There are certain situations where permanent life insurance is the best choice. Among these are insurance for final expenses, coverage for older age applicants are no longer eligible for term insurance, and survivorship life insurance designed to pay potential estate tax. Young and middle aged applicants may want permanent coverage while they can qualify for better health ratings.
Whole life insurance policies used to be the only option for people who wanted permanent coverage. Whole life policies are designed to generate a "cash value" which helps to defray the higher costs for the insurance company as the insured gets older. In most cases the annual premium was designed to endow at age 100. This means having the cash value and death benefit identical at this age. Most owners do not realize that the vast majority of these policies only pay the death benefit, regardless of the amount of cash available in the policy at time of death.
Do you have one of these? If so, you may be able to either increase the face amount or decrease the premium payment of a new policy using a 1035 tax free exchange.
Most insurance companies send the owner of the whole life policy an annual statement. Your agent can review this information an assist you in determining whether or not a replacement of coverage makes sense.
Depending on how long the whole life policy has been in force, the surrender value and cash value may be different amounts. Older policies will have less surrender charges or none at all. Once you determine the amount of cash available, your agent will be able to provide illustrations that show if it makes sense to apply for a replacement of your current policy. (You would use a tax free 1035 exchange to transfer the cash value from your old policy to a new policy, a guaranteed premium universal life insurance policy).
For this transaction to make economic sense, you should be able to either lower your premium, increase the face amount of the policy, or both. This is accomplished by the cash transferred from whole life policies "paying down" the guaranteed level premiums that are available in many new universal life insurance contracts.
Remember that there are several concerns that must be addressed. The most important is the contestability feature of any new policy that would eliminate the death benefit for suicide or fraud in the first two years of a new policy. Also health categories may worsen with age which may make a new policy less attractive.
To see if this transaction may benefit you, consult an independent agent experienced in tax-free life insurance exchanges.