Many people receive the advice to cancel their universal life insurance and they’re not so sure if it’s the right move. When I say “universal life insurance”, I’m really referring to any type of permanent or cash-value life insurance. This article will address the reasons why you should cancel your cash-value policy and why you should NOT cancel it.
Advice from a Talk Show Host
One of the main reasons why people consider the idea of cancelling their cash value policy is advice they receive. Unfortunately, this advice is usually general, non-personalized advice.
As an example, Dave Ramsey, Suze Orman, Clark Howard and many radio show hosts will give the general advice to avoid permanent, cash-value life insurance at all costs. Whether or not this advice is right for everyone is a topic for another day.
I’ve heard Dave Ramsey (and his guest hosts) tell callers to cancel their permanent policy and replace it with term. This advice can make sense in some situations as I will outline below. However, it bothers me that this advice is often given without taking the time to fully understand the caller’s situation and learning details concerning their life insurance policies.
Dave Ramsey usually gives very good advice regarding life insurance, however, I don’t agree with some of his advice (detailed specifically here in one of my most popular posts). In general, Dave wants to help people make smart financial decisions. Dropping a cash-value policy can be a very smart decision for many people.
Hearing some advice on the radio can cause you to reconsider your approach to life insurance. This is a GOOD thing. In fact, listening to Clark Howard talk about insurance in my early days as an agent had a profound influence on me. It caused me to question the training and guidance I received. That training invariably pushed people to buy more expensive (higher commission) products like traditional universal life insurance.
If you heard advice on the radio or online, consider doing more research. Talk to a financial advisor, but make sure the advisor has a reputation for giving objective advice and isn’t a product-pusher.
Advice from a Financial Advisor or Wealth Coach
An advisor that takes the time to understand your situation is much more likely to give you sound advice. Not all financial advisors or coaches are equipped to analyze life insurance policies. Find out their comfort level, experience, and expertise. Many advisors can evaluate your policies and give great advice. However, many more are experts at investing and finance, but lack the knowledge to advise you about specific life insurance policies.
A Wealth Coach from Minnesota
A couple of years ago, I received a call from a wealth coach who found me online. According to this wealth coach – Jeremy – he had done extensive research online in search for an independent life insurance agent who shared his values and outlook.
Jeremy is a very good wealth coach. I know this because I follow him on Facebook and see the success stories he shares. Jeremy refers his clients to me for specific advice regarding their life insurance policies. His advice to them is along these lines, “You should talk to Greg and have him evaluate your policies to see if you can save money or do better.” In many cases, his clients do not fully understand what policies they have and felt they were sold something that might not be in their best interest.
I receive referrals from many other financial coaches and planners. Usually, they are fee-only planners, but some of them just want an expert advising their clients. Sometimes, they just want a second opinion.
Reasons why cancelling your Cash Value policy makes good sense.
It can make sense to cancel your cash-value policy for the following reasons.
- You simply do not have a need for permanent life insurance and you are on-track with your retirement planning. In other words, if you replaced your permanent policy with a term policy, your loved ones would be fine at the end of the term period.
- You have a universal life policy you purchased when interests rates were high and it was sold to you with unrealistic expectations. You can easily qualify for a much more affordable term policy.
- You need much more life insurance, but you’re spending an inordinate amount on cash-value policy.
- You purchased your cash-value policy within the past 2 or 3 years and realize it was sold to you more as a wealth building tool. Your cash-value is low to zero and you feel term will be a better solution for your life insurance needs.
- You really don’t understand how your policy works and have very little cash-value.
Reasons why keeping your Cash Value policy is a good idea.
Whenever you consider surrendering your cash-value policy, it’s best to first request an “in-force illustration”. Also known as an in-force ledger, this will show you how your policy is projected to perform over the life of the policy. It will show you how the face amount and cash value is projected to change bases on current interest rates and guaranteed interest rates.
Unfortunately, life insurance illustrations can be complex and difficult to decipher. That’s why it’s a good idea to have an unbiased expert help you make sense of it.
The reasons to consider keeping your policy are as follows:
- Your health has worsened since you purchased your policy. You still need life insurance, but might not qualify for a decent term rate.
- Your policy is performing well and you simply need and/or want permanent life insurance protection.
- The surrender charges are very high and it doesn’t make financial sense to cancel the policy.
- You have a guaranteed universal life policy that isn’t designed to build cash-value. You still want to ensure your loved ones receive a substantial death benefit regardless of when you die.
- After a thorough analysis, you realize keeping the policy just makes the most financial sense.
Should I Cancel my Universal Life Insurance? Conclusion.
As you can see, there isn’t a simple answer to this question. Hopefully, the advice provided here will help you in determine the answer. It really makes sense to consider all your options and seek the advice of an objective professional who understands the complex policy designs of cash-value life insurance.
It’s not always either/or. Sometimes, you can keep your life insurance policy, but reduce the face amount. Again, receiving in-force illustrations showing different scenarios can help you see if this strategy makes sense.
Whatever you do, take your time to weigh your options carefully. Once you cancel a policy, it can be very difficult or impossible to reinstate it.
If you need advice, please feel free to give us a call.