Use of Cash Value in Universal Life for New Policy

A Sr. Advisor recommended I transfer the cash value (ab. $13,000) in my universal life insurance policy(issued 1985) with face value of $50,000, to a new policy with another company for $100,000 death benefit. Says I could continue paying the $30 premium, and that and the transferred CV would give me dbl. coverage. However, at current rates, my existing policy would be paid up at about age 70, and still continue building CV and buy extra insurance as I get older. The new policy, at guraanteed cost and interest, would end in a short time, and at "existing costs and rate" would last until about age 78 - 80. I may have to pay an expensive premium at some point, because I came in being "rated" due to health issues, and my premium quoted without the CV transfer, is about $155/month for now w/o the transfer of CV from the old policy.
Called existing co., and found I could take out the "cost basis" of $8,500 w/o owing any taxes, and that would come off the face value, leaving $41,500 insurance, with no interest accrued, as this wouldn't be a loan. I thought maybe I should KEEP the $41,500 and take out only $60,000 with the new company, saving on the expensive new premium, plus my $30 would build CV on the original remaining insurance faster with the lower face amount.
Our children are grown, and my husband has an incurable cancer and has lots of insurance on HIS life, so my insurance would be for my children's benefit if I don't need the CV. Would you recommend I forget buying new insurance entirely and keep my existing policy, cash in my policy for the $13,000 and invest it, or transfer all or PART (cost basis) of the CV and have the 2 policies? This may be my last chance to buy insurance, because of my own health issues. Thanks! (Paramedic for new co. coming tomorrow, 8/26 and I'll need to make a decision soon.)

is it universal life or VARIABLE universal life?

i am not a big fan of someone your age (and health) looking at using anything with the word "variable" in it for life protection. this is doubly true since it sounds like you wouldnt be characterizing yourself as wealthy at your present stage in life.

it SOUNDS to me like you may have a better option with your existing policy, though i would get your "new" and perhaps your "old" company to explain how you could keep it and achieve what you want to achieve. if it can be done with the old policy, that would almost ALWAYS be the better choice. if what you want to be done cant be done with your old policy, then changing would sound prudent. good luck!

Have NO idea why you thought my feelings might be hurt, so I obviously don't have "thin skin." I ASKED for advice. It's not a "variable" product; it's "flexible premium adjustable life insurance." The cover reads: "Adjustable life insurance; Death benefit payable at death of insured before maturity date; Cash value payable on maturity; Adjustable death benefit(but requires "proof of insurace" to increase); Flexible premiums payable during lifetime until maturity date; participating" The sr. advisor told me the NEW company (Columbus) is usually the best deal, and he looked with several companies. Original company, Thrivent, likely more expensive, but I didn't contact the agent, not wanting pressure from him, too. Current policy allows for "partial withdrawl of CV," so my thinking was that I might want to put that CV, up to the cost basis, put to the use of buying more insurance rather than wasting it sitting with the company, or using it as a loan, which would keep accruing interest of 7.4%. If I do the partial withdrawl, there'd be no payback and no interest. The amount of the withdrawl WOULD come off the death benefit, but it would also go a long way toward buying more insurance with the new company. Had my paramedic exam and waiting to hear if there's a chance my medical rating can come up a little to improve the"Table D" quote I got after they got all my medical files from past years.
The sr. advisor originally suggested I move ALL the CV to a new $100,000 policy, but that didn't make sense to me with my "good health rating" on the old policy and not so good now. However, I told him yesterday I want to consider only $50,000 for the new policy, and will keep at least the $41,500 on my old, cheaper policy. My existing currently costs me only about$10 monthly for the $50,000 death benefit, and $1.50 "expense," the rest going toward the CV and earning current interest of 5.8%. Hope this gives enough info. now. Thanks for any advice! Does my thinking make any sense to you? You're right - - not wealthy, but ok on our retirement annuity, and home paid for.

Fire him.

First of all, you have a pre-1988 policy that allow you to overfund the policy tax-free without limits. In 1986, a law was passed (compliments of the IRS) that limited the amount of extra cash you could shoehorn into an insurance policy. Your policy a "pre-MEC", which is a unicorn in the financial world. Nowadays, if you surpass these IRS limits, your entire policy taxable the same as a deferred annuity.

The definition of Modified Endowment Contract (MEC) is:
Modified Endowment Contracts

In order to curb the use of life insurance as a tax-sheltered investment, particularly the use of single premium plans, Congress enacted Code §7702A as part of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA). Code §7702A created a new class of life insurance contracts known as "modified endowment contracts." A modified endowment contract is any contract entered into on or after June 21, 1988, that qualifies as life insurance under Code §7702 but fails to meet a so-called "seven-pay test". Prior to TAMRA, life policies were widely marketed as tax shelter vehicles in which substantial amounts of money could be invested, earn tax-deferred interest and afford tax-free withdrawal privileges by means of nontaxable policy loans. Code §7702A discourages the use of life insurance as a tax shelter by treating distributions from modified endowment contracts as income first, and then as recovered cost.

Modified Endowment Contracts Defined

A modified endowment contract is defined as any life insurance contract entered into on or after June 21, 1988, that meets the life insurance requirements of Code §7702, but which fails to meet a special seven-pay test or is received in exchange for a modified endowment contract [I.R.C. §7702A(a)].

Typically, using funds from an earlier policy with a better rating to fund a new policy with worse ratings (and older age) is a bad move. Ultimately, you are using your existing "good" policy to pay for new "worse" policy. When you take funds from your previous policy, it will absolutely effect the promises and guarantees that you signed up for in the first place. I've done a few 1035 exchanges (if your and premium funding plans in the past, but the only way they truly work is if there was a non-material change in pricing across the industry. For example, a few years ago, many companies went to a 120 year mortality table and there were bargains to be had.

In your case, it is probably a bad move and the rep who wrote the application was hoping for a better rating + new mortality tables...didn't happen though. Probably was a good attempt, but a failed in underwriting reality. His only hope is to justify why you should take the bad rating. It can work in many circumstances, but I doubt this is one of them.

I tried this in the past with my own clients, but if it didn't pan out I would recommend that that they keep things "as is" and get more aggressive with their investment portfolio to bolster the "invest the rest" side of the coin.

Oh BTW, those comments from 1MO are a universal disclaimer and not to be taken personally. It's at the bottom of every post.

WOW - - thanks for taking all that time! I'm appreciative of the valuable advice and impressed you took the time.

damn price! very nice catch on the 1985 date. i totally missed that.