Life Insurance Benefits Optimization Opportunities

About Bill Broich


As we age, the need for a life insurance policy can change. Numerous opportunities may exist for you to make changes to your current life insurance policy to establish a different type of benefit. 

Exchange: Exchange your life insurance policy for an annuity to develop an income stream. The life insurance cash value will transfer to an annuity without any tax liability.  Use IRS code rule 1035 exchange.

Remix: Often, the available cash value in an old policy can be re-mixed to purchase a new life insurance contract with a higher death benefit.  The purpose would be to have a paid-up policy (no more premiums), remove any loans (forgiven), or to increase the death benefit paid to the beneficiary. This may significantly increase the amount a beneficiary might receive.

Policy loans.  If you have a loan on an existing policy, there is a reasonable chance the insurance company may forgive the loan.  Here is how that works: ask the insurance company if they will forgive the loan. Typically, if the amount of the loan is less than the basis in the policy (total of all premiums paid), they will comply.  This would be a nontaxable event for the policy owner.  However, it is always prudent to ask your tax preparer in advance of taking action. Most life policies are in force for a long-gone reason, and the need for life insurance at this stage may be less.  If possible, ask the insurance company to recalculate the cost basis and forgive the loan.  This could change the amount of non-taxable dollars, but if it is paid out as a death claim, it can become tax-free.  If the need for life insurance no longer exists, ask the life insurance company to forgive the loan and use the 1035 tax-free exchange transfer to an annuity company. (see above) Two things are accomplished: loans go away, and you access the exclusion ratio for their illustrated payout when the need arises for income.  

Annuity Change:  If you have an annuity whose current purpose is to transfer the proceeds to a beneficiary, consider this.  The tax-deferred portion of an annuity is taxable as ordinary income to the beneficiary. Determine the taxable portion of the annuity, cash it in (withhold the tax liability) apply for a life insurance policy using a single premium deposit. The life insurance policy could then be guaranteed paid up, and the proceeds, when paid to a beneficiary, would be higher than the annuity benefit, and the funds would be tax-free. If the cash value in the new life policy were needed by the policy owner, merely cash in the policy and receive a refund of the deposit.  Different policies may have different rules; ask before action.  To know if this makes financial sense, compare the future value of the life insurance with the after-tax benefit of the annuity.

Many people have learned about the power of using the Safe Money approach to reduce volatility. Our Safe Money Guide is in its 20th edition and is available for free.  

It is an Instant Download.  Here is a link to download our guide: 

Safe Money Guide –

About Bill Broich


View The Best Annuity Rates Available Now

Annuities are a safe and reliable investment. They can transform your savings into a more predictable income. Speak with one of our qualified financial professionals today to find out how an annuity can offer you guaranteed monthly income for life.

Our unique system of “Pooled and Shared” articles by our authors, our outside contributors, and writing assistants provides efficiency, enhanced collaboration, and greater topic accessibility. This allows for a better utilization of content and productivity while delivering meaningful content to our readers.

Content in our posted articles is deemed to be accurate but topics, facts and laws can change. It is always a good idea to verify facts before making decisions. Always seek authorized and professional advice regarding financial decisions which includes investing, annuity purchases, tax planning, changes in a financial portfolio and retirement planning.

Share This Entry:

In This Article

Protect Your Retirement

Our 20th edition of The Safe Money Guide, the standard of the industry.

Recent Posts