The insurance has become too expensive. For example, with a universal life policy, the premiums can rise substantially if the policy s cash surrender value doesn t grow as fast as expected because of low interest rates, says Gallo. Clients may make the decision they don t want to pay the premiums anymore, because they re paying them longer than they anticipated, it s more costly than they thought, and they are frustrated, says Greenberg. The client wants a different type of policy. Currently, this is probably the most common reason a life insurance policy is not needed anymore, he says.
Cash is needed to pay for medical expenses or long-term care.
N.J. However, clients should also consider just borrowing the policy s cash value, says MacNab. And they should see if they qualify for an accelerated death benefit, which many policies provide where the insured person has a life expectancy of less than 12 or 24 months, she says. The cash can be used to fund discounted transfers to heirs. For instance, if the policy is in an irrevocable trust, of which the client s children are the beneficiaries, the trustee might sell the policy and use the sale proceeds to purchase a discounted interest in the client s closely-held business, says Mayer. Alternatively, if the policy is not in a trust but owned by the client, the sale proceeds could be used to pay the gift tax on a gift the client makes to his children of an interest in his closely held business, says Adams.