My Parents Have a Whole Life Policy: What Should I Do?

September 7, 2023

How do you evaluate whether or not to keep a whole life policy, one that you may have held for decades? Does it always make sense to get rid of it or are there other factors to consider? For more information, check out our free resources.


“My elderly parents have a small whole life policy they’ve held for 35 years. How can I help them evaluate whether it makes sense for them to maintain the policy, cash it out, or do something else?”

Yeah, this is a really difficult question because insurance products are not all the same; they’re not all created equal. Even insurance policies put in force today are not the same as those put in force 30 years ago. Unfortunately, we won’t be able to directly answer your question in terms of what specific action to take, but we can provide some guidance on the analysis you need to go through. There are pros and cons to consider because there’s a good chance that if your parents have been paying into this whole life policy for 30 years, it might be “paid up,” meaning no additional premiums are required. It might be self-sustaining, and they could simply stop putting money into it. The cash value within the policy may be enough to cover the death benefit for the remainder of their lives, essentially making it a self-funded, paid-for life insurance policy.

The other alternative is to consider surrendering the policy. To evaluate your options, you’ll need to perform a cost-benefit analysis, weighing the pros and cons of keeping the policy. Unfortunately, to make an informed decision, you may need to contact the insurance company to inquire about the available options. Sometimes, you have to ask questions like, “If I stop paying premiums today, will the cash value be sufficient to provide a paid-up policy that covers me for the rest of my life?”

You’ll need to gather information on the annual costs and premiums associated with the policy, as well as the surrender cash value if you decide to cash it out. Additionally, it’s essential to know the policy’s basis, which refers to how much you paid in premiums. Any amount above this basis might be potentially taxable if the policy’s value exceeds what you’ve paid in premiums.

In this process, understanding the “why” is crucial. What is the purpose of the policy, and do your parents still need it? Without a clear understanding of the purpose, you might be vulnerable to sales pitches or other influences. Remember that life insurance policies often have front-loaded fees, so determining the “why” is essential before taking any action. Furthermore, consider the age of the policy, as older policies may have unique features or advantages. Knowing the annual costs and the potential paid-up coverage is essential to making an informed decision.

I recently encountered a similar situation for a client, and I provided them with a list of variables I needed to gather. However, when they called the insurance company, the company suggested rolling the cash value into a brand-new policy with different terms and features. This is an example of why you should know your “why” before contacting the insurance company because they may have incentives to retain your money and offer alternative solutions.

Before making a decision, you should do your homework to understand the “why” behind the policy and gather the necessary information about costs, premiums, cash values, and surrender options. Insurance policies, especially whole life policies, can have multiple facets, and there is no one-size-fits-all answer. Ultimately, your decision should be based on what is most advantageous for your parents’ specific circumstances. Keep in mind that term life insurance is often preferred for most people, but there may be unique situations where a whole life policy still makes sense. Our job as financial planners is to help you navigate these complexities and make sound financial decisions tailored to your specific needs.



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