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Looking at all the options


The challenge

A client purchased a universal whole life insurance policy almost 20 years ago from another advisor. The policy paid a large commission and had a 19 year surrender charge if the policy was cancelled. To make matters worse, the policy performed poorly and the client was concerned about losing the cash value in the policy because he didn’t want to continue to pay premiums and because fees and mortality costs were so high his cash value was not making enough to cover the premium. In essence, his policy was eating itself and he would have no cash value or policy within a few short years.

How can you extract yourself from a badly performing life insurance policy and salvage your investment?

What we did

Because of the surrender charge, it didn’t make sense to cancel the policy early. The client would be hit with a large penalty. But, rather than sit idly by, we made the policy cheaper by removing riders and re-allocating the underlying investments. Additionally, because our client was retiring in eight years, we analyzed his options: continue to pay the premiums into the existing policy, take the cash value and invest it, or buy a new life insurance policy or annuity. The analysis was clear – the two best options were to take the cash value and invest it or purchase an annuity. Because the client was concerned about retirement cash flow, we researched the best deferred annuity he could do a 1035 exchange into when the surrender charge expired. The annuity paid an up-front bonus and a healthy guaranteed growth rate in addition to a nice guaranteed payout once our client started withdrawing money from the annuity.


The outcome

  • We were able to reduce the cost of the policy and create a better allocation until the surrender charge expired.
  • We salvaged his cash value and got him out of a badly performing life insurance policy.
  • We helped him create a guaranteed rate of return and monthly income in retirement.


These examples are for illustrative purposes only. Any strategies referenced herein do not take into account the investment objectives, financial situation, or particular needs of any individual. They should not be considered individual advice, suitability must be independently determined. Individual results will vary and may be more or less favorable than in the examples shown.

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