29 Feb Should mom cancel whole life policy?

Q. My 70-year-old mother has been paying about $3,500 a year for a whole life policy. Her husband is dead and her kids don’t need the money when she dies. I’d rather see her use the premiums when she’s alive. How can I get her to cancel the policy?
— Trying to help

A. It’s easy to cancel an insurance policy. The harder question is whether you should.

All you have to do to cancel is notify the insurance company, complete the proper paperwork to “surrender” the policy for cash and get the paperwork to the company, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

The question is whether that’s wise.

To decide, you need to look at your mom’s current health and whether there would be a “gain” on the surrender because the surrender value less how much she put in would be taxable income, Gaelick said.

You should also look at other options for her to stop paying the premium, such as using dividends to offset premiums, surrendering any “paid up additions” to pay premiums, letting the policy borrow from itself under an “APL” or Automatic Premium Loan provision, and looking at a secondary market to sell the policy.

“One other consideration is whether your mom has a desire to keep the policy,” Gaelick said. “While you and your siblings may not need the proceeds, it may make mom feel good to know she’s leaving something to her children.”

So you need to have a conversation with your mom.

“Every situation is different and it may make more sense to keep the policy,” he said, recommending you consult with an advisor knowledgeable in life insurance to guide your decision.

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This story was first posted in February 2016.