophy toward investing changes.
These new types of policy also allow for greater financial control. While traditional policies provide returns that are determined by the insurance company, these newer types of life insurance allow each policy owner to make choices to determine their own returns. Investors can allocate their premiums to a variety of sub-accounts, ranging from conservative low-risk options to more aggressive strategies with the potential for higher returns. Returns are then based upon the performance of these sub-accounts.
Some consumers decide, after investing in a more traditional type of life insurance policy, that they’d rather have more control over their money. The choices offered by a variable life insurance policy may become more attractive. In this case it is possible to exchange the old policy for a new one which better suits your needs.
Naturally, there are tax concerns when taking this route. To avoid paying taxes on the accumulated wealth in the old contract, the policy owner should consider utilizing a 1035 Exchange. The Internal Revenue Service (IRS) provides this method of exchanging an old life insurance policy for a new one, while deferring taxes on the accumulation in the old contract. Since a 1035 is a complicated maneuver and can involve surrender charges in some cases, it is best to consult a financial professional before attempting to make the switch.