I have a friend who has a whole life policy. She wants to cancel the policy and buy term life. Are there tax implications for the cancellation?
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UPDATED: Aug 30, 2010
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Insurance Question from Blackhawk Village, IA
Asked on 08/30/2010
I have a friend who has a whole life policy. She wants to cancel the policy and buy term life. Are there tax implications for the cancellation? NULL
Answer given on August 31, 2010
You’ll want to talk to a life insurance agent with a Series 6 designation. They can talk to you about annuities, which may be something you would need to avoid a tax consequence, depending on how much value your whole life policy has, and how much you invest in term life.
I believe what you are wanting to do will most likely require a “1035 exchange”. If the whole life policy’s cash value is worth more than what you want to keep invested in term life, you’ll need to do something with the leftover cash value, or you will have a tax consequence.
That said, it’s uncommon to convert from whole life to term, but very common to convert from term to whole life ( with a qualifying term life policy, that is ). I would have to assume that the premiums have gotten to be too much to handle and you are looking for another option.
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