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Do not cancel any life insurance without first determining the annual net cost, i.e., the annual premium less the annual buildup in cash value plus any annual dividends. Reason: You may find that the policy does not cost as much as you think. To determine the net cost, request what is called an "in-force illustration" from your agent.
Do not risk having your life insurance unintentionally lapse for nonpayment. Notify the insurers on all policies that the cash value of the policies (or any earned dividends) is to be automatically used to pay for any missed premiums.
Do not arbitrarily cancel or cash in an annuity or life insurance policy; the move can result in substantial taxable income and, possibly, tax penalties. Get a letter from your agent and insurance company on the tax consequences before taking such an action.
Do not arbitrarily designate irrevocable beneficiaries or co-owners. If you do, you will need their approval to borrow from the policy, apply dividends to premium payments, change ownership, or effect other important policy amendments.
Do not buy insurance or annuities from questionable insurance companies. Check out their rating, investment performance and financial health before doing business with them.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2010.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
D.L. Perkins, LLC is solely responsible for this content.
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